By Jeffrey Barg

Genesis Physicians Practice Association's Stanley Pomarantz, M.D.

Published February 1999

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This may seem like a medical paradise to physicians from other states. But not all is well in paradise.

Many North Texas physicians are mad as hell and are dropping out of managed care plans in droves. One managed care plan in particular. As a former president of the Dallas County Medical Society put in an essay written in 1997: "Aetna, I’m sorry I met ya’."

After years of escalating hostility and mistrust, two large integrated physician organizations have terminated their HMO contracts with Aetna U.S. Healthcare, which is poised to become the largest health insurance company in Texas and the nation with its purchase of Prudential HealthCare. In return, Aetna has invoked its "all products policy," which requires physicians to participate in all of Aetna’s products in order to participate in any. And in the case of the larger physician organization, Genesis Physicians Practice Association, Aetna has sent letters threatening to bring in the Federal Trade Commission for an antitrust investigation of the 560 physicians. The dispute has percolated up to the Dallas County Medical Society, the Texas Medical Association and the American Medical Association (AMA), which is using the Aetna actions here as a basis for opposing the purchase of Prudential HealthCare in a filing with the Justice Department.

By most accounts, these problems began in 1996 when Aetna purchased U.S. Healthcare in order to jumpstart their HMO business. According to a Wall Street Journal account published in July, 1998, Aetna adopted U.S. Healthcare’s more aggressive, stingy approach by replacing senior management positions with people from U.S. Healthcare, who in turn made drastic changes in customer service personnel, computer systems and provider contracts, resulting in widespread dissatisfaction among providers, patients and employers. In Westchester County, NY, for example, 37 percent of physicians chose not to renew their provider agreements with the company.

In Dallas, F. David Winter, Jr., M.D., a Baylor internist, said that prior to the purchase of U.S. Healthcare, Aetna was the best insurer he worked with in terms of approving referrals, getting reimbursed promptly and having a reasonable list of approved medications. Shortly after the purchase, however, getting approvals for referrals became problematic, approved medications kept changing, payments were delayed or sent to the wrong address, and it became difficult to get through on the telephone to Aetna, Winter said in an interview with Physician’s News Digest.

A decisive moment came last spring for Winter and his colleagues at HealthTexas Provider Network, a fully integrated joint venture between 220 physicians and Baylor Healthcare System. Aetna unilaterally lowered physician reimbursements despite the fact that they were in the middle of a contract that specified rates, according to Winter. Physicians were told that they could either accept the lower fee schedule or drop out of the contract. The physicians gave Aetna 90 days notice of termination, as required in their contract. In the last week of the 90 day period, Aetna said they would return to the original fee schedule and most of the physicians re-joined, except for certain specialties such as orthopedic surgery and gastroenterology.

Two months later, Winter and his colleagues discovered that Aetna was still reimbursing physicians under the reduced fee schedule. At first, Aetna denied doing this. After being confronted with proof, Aetna said that they would change to the original fee schedule, but that claims for the prior two months needed to be resubmitted in order to gain the difference for that period. Physicians complained that resubmitting every claim would be extremely costly and unnecessary. Aetna only relented on this condition when they found out that the Dallas Morning News was working on a story on the dispute, Winter said.

Winter also discovered that Aetna had sent a $30,000 payment to the wrong address. Aetna belatedly acknowledged their mistake and agreed to resend the payment, but it has yet to arrive seven months later.

In the meantime, because many Baylor specialists did not rejoin Aetna, Winter and his primary care colleagues were forced to refer their patients to specialists they did not know or that required patients to travel a long distance. Given the growing level of mistrust and hostility, as well as the toll of the hassles endured, the HealthTexas physicians again gave Aetna 90 days notice of the termination of their provider agreements. As of the first of the year, approximately 175 primary care physicians of HealthTexas are no longer seeing Aetna patients.

