In April 2007, the Blue Cross and Blue Shield Association, along with a majority of its nationwide affiliated “Blues plans,” announced that a settlement had been reached with a class of approximately 900,000 physicians, to resolve a class action suit brought in the Southern District of Florida. The case, Love vs. Blue Cross Blue Shield Association et al., involved allegations that the defendants conspired to withhold payments rightfully owed to the plaintiff physicians while denying patients optimum care. The physicians claimed that, along with breaching their contracts with the plans, this conduct violated state prompt payment and consumer protection laws, as well as the Racketeer Influenced and Corrupt Organizations Act (“RICO”).1 The settlement involved a cash payment of over $128 million to class members. In addition, defendants agreed to implement “important business practice changes” to address the plaintiffs’ dissatisfaction with the plans’ managed care activities.

The groundwork for the Love case had been laid in a nearly identical class action case filed three years earlier, in the same court, against the nation’s major commercial health insurers, including Aetna, Anthem, CIGNA, Coventry, HealthNet, Humana, Pacificare, Prudential, UnitedHealth and Wellpoint. That case, In re Managed Care Litigation,2 resulted in similar settlements by insurers, involving multimillion dollar cash payments plus a commitment to significantly modify their physician payment practices.

These class action suits were a manifestation of longstanding physician frustration with the workings of managed care, particularly with respect to billing and claims processing. Given the level of antagonism that generated these lawsuits, it is ironic to recall that health insurance was originally created by hospitals and doctors. Prior to the establishment of health insurance, patients paid out of pocket for health care, on a fee for service basis. It was the difficulty in obtaining treatment (for patients) and payment (for health care providers) under these circumstances that led to the creation of Blue Cross plans by hospitals, and Blue Shield plans by physicians.3 Commercial insurance soon followed, and by the middle of the twentieth century most Americans were covered by health plans (termed “third party payors” or “payors”), through employment or governmental entitlement programs.4

The prevalence of health insurance coverage had two relevant effects: (a) physicians were required to deal with payors in order to practice medicine; and (b) once the majority of heath care services provided were covered by insurance, health care costs spiraled upward. These effects converged to motivate payors to institute cost cutting measures, and at the same time provided them with the power to require physicians to comply with those measures.

Toward the end of the last century, therefore, payors began adopting techniques to limit their expenditures, such as using limited provider networks, using primary care “gatekeepers” who restricted access to specialists, requiring preauthorization for expensive treatments, utilizing automated review of physician bills to adjust payments in accordance with payor guidelines, and denying coverage for tests and treatments that did not meet stringent payor guidelines for “medical necessity.” Although they were effective in slowing the rate of health care inflation, these measures were unpopular with the physicians forced to accommodate them. Doctors sought legislative relief, in the form of anti-managed care laws, and additionally took to the courts, where possible, to fight these practices. The outcome of the class action lawsuits described herein have been particularly favorable for physicians aggrieved by managed care constraints.

The progenitor case, In re Managed Care Litigation, arose from several dozen lawsuits filed by physicians against payors, that were consolidated in 2000.5 The plaintiff physicians alleged that the defendant health plans conspired to unjustly and unlawfully deny, delay and diminish the payments they had earned under their contracts with these payors, by:

covertly denying payments to physicians based on financially expedient cost and actuarial criteria rather than medical necessity, processing physicians’ bills using automated programs which manipulate standard coding practices to artificially reduce the amount they are paid, and . . . systematically delaying payments to gain increased use of the physicians’ funds.6

The defendants were alleged to have acted jointly to develop utilization management guidelines that limited medically necessary care; to develop claims processing systems that deliberately delayed or denied payments; and to use reimbursement guidelines that deprived physicians of fair payment. The physician class alleged that these practices breached their contracts with the payors, and violated RICO, state prompt pay laws, and various state consumer protection statutes.

After the plaintiffs’ claims had survived various attacks by motion, and facing the prospect of triple damages under RICO, all but three of the Managed Care defendants settled, entering into agreements that addressed most of the plaintiffs’ grievances.7 While there were some differences among the settlement agreements, they generally addressed two areas of concern – fairness in payment practices and physician autonomy. With respect to their payment practices, the payors agreed to streamline, simplify and disclose key features of their claims processing systems, to post billing requirements and pre-certification rules on their websites, and to establish independent, external billing dispute resolution processes. As for physician autonomy, the payors agreed that the question whether treatments and tests are “medically necessary” (and thus covered by the payor) would be decided on the basis of a “prudent physician” standard, rather than the payor’s internal standards. Moreover, the settling payors all agreed that their internal clinical policies would be based on credible scientific evidence, published in “peer-reviewed medical literature generally recognized by the medical community.” Finally, the payors agreed to establish physician advisory committees, to make recommendations regarding plan operations.

The Love case was filed three years after In re Managed Care, during the period when the settlement agreements in that case were being negotiated or implemented. The attorneys representing the plaintiffs in Love were primarily the same attorneys who had represented the plaintiffs in Managed Care, and the allegations were nearly identical RICO, contract breach, and state law claims. The Love settlement agreement reached in April 2007 has many of the key features of the Managed Care settlement agreements. It was conditionally approved by the court on May 31 and is set for a November hearing on any objections from potential class member or affected parties.