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Aetna Agreement With Doctors Envisions

Altered Managed Care

By Joseph B. Treaster

New York Times, May 23, 2003

Dr. John W. Rowe, Aetna's chief, said the agreement would make rules for reimbursement clearer, but some requests would still be rejected.

Aetna, the big health insurance company, and medical leaders said yesterday that their agreement to settle a long-running lawsuit over billing and medical decisions promised a radical change in their often rancorous relationship and better treatment for patients.

In the agreement, in which Aetna broke ranks with nine other insurance companies that are still battling the doctors, Aetna said it intended to provide clearer information on coverage for both patients and doctors, speed payments and reduce red tape.

These measures, both sides said, are expected to lead to fewer disputes and administrative headaches for doctors, leaving them more time to concentrate on caring for patients. "This is not going to totally end the problems in the health care system," Jack Lewin, the chief executive of the California Medical Association, said at a news conference in Midtown Manhattan. "But it's a very, very significant change in the relationship. I wouldn't call it a home run. But it's a very solid double."

The changes also represent a significant step away from central precepts of managed care by Aetna, one of the nation's largest health insurers. Managed care was originally designed around so-called gatekeepers — administrators who approved or denied coverage for treatments, often for reasons that were obscure both to doctors and patients.

The new agreement — which is subject to approval by Federal District Judge Federico Moreno — does not call for Aetna to change what it covers, or how much it pays for different procedures. But the clarity and openness that Aetna is now promising would help doctors and patients better understand their options in advance of treatment.

"I would not say that certain things we said were not medically necessary — like a nose job — are now going to be medically necessary," said Dr. John W. Rowe, the chief executive of Aetna, in an interview yesterday. "What I would say is that it is going to be easier and less ambiguous to determine what meets the criteria of medical necessity."

Aetna and the doctors said they thought their agreement would put competitive pressure on other health insurers to settle — including the United HealthCare Group, WellPoint Health Networks and Health Net.

But Kent Jarrell, a spokesman for the defendants, said in a statement that the Aetna agreement "does not alter the remaining companies' resolve to defend the case vigorously."

The lawsuit was one of the largest ever in the health care industry and arrayed almost all the 700,000 or so practicing physicians in this country against health insurance companies that provide about 75 percent of health services.

The doctors are to share $100 million, which is equivalent to a little less than $150 each. Aetna also agreed to pay $20 million to establish a foundation for the improvement of health care and to pay the doctors' lawyers up to $50 million for their work on the case.

It also plans changes in a number of practices, like claims processing, that the doctors and the insurance company said would be worth about $300 million in savings for the doctors and the company. But Aetna said the changes would add only modestly to its costs because they were part of planned improvements in efficiency already under way.

The company said it did not expect premiums to rise as a result of the agreement. But analysts said Aetna had little choice in this matter, since it would risk losing business to competitors if it raised rates.

Aetna has been cutting expenses since 2001, when it reported a net loss of $293 million. For the first quarter, it reported a profit of $321 million.

Dr. Rowe said the agreement would result in a $75 million after-tax charge to earnings in the second quarter.

For the doctors, one of the most significant changes was Aetna's acceptance of general guidelines for treatment that have been developed by the American Medical Association. Those guidelines require that decisions on care be based on a physician's prudent clinical judgment. In the past, Aetna approved treatment based on what it thought was the least costly approach among scientifically proven procedures. Now, the company will combine these concepts.

Aetna officials maintained that they had always been guided by the precepts of the A.M.A. "But the doctors didn't have confidence that we were looking at it that way," a spokesman, Roger Bolton, said.

Aetna also agreed to publish on the Internet a list of the procedures it covers, the costs for those procedures and whether they had to be performed separately or could be combined in a single hospital or office visit.

"There has been ambiguity," Dr. Rowe said. "It's not been clear to some doctors on what basis decisions were being made. Now we've written it down and agreed upon it. We think the rules will be much more clear."

He added: "This doesn't mean that every procedure a doctor wants will be approved, by any means. But what it means is that they will understand why it was approved or not."

Recognizing that even with the changes, some disputes are inevitable, the doctors and Aetna agreed to establish an ombudsman, who would mediate. If the ombudsman cannot resolve a difference of opinion, the matter is to be resolved by a federal judge.

Since "neither side wants to talk to a federal judge, they will have an incentive to resolve disputes among themselves," said Kenneth Abramowitz, a health care industry analyst at the Carlyle Group, a private equity investment firm in New York.

Dr. Rowe said the agreement should lead to lower costs for both the company and doctors. It will reduce doctors' overhead costs, he said, and Aetna will no longer be spending roughly $40 million a year on the legal costs related to the nationwide suit.

Donald J. Palmisano, president-elect of the American Medical Association, endorsed the agreement yesterday, saying at the news conference that the A.M.A. expected it "to raise the bar for the entire health insurance industry on fair and open business practices."

Aetna and lawyers for the doctors had been negotiating for about a year, people involved in the talks said, but the deal began to come together only in the last few months. Archie C. Lamb Jr., a lead counsel for the doctors, said his side wanted to strike a deal before a judge ruled on an attempted settlement by Cigna.

Mr. Lamb of Birmingham, Ala., said that he thought that the Cigna deal was inadequate and that he wanted Judge Moreno to have a concrete alternative to consider. A hearing on the Cigna agreement is scheduled on June 10 in Miami.

"We wanted him to see the difference between the Aetna and the Cigna settlements," Mr. Lamb said. "The difference is stark."

Nicholas B. Roth, another lawyer for the doctors, from Decatur, Ala., said the Cigna agreement focused on past claims disputes, while the deal with Aetna looked to the future.

"Aetna," he said, "pledged a specific amount of money for past wrongdoing — $100 million and $20 million, then goes forward to promise to have business practices consistent with the medical industry."