$3 Billion Wake-Up Call: How Litigation Is Holding Insurers Accountable

A landmark class action settlement reveals the common practices that inflate costs and burden doctors — and why litigation remains a powerful tool for reform.

I wrote a few weeks ago that a massive class action lawsuit, brought by doctors and other health care providers against the country’s Blue Cross and Blue Shield plans, will likely be settled in the coming months. If approved as expected by a federal judge in Alabama, the settlement, valued at more than $3 billion, will be the biggest in U.S. health care history. 

The settlement will compel the dozens of Blue Cross companies to pay $2.8 billion to resolve allegations that they collaborated to cheat physician groups, hospitals and other health care providers in a way that increased both the insurers’ profits and the overall cost of health care. It will also require the Blues to allocate an additional $500 million to change their business practices to be less burdensome to health care providers and their patients. 

I can’t stress enough how important lawsuits like this one are to forcing big insurers to pay doctors and other health care providers fairly, accurately and on time and to make them do what is in patients' best interests. While there are limits to how much an industry’s business practices can be changed through litigation, changes through public policy initiatives and “the market” are also always limited, unpredictable and slow. So don’t underestimate the role litigation can and often does play in reform. 

When I learned about the anticipated BCBS settlement, I remembered the role that I personally played in a similar class action against the nation’s biggest insurers, including my former employer, Cigna, in the late 1990s and early 2000s.

I’ll never forget the day The Wall Street Journal carried a front-page story under the headline, “Strategy Used Against Big Tobacco Is Readied for New Push vs. HMOs.” It was September 30, 1999, and I was at an offsite meeting with dozens of my Cigna colleagues. When the New York Stock Exchange opened at 9:30 that morning, we saw immediately how just the threat of class-action litigation ala Big Tobacco spooked shareholders. Investors wasted no time dumping their shares in all the big managed care companies. By the end of that day, nearly 14 million shares of Cigna’s stock had been traded, compared to fewer than 2 million the day before. The shares lost nearly 11% of their value that day and would not recover for months. 

When I joined Cigna in 1993, managed care was largely viewed positively. I was certainly a true believer. I had bought into the notion that insurance companies needed to play an active role in cracking down on what was perceived to be rampant waste, fraud and abuse among doctors and other health care providers. But it wouldn’t take long before patients and their doctors would begin rebelling against the restrictions big insurers began imposing on them to boost their bottom lines, such as refusing to pay for more than a one-day stay in the hospital following breast cancer surgery or after the birth of a baby. News stories abounded about “drive-through mastectomies” and “drive-through deliveries.” By the time the trial lawyers had given the Wall Street Journal reporters an exclusive about their plan of attack against the industry, a major managed-care backlash was well underway. It was not a good time to be head of corporate communications for a big insurer like Cigna.

The litigation that was the subject of that 1999 Journal story would take many twists and turns over the next five years. The lawsuits that were filed on behalf of patients were ultimately dismissed, but the class actions on behalf of doctors moved forward. The big insurers eventually realized that it would not be in their best interests to go to trial. So one by one they began to settle. Aetna was first, followed by Cigna. 

As The New York Times reported in February 2004, Judge Federico Moreno of the United States District Court in Miami approved a $140 million settlement between Cigna and 700,000 doctors who had claimed that they had been underpaid and faced delays in getting paid. In addition to the millions of dollars Cigna had to pay the doctors, the company also agreed to invest $400 million in improving its billing systems, which, as the Times noted, had the potential of saving doctors up to $300 million by reducing paperwork and speeding up claims processing. The company also agreed to donate $15 million to a foundation focused on “the improvement of public health.”

A Sneak Play That Didn’t Work

Two years earlier, Cigna had tried to avoid shelling out that kind of money by agreeing to settle a similar but smaller case in Illinois, but that attempt backfired. In December 2002, the New York Times published a story quoting lawyers accusing Cigna of corruption and collusion in pushing for the Illinois settlement. They argued that the company had used “underhanded maneuvers” to avoid being held accountable in Miami where Judge Moreno was overseeing numerous other lawsuits against health insurance companies. Judge Moreno agreed with the plaintiffs and stopped Cigna from taking any action on the Illinois settlement without his permission. Soon after that, the Illinois case was transferred to Miami. In all, 17 separate lawsuits by doctors against Cigna and other big health insurers would be consolidated and put under Judge Moreno’s supervision. 

In a February 25, 2003, story about the Cigna litigation, New York Times reporter Milt Freudenheim quoted me as saying, in typical corporate-speak, that we at Cigna “look forward to getting the settlement approval process back on track as soon as possible.”

I was a part of Cigna’s Legal and Public Affairs team and worked closely with our lawyers, both in-house and outside counsel, who were assigned to the case. I can assure you, this high-stakes litigation caused a lot of drama and angst inside Cigna’s Philadelphia headquarters, so much so that I had to fly down to Miami to be in the courtroom when Judge Moreno announced his decision. When he did, I had to rush to put out a statement and spin the decision in Cigna’s favor as much as possible; I knew investors and the company’s corporate customers would pay a lot of attention to the settlement. It was a high-profile, nerve-wracking experience, but I didn’t feel too put upon. After all, I was working out of a room at the Mandarin Oriental Hotel with a ridiculous view of Biscayne Bay. Insurance company executives travel extraordinarily well on your premiums.

As that case and others have made clear over the years, insurers routinely engage in unethical and unlawful practices to shortchange doctors and avoid paying for medically necessary care. They do that because of the unrelenting pressure from Wall Street for profitable growth, inadequate oversight by regulators at any level of government, and inattentiveness on the part of these massive middlemen’s big corporate and government customers. That’s why the Blue Cross and Blue Shield class action settlement – which will be far bigger than the one Cigna or any other big insurer has ever agreed to – is especially significant. 

We’ll continue to report on that litigation in the weeks ahead.