The dispute between the Presbyterian Hospital System physicians and Aetna is similar but far more polarized. In October of 1995, Genesis Physicians Practice Association entered into a risk contract with Aetna at Aetna’s insistence, according to Stanley Pomarantz, M.D., vice president of medical affairs for System Health Providers, Genesis’ management company. For a year-and-a-half, as Pomarantz tells it, all was well. Genesis received the financial and clinical data from Aetna it needed to effectively manage the risk contract. Payments were prompt and accurate.

But on April 1, 1997, the flow of financial and clinical data suddenly stopped. The number of problems getting claims paid grew exponentially. Genesis experienced a nine to twelve month information blackout and Aetna’s share of the group’s reimbursement problems ballooned to 50 percent although Aetna represented only 13 percent of Genesis’ business, Pomarantz said.

Pomarantz later found that these problems coincided with Aetna’s shift to U.S. Healthcare’s software.

Genesis sent a letter to Aetna in August of 1997 asserting that these problems constituted a breach of their HMO contract. Genesis and Aetna then set up work groups from both companies that met every other week. But the situation did not improve.

From November 1997 through January 1998, Aetna could not accept electronic claims, even though that was the method of filing claims encouraged by Aetna. When confronted with the problem, Aetna denied any responsibility. Later Pomarantz discovered that Aetna’s electronic gateway had been inadvertently closed while trying to correct another problem.

In the spring of 1998, Genesis began to see some pharmacy data from Aetna. But less than half had physician identifiers. Financial data came through, but was rife with errors and frequently was in unauditable form.

On June 12, Genesis sent Aetna notice of how these problems constituted a breach in their HMO contract, giving 30 days to correct the problems. At the end of June, Genesis made a seven-point proposal of ways the problems could be resolved. The proposal was rejected and 560 Genesis physicians gave 90-day notice of the termination of their HMO contract on July 12. Pomarantz said they were shocked that Aetna had not made a counter-proposal or accepted some of the seven points, since they had already adopted some of the points in their contracts with other Dallas physicians.

Aetna then attempted to sign up the Genesis physicians individually with hardball tactics. They invoked their "all products policy," shutting the Genesis physicians out of all of Aetna’s products even though the physicians only terminated their HMO contract. They sent out "hit squads" comprised of an Aetna representative and a NYLCare representative (Aetna purchased NYLCare in July 1998) to doctor’s offices with a bounty for each Genesis physician they could sign up, Pomarantz said. Pomarantz believes that Aetna thought they could break up the Genesis group. But when Aetna could not get physicians back individually, they charged that Genesis was putting undue pressure on members and threatened to ask the Federal Trade Commission to conduct an antitrust investigation.

By this point, the dispute had caught the interest of the Dallas County Medical Society (DCMS) and the Texas Medical Association. In July, the DCMS held a press conference opposing Aetna’s "all products policy," blaming it for interfering with the continuity of care of nearly 300,000 Genesis patients. Then-DCMS President Robert T. Gunby Jr., M.D., compared Aetna’s failure to provide economic and clinical data to asking physicians to practice medicine "blindfolded and handcuffed" and to driving a car at night without headlights.

While the invocation of the "all products policy" seemed to spark a flame, the threat of an antitrust investigation fueled a firestorm that reached the American Medical Association. DCMS Executive Director Michael Darrouset likens the threat to that of someone pulling a gun on you in a parking lot: They may not be willing to pull the trigger, but you have to take it seriously. In November, Gunby fired off a letter-to-the-editor to the Dallas Morning News saying that it is "ludicrous when a $19 billion corporate giant cries for government protection against an obviously overmatched opponent because it knows current laws favor it. . . Aetna is using the threat of the antitrust laws to intimidate individual physicians into signing contracts that they may or may not wish to sign and that may or may not be in the best interests of their patients." Gunby called for legislative hearings on "these unfair laws and what they mean to patient choice and patient care."

