The Judge Cites Health Net's "Egregious" and "Reprehensible" Business Practices

More than two years ago, we noted that Health Net Inc,, the large US health insurer/ for-profit managed care organization, had settled a class-action lawsuit brought by California physicians under the RICO (Racketeer Influenced and Corrupt Organizations) standard. Late last year, we noted that HealthNet was fined by the state of California for offering bonuses to employees who retroactively cancelled the most individual health policies after their holders got sick and filed claims, and that the company was under investigation in Connecticut for allegedly sending deceptive messages to pharmacists that denied payment for some low-income childrens' medication.

Last week, Florida Health News reported,

Medicare officials have ordered Health Net, Inc., one of the largest publicly traded health insurers in the nation, to stop marketing its “Health Net Orange” prescription drug plans.

The U. S. Centers for Medicare and Medicaid Services also froze enrollment in the drug plans, according to an obscure notice on a government Web site.

The government acted against the California company because it fell behind in processing enrollment applications and sent members incorrect information about changes in their coverage for 2008, said CMS spokeswoman Allison Henry.

Also last week, Lisa Girion wrote in the Los Angeles Times, that Health Net was being sued by the Los Angeles City Attorney for allegedly retroactively canceling individual insurance policies after their holders got sick, and was opening a criminal investigation of allegations that the company paid bonuses to employees who cancelled the largest number of policies.

To top it all off, Lisa Girion also reported in the Los Angeles Times,

One of California's largest for-profit insurers stopped a controversial practice of canceling sick policyholders Friday after a judge ordered Health Net Inc. to pay more than $9 million to a breast cancer patient it dropped in the middle of chemotherapy.

The ruling by a private arbitration judge was the first of its kind and the most powerful rebuke to the state's major insurers whose cancellation practices are under fire from the courts, state regulators and elected officials.

Calling Woodland Hills-based Health Net's actions 'egregious,' Judge Sam Cianchetti, a retired Los Angeles County Superior Court judge, ruled that the company broke state laws and acted in bad faith.

'Health Net was primarily concerned with and considered its own financial interests and gave little, if any, consideration and concern for the interests of the insured,' Cianchetti wrote in a 21-page ruling.

When Health Net dropped her in January 2004, Bates was stuck with more than $129,000 in medical bills and was forced to stop chemotherapy for several months until she found a charity to pay for it.

Amazingly enough, Health Net's top leader actually promised to stop retroactive cancellations of individual policies, and expressed what appeared to be remorse for his company's actions.

Health Net Chief Executive Jay Gellert ordered an immediate halt to cancellations and told The Times that the company would be changing its coverage applications and retraining its sales force.

'I felt bad about what happened to her,' he said. 'I feel bad about the whole situation.'

Gellert said he would move quickly to 'give people the confidence that they can count on their policy.' Specifically, he pledged to stop all cancellations until an external review process could be established to approve all cancellations.

Until Friday, the companies had uniformly defended cancellations, saying they were necessary to hold down costs by weeding out people who may have failed to disclose pre-existing conditions on applications for coverage. They say cancellations happen infrequently.

It is also noteworthy that documents produced during the trial appeard to confirm previous allegations that Health Net paid bonuses to employees who retroactively terminated the most individual policies.

At the arbitration hearing, internal company documents were disclosed showing that Health Net had paid employee bonuses for meeting a cancellation quota and for the amount of money saved.

'It's difficult to imagine a policy more reprehensible than tying bonuses to encourage the rescission of health insurance that keeps the public well and alive,' the judge wrote.

HealthNet has now quite a record of bad behavior, from settling a racketeering-influenced corrupt organization (RICO) lawsuit, being fined for paying bonuses to employees for retroactively canceling individual health policies, being forbidden to market specific policies by the US Center for Medicare and Medicaid Services (CMS) because the company provided policy-holders misleading information, to now being subject to punitive damages for a single, "egregious" retroactive policy cancellation. That's quite a track record. Yet despite this record, so far no individual company leader has had to pay any penalty, and while the company is lead by the same people who were apparently responsible for all these previous messes, the company's business has not suffered.

This illustrates a huge problem with the current way health care operates in the US. There are no major disincentives of any kind for leadership that puts the company's and their "own financial interests" ahead of patients' interests. The leaders do not have to fear for their jobs, reputations, or pocketbooks. After all was said and done, at the most they might have to say "sorry."

Until our system and culture start to provide for major disincentives for unethical business practices by leaders of health care companies, such practices will continue unabated. The results will continue to be "egregious" and "reprehensible."

One wonders with all the hand-wringing about health care going on during the current US presidential campaign, whether anyone will notice that mismanagement and unethical business practices in health care organizations likely account for much of our excess costs, poor access, and degrading quality. Revamping health care financing might change the nature of the mismanagement and unethical business practices that afflict health care, but it won't eliminate them. We will have more cases like that of HealthNet, worse cases than that of HealthNet as long as we ignore these elephants in health care's living room.

ADDENDUM (29 February, 2008) - See also comments on the Effect Measure blog, and The Health Care Blog.