October 6, 1999
Aetna CEO Rallies Industry Leaders
To Fight Lawsuits Against HMOs
By CAROL GENTRY
Staff Reporter of THE WALL STREET JOURNAL
Aetna Inc.'s chairman and chief executive officer, Richard L. Huber, said
he is meeting with industry leaders and corporate customers to develop
a
strategy for dealing with a new wave of class-action lawsuits against
health-maintenance organizations.
On Monday, one such suit, alleging unfair trade practices, was filed against
Humana Inc. Lawyers also are preparing a number of other class-action
suits intended to step up the pressure on HMOs to treat patients more
generously or risk big court judgments.
In an interview at Aetna's headquarters in Hartford,
Conn., Mr. Huber said a suit against Aetna, the
nation's largest insurer, "is almost inevitable. Trial
lawyers go for deep pockets."
In the past week, Mr. Huber has sent out e-mails
to employees and distributed a personal video to
boost staff morale, which has been buffeted by
reports of the pending litigation, among other
things. In the video, which was running Tuesday on
hallway monitors during lunch, Mr. Huber
promised to defend the company from the current
"assault."
Aetna officials said they hope to enlist competitors and corporate
customers in a public-relations and lobbying effort to combat the possible
lawsuits and boost public confidence in managed care. The industry has
already come together to fight efforts in Washington to enact patient's
rights
legislation that would include the right to sue HMOs.
Aetna Is 'Administrator'
While it isn't yet known precisely what the possible lawsuits against HMOs
will claim, attorneys involved in preparing them have said they will allege
that managed-care plans don't deliver what they promise because they tend
to factor in cost issues rather than focusing purely on medical need.
Mr. Huber said this premise is unfair, because
managed-care companies simply carry out the
wishes of their customers, the employers.
"We're an administrator," he said. If medical
mistakes are made, he added, it's the doctors'
fault, not Aetna's.
Mr. Huber said fighting a class-action suit
could cost millions of dollars, but he predicted
that it wouldn't go anywhere, much like many
suits the company routinely faces. He said
there are currently 40 suits pending against the
Aetna U.S. Healthcare division. "We have
lawsuits all the time," he said.
In New York Stock Exchange composite trading Tuesday, Aetna's stock
rose 81.25 cents to $50.50 a share. Just two weeks before, the shares
closed at $70.75 each.
Mr. Huber said last week's steep decline in stock price -- both at Aetna
and across the entire health-care sector -- reflects "mass hysteria" in
response to reports that class-action suits were in the works. Interest
in
health-care stocks will resume as soon as "trial lawyers find somebody
else
to pick on," he said.
Reaction to Prudential
But Aetna's stock had already dropped earlier last week, when analysts
registered unhappiness over losses at the Prudential health business, which
Aetna acquired in August. Aetna disclosed the losses during a meeting with
analysts on Sept. 27. Analysts criticized the Aetna executives who ran
the
meeting, saying they didn't provide enough information about Prudential
HealthCare's finances.
Mr. Huber, who was on business in China at the time, deflected the blame
away from his management team, saying, "I blame myself for not being
there. It's my responsibility."
Still, he said, Wall Street overreacted to the Prudential losses and he
described the analysts' reaction as "a lynch mob." He added, "The reaction
of Wall Street shows how imperfect the understanding of our business is
by
most investors and analysts."
Mr. Huber said Prudential is covering its losses -- running at an annual
rate
of $200 million -- under the terms of the sale through the end of next
year.
By then, Mr. Huber said, Aetna will have Prudential's administrative costs
down and productivity rate up. (In a separate interview, Chief Financial
Officer Alan Weber said the average claims agent at Prudential processes
only 65 claims a day, compared with Aetna agents' 115 claims a day.)
Mr. Huber said the decline in Aetna's share price has produced a buying
opportunity, with the stock trading at less than seven times next year's
predicted earnings. In many industries, he said, shares trade at more than
20 times earnings.
'All-Products Clause'
Meanwhile, Mr. Huber defended Aetna's use of the "all-products clause"
in
its contract with physicians, a practice that has drawn an investigation
by
Connecticut Attorney General Richard Blumenthal and the wrath of
organized medicine. Such clauses require that contracting physicians accept
patients from all of a company's plans, from old-fashioned fee-for-service
to the strictest HMO, including any plans the company may introduce in
the
future.
In an interview Friday, Mr. Blumenthal said this type of clause smacks
of
"tying," in which a company that wants to unload its unpopular products
forces customers to buy them in order to get the products they really want.
He noted that the attorney general in Nevada had ruled the all-products
clause illegal and ordered Aetna not to use it there.
While the Connecticut Medical Society has taken out full-page newspaper
ads protesting Aetna's policy, the most widespread resistance has been
in
Texas. Internist Carlos Hamilton, president of the Harris County (Texas)
Medical Society, said the different types of payment plans require different
office arrangements; some doctors aren't set up to take Aetna's HMO
contracts that place doctors at full risk for the cost of care, while others
want nothing but those. He and other doctors have dropped thousands of
Aetna patients rather than sign.
In the interview, however, Aetna's Mr. Huber said the clause forces
doctors to see both rich and poor patients, not just skim off the cream.
He
said the complaints are just coming from "curmudgeons" who don't want
anyone telling them their practices need to be updated. As for the attorney
general, Mr. Huber said, "He hasn't seen the limelight he doesn't love."