HMOs Collecting From Accident Settlements

Practice boosts profits, sparks consumer lawsuits.

The latest legal battle faced by Health Maintenance Organizations (HMOs) involves the practice of collecting settlement money from accident victims. It might seem reasonable for an HMO to cover money they pay out in medical care by collecting from accident settlements, and in most cases it is legal. However, some HMOs are profiting from this practice.

Health Maintenance Organizations (HMOs) have drawn praise, criticism and anger since they began. Consumers have very little influence within the health insurance industry, and many consumers realize that their only form of defense is in the courts.

"The reason why we are focusing on this now is because an HMO works differently than an indemnity policy," said Mary Beth Johnston, a partner in the law firm Womble Carlyle Sandridge & Rice of Durham, NC. "With an indemnity policy you expect full care except for deductible, without interference into the service needed. An HMO has maximum limits of the policy and co-pays. So we are suddenly focusing on what HMOs do in terms of managed care and all this is brought to the forefront."

South Carolina's largest HMO is being sued by some of its policy members. The lawsuit filed against Companion Healthcare, a subsidiary of Blue Cross and Blue Shield of South Carolina, says the HMO's contracts do not provide for collection of settlement funds. The lawsuit also accuses the provider of collecting more than they paid on behalf of the victim.

One of the foundations of HMOs is that the HMO pays doctors within the group a discounted rate. In many cases, however, the HMO collects the full listed price for medical services performed. Some HMOs rely on this practice for profits.

"This is a tricky provision," Johnston said. "I would be surprised if the provision works and HMOs can take out more money than their out-of-pocket expense. If I were an HMO, I would carefully scrutinize how the contract language is written. I can't believe they would be entitled to a windfall."

"You can agree to anything by contract, but if it's not what you intended, I question its enforceability," Johnston said. "I would not be surprised if the insurance company would look to recover costs from other types of policies, but to construe that the health care plan is entitled to a windfall greater than the reasonable cost of care--I would be surprised at that expansion of the traditional contract language."

So far, consumers have had limited success in the courts on this issue.

In California, Kaiser Permanente has retained the right to collect the billed amount. They said that since all their physicians are on salary there is no record of how much individual treatments cost.

In West Virginia, the Health Plan of the Upper Ohio Valley was ordered to pay $10 million in damages to plaintiffs in a class action suit. The HMO settled the other three lawsuits regarding collecting settlement amounts above the cost of services. The health plan now only recovers paid charges.

"Most consumers buy health insurance through their employer," Johnston said. "Some employers have bargaining power, so I would suggest that large and small employers be aware of this situation and have discussions with the insurance company about this issue. There is so much competition now with health insurance coverage, that if the employer has enough employees, they should be able to get good answers and even get the HMO to explain how this provision would work and put it in writing."