Nurseweek/Healthweek|Supreme Court allows consumers to sue insurers under federal law

Supreme Court allows consumers to sue insurers under federal law

Posted 2-2-99

In a decision that could spur more class-action lawsuits against insurers, the U.S. Supreme Court ruled Jan. 20 that beneficiaries can sue the healthcare industry for damages under a federal anti-racketeering law.

The unanimous decision runs counter to many rulings handed down in similar cases. Until now, most courts have protected the industry’s immunity from federal lawsuits, since insurers are regulated at the state level.

"Obviously the industry is disappointed by this ruling," said Jeff Gabardi, legal director and counsel for the Health Insurance Association of America. "This will clearly encourage more litigation, and the more litigation you get against the industry, the higher the cost for consumers," he said.

The recent decision stems from a decade-old class-action lawsuit involving the health insurance giant Humana Inc. and 84,000 policyholders in Nevada. The plaintiffs have charged Humana with secretly negotiating discounts for services provided by its affiliated hospitals, while failing to pass on savings to its enrolled customers. Plaintiffs have charged that such alleged misconduct constitutes systematic fraud under the federal Racketeer Influenced and Corrupt Organizations Act. Originally designed to combat mob activities and other organized crime, RICO entitles prosecutors to obtain triple damages if a case is successful.

In the Humana case, Supreme Court Justice Ruth Bader Ginsburg said that suing under RICO would not impair state insurance laws in Nevada.

Humana, in a written statement, said its conduct has been "both legal and ethical," and consistent with industry and government practices. Humana emphasized that the ruling only clarifies a legal context for trying the case, and does not represent a verdict. The company "has not been found guilty of any wrongdoing," it said in the statement.

Doug Heller, consumer advocate for Consumers for Quality Care, said that the application of RICO serves as a powerful exposé of the industry. "I think that it shows the depth to which the HMO industry has sunk that we’re going after it using the same laws that some people once went after Al Capone with," he said. More broadly conceived and useful liability laws are needed on a state-by-state basis to allow individual consumers to sue the industry, he said.

Although the ruling provides trial lawyers with more ammunition to attack the insurance industry, "it’s not the average litigant who has a beef with their insurer who is going to benefit," Gabardi said. The court’s decision provides a basis only for large, class-action suits alleging a pattern of misconduct or systematic fraud, he said.