Class Action Suit: Windfall or Just Wind?

Is using the tort system and class action lawsuits the best way to solve problems between business professionals? That and $54.37 can go toward the creation of a foundation to bring about meaningful organizational change.
Michael S. Victoroff, MD

Whoo-hoo! I received my Aetna class action payment! I am almost tempted to make that yokel mouth noise you hear in audiences bereft of intellect and manners, when applause would be called for.

The irony of being one of 700,000 lucky winners in Aetna’s settlement with physicians and medical societies does not dilute my jubilation. I have already cashed my ludicrous share of the proceeds, which amounted to $54.37. This was fully 10 times what I expected, raising my income from class action lotteries over the last 12 months to almost $60. I can’t wait for the Cigna payoff!

How are other physicians doing, in the class action sector of their portfolios? Myself, I’m apparently a player in at least four other multi-million-dollar courtroom raffles currently. I know I cleared $1.64 in some kind of telecom settlement a few months ago. It gives me a warm feeling to know that my role as a pawn in our legal system has made America a better place, and allowed numerous lawyers to send their children to private colleges.

Poker for lawyers

You know how this class action racket works, right? It’s poker for lawyers, what they call a pension lottery. Riding the leverage of a large plaintiff class, a legal cartel can extort an outrageous fee from its chosen target while disbursing only a microscopic amount to the ostensibly injured parties. In its extreme form (e.g., the tobacco profit-sharing arrangement), the plaintiffs can even force the defendants to take them into their business as silent partners. As John Gotti would have done.

Aetna and Cigna settled out of a larger suit, which also named Humana, United Healthcare, Health Net, Foundation Health Systems, PacifiCare, Prudential, and WellPoint. This arose from physician disgruntlement — in part, quite justified — over unfair business practices that crimped their incomes and made dealing with managed care organizations nightmarish.

Remarkably, the HMOs never brought suit against physicians for the reciprocal unfair business practices of providers that spawned the machinations of the HMOs. That would have been interesting. But, for reasons I’ve never fully appreciated, MCOs were shy about publicizing the widespread financial and clinical misconduct of practitioners and facilities that were the raison d’etre for managed care in the first place.

Notwithstanding this asymmetry of justice and logic, the upshot of the suit against Aetna was threefold. First, there was about $115 million in cash payments to physicians, whence came my own windfall. Second, Aetna was to invest $20 million in some kind of foundation whose focus will be racial and ethnic disparities, end-of-life care, childhood obesity, and the uninsured. These are all unobjectionable, politically correct issues. But I can’t imagine what progress a new organization will make on any of them that hasn’t been — or couldn’t be — accomplished by existing ones.

Finally, the settlement identifies more than 30 “business practice initiatives” that Aetna will undertake to improve the experience of its contracted providers. Most of them seem reasonable and valid, but not exciting. Their main theme is to preserve and defend the “pay-for-procedure” mode.

Settlement improves system

As you might gather from my last column, I’m not a big fan of “pay-for-CPT” piecework compensation as a dominant presence in U.S. medicine. I think it’s largely outlived its time, and I’d love to see more creative schemes, whose conflicts of interest work more in favor of patients. Nevertheless, the settlement will improve the system by clarifying policies and making them more transparent, cleaning up claims processing, making the appeals process more evidence-based, and so on.

The latter are the constructive effects of the HMO suit. It certainly isn’t the $115 million divided 700,000 ways. This is the joke common in most of these class torts: The plaintiffs’ “remedy” is a dismal insult, in monetary terms. Nor do I readily believe that $20 million tossed at a couple of social issues will be well spent by capitalizing a new organization. (In fact, this is suspicious enough to deserve further investigation.)

The bona fide purpose of suits such as this is to force tangible betterment of the defendant’s operations, for the benefit of mankind. According to my rudimentary understanding of how things work, process improvements begin at the defendants’ end from the moment the suit is threatened, and are only implemented because of the plaintiffs’ pressure. By this theory, lawsuits are the best way to force sluggish organizations to deliver meaningful change. So, providers, patients, and even Aetna employees should be grateful, not because of the token financial payoff, but because of the improvements the suit yielded in claims processing and provider relations.

This is how class action suits are supposed to produce social good, whether for the environment, product safety, ethics in business, or any other valid purpose. Our system of democratic capitalism provides for civil actions as a check on the behavior of powerful organizations that would normally not be expected to make public welfare their priority without some prompting. But, like any hugely profitable enterprise, it can be overdone.

For example, there is doubt about how well the tort liability system works for quality improvement. As a way of controlling medical malpractice, I would say professional medicine’s choice to outsource this function to our legal brethren was moderately effective. Perhaps, before the advent of managed care and the patient safety movements, it was the only solution in sight. But, as we all recognize, malpractice law is a coarse, insensitive, nonspecific and costly way to raise practice quality, imposing many negative side effects.

My greater question has to do with the costs of using the tort system for organizational management. In the Aetna case (separate from Cigna and the others), legal fees were capped at $50 million. This brings the tab for improving Aetna to at least $200 million, if you include internal costs. There must be some kind of efficiency factor one could calculate to measure the benefits gained against the pro-rated cost of legal work, at a scale of thousands of dollars per hour. Plus, think of the destruction of forests required. Is this really the most effective way to solve business problems between professionals (a rhetorical question)?

Is this kind of like vigilantism? Civic-minded private lawyers battling for social good because all official avenues are exhausted? Think of Kurosawa’s film, The Seven Samurai (retooled as The Magnificent Seven), in which the poor villagers hired mercenaries to defend them from the cruel bandits. Was there no way for the poor doctors to obtain relief from their troubles without contracting for $200 million in expenses — of which the bulk was figuratively poured on the ground? I guess this is how the system works, but I would rather have seen the $115 million go to a better use than sprinkling it over the countryside. Well, it wasn’t the doctors’ money — or was it? I remember the funniest comment I ever heard from a doctor, when I was negotiating fees as a managed care medical director. One of his reasons for wanting higher rates was because, “I can’t afford health insurance for my staff any more.”

Excuse me while I go spend my $54.37. I think I might use it to start a foundation to think about better ways to achieve organizational improvements.

Michael S. Victoroff, MD, is a family practitioner in Denver who has also been an HMO medical director.

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