A new segment of the health care industry has found itself in pain.

Managed care stocks -- long among the healthiest performers in the group -- took a pounding Tuesday over fears about a sweeping probe of the insurance industry announced last week by New York Attorney General Eliot Spitzer. News of a fresh subpoena fielded by

UnumProvident

(UNM) - Get Report

, the nation's largest provider of disability insurance, triggered an industrywide selloff.

Spitzer rattled the entire insurance sector on Thursday by suing

Marsh & McLennan

(MMC) - Get Report

-- the country's leading insurance broker -- for allegedly steering business to insurers that have rewarded the firm with lucrative "contingent commissions." UnumProvident previously disclosed that Spitzer's office has requested information about its own compensation agreements with insurance brokers. However, the company revealed on Tuesday that Spitzer is now seeking additional documentation from the company.

UnumProvident pledged to cooperate with the probe and, at the same time, examine its own business practices.

"We will further review our compensation policies and procedures to be sure that we appropriately compensate our brokers but do not create any actual or perceived conflict between the broker and the customer," UnumProvident CEO Thomas Watjen stated. "UnumProvident will not enter into any new compensation agreements until this review is completed."

The announcement bloodied the company's shares, leaving them down 12% to $11.92 -- a 52-week low -- halfway through Tuesday's session.

Spitzer himself has so far failed to identify specific targets in the health insurance sector. However, he has at least highlighted health care as an issue in his complaint against Marsh & McLennan. For example, he points to health care as one of four major business lines whose policy placement decisions have been overseen by the unit allegedly charged with brokering contingent commissions. Moreover, he says that the unit's managing director of health care in 2002 "provided nine of his colleagues with a list of the insurance companies that were paying Marsh pursuant to contingent commission agreements."

In addition, Spitzer claims that a senior vice president in the health care group recommended promoting a subordinate who increased Marsh's revenue by "moving a renewing client" to an insurance company with such an agreement. He singled out Marsh's arrangement with Neighborhood Health Partnership, a Florida-based health maintenance organization, as a specific example. He says the employee, now a vice president, scored credit for "the renewal of a large HMO in Miami" that he placed with a company paying contingent commissions that tripled Marsh's revenue on the account.

But Prudential health care analyst David Shove last week portrayed contingent commissions as unusual in the health care industry. He also took time to reiterate his favorable view of the sector, including two companies --

Aetna

(AET)

and

Cigna

(CI) - Get Report

-- that have been specifically questioned by Spitzer.

Shove doubts that any health insurance company in his coverage universe will wind up as a named defendant in the case. And he downplays any fines that might result.

"In other financial services, fines for 'steering' customers have generally been $50 million or less," he wrote on Thursday. So "we would take advantage of any weakness in share prices to build positions in the well-run companies in this strong industry group."

But investors saw otherwise on Tuesday. Aetna plummeted 12% to $85.80. And Cigna tumbled 9.9% to $59.98.

Another company, rated neutral by Shove, took a major hit as well.

Coventry

(CVH)

-- which is in the process of acquiring troubled

First Health

(FHCC)

-- spiraled 8.9% to $39.06. Shove has generally applauded the company's "brave decision" to become a national health insurance player while warning of integration risks. But Goldman Sachs analyst Matthew Borsch sees "exceptionally poor timing" in the merger and believes that both stocks are poised to underperform.

Throughout the sector, a number of stocks -- including

Anthem

(ATH) - Get Report

,

Pacificare

(PHS)

and

UnitedHealth

(UNH) - Get Report

-- weathered losses of more than 7% on Tuesday. The leading pharmacy benefit managers,

Medco

(MHS)

and

Caremark

(CMX)

, suffered big declines as well. Even outside the insurance sector, health care stocks were bleeding.

Rural hospital operator

Health Management Associates

(HMA)

tumbled 3.9% to $19.11.

Tenet

(THC) - Get Report

slid 2.5% to $10.04. And industry leader

HCA

(HCA) - Get Report

dropped 1.4% to $34.95 -- falling below the floor that was supposedly established by its Dutch auction stock buyback announced last week.