When Aetna announced a deal in December to purchase Prudential HealthCare, it provided a rallying point for physicians inside and outside of Texas. On December 18, eight days after the announcement of the deal, both the AMA and the Texas Medical Association (TMA) released statements opposing the merger on antitrust grounds. In a letter to the Justice Department sent on the same day, the AMA asserted that "the market power that would be created or exacerbated by this merger would limit the choices of patients and employers, reduce competition and further erode the ability of physicians to make medical decisions based on science and the medical needs of their patients, not share price."

The TMA statement cited support for the AMA statement and continued: "TMA reminds the public that this is the same $25 billion conglomerate that has spent millions of dollars fighting virtually every patient protection initiative in state legislatures across the country and the Patients’ Bill of Rights now pending in the U.S. Congress, and sued the State of Texas last fall to block the only law in the country that would hold managed care plans accountable for injuring patients. This corporate giant has steadfastly maintained that insurance companies should decide whether the treatments ordered by your doctor are medically necessary. It’s been difficult enough for Texas physicians and their patients to endure the bottom-line motivations of Aetna/U.S. Healthcare. If this merger goes unchallenged, it would create a piece of the rock large enough to flatten the health care systems of Dallas, Houston and the rest of the Lone Star State."

While Aetna had been a relatively small player in Houston, its combination with NYLCare and Prudential would give it a greater than 50 percent market share, and Houston physicians have been calling the Harris County Medical Society (HCMS) to lodge their concerns, according to immediate past president Paul Handel, M.D. While Handel has not had any direct experience with Aetna, he is well aware of their "slash and burn technique" and he has vowed to "fight them in this community for as long as I can." HCMS is also urging the Justice Department to review Aetna’s purchase of Prudential.

The AMA’s opposition to Aetna’s purchase of Prudential is the first time they have publicly opposed a health insurance consolidation. Randolph Smoak, M.D., chairman of the AMA Board of Trustees, identified three reasons for the AMA’s action in this case. First, the consolidated Aetna would have a huge market share, particularly in certain local markets such as Houston, Dallas and San Antonio. Second, this market power is particularly disturbing in light of the difficulties physicians are already having with Aetna, including the coercive "all products policy," failure to provide adequate data to physicians and one-sided contracts. These problems might be particularly acute in Dallas, but they are also being experienced in six to eight other states. Third, the transition in delivery systems has swung the pendulum so drastically toward managed care that many physicians are on the verge of needing to close their practices.

Todd Vande Hey, the AMA’s vice president for private-sector advocacy, is preparing a filing for the Justice Department, which will contain information from local markets where Aetna or Aetna plus Prudential have significant market penetration and the behavior of the plans may have significant impact on competition, as well as the doctor-patient relationship and quality of patient care. Would it be possible for Genesis physicians, for example, to reject an Aetna contract they feel would be bad for themselves and bad for patient care after Aetna acquires Prudential? And if they were to reject such a contract, what sort of dislocation would that present to patients, questioned Vande Hey.

While this may be the first time the AMA has opposed a health insurance consolidation, it almost certainly will not be the last. Vande Hey said that if they find a similar situation to the Aetna acquisition of Prudential, the AMA will take its concerns to the Justice Department as well as to the public and business community. Bigger has not proven to be better, Vande Hey contends, leading neither to lower premiums nor to improved patient care. The AMA will challenge anti-competitive consolidation in health care and help physicians to collectively bargain with consolidated insurance and hospital entities.

Aetna U.S. Healthcare declined to comment for this story. Aetna Inc. CEO Richard Huber has acknowledged "serious service degradations" and that Aetna has utilized overly aggressive tactics in negotiations with physicians in several 1998 interviews with the Wall Street Journal and the Dallas Morning News. Oddly enough the flare up with Genesis physicians occurred after Huber acknowledged being overly aggressive with Baylor physicians in the fall of 1997. In a December 1998 interview with the Dallas Morning News Huber vowed to improve relations with physicians: "I’m probably too old to ever see the day when doctors love us. . . . I am going to live to see the day when they dislike us less. And that, in itself, is a challenge."