Judicial Advocacy

State medical society cleared to sue Aetna over PPO referral policy

Tanya Albert Henry , Contributing News Writer

In a win for physicians and their patients, the California Supreme Court ruled that the state medical association has legal standing to sue Aetna Health of California over a policy that discourages network physicians from sending PPO plan patients to out-of-network physicians.

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Alleging that Aetna Health harassed or terminated contract physicians who sent patients out of network, the California Medical Association (CMA) sued the health plan to stop the policy it believes directly interferes with physicians’ independent medical judgment and the patient-physician relationship, as well as violates a number of state laws.

The medical society sued under California’s Unfair Competition Law, one of the state’s most important consumer protection laws. Initially, the trial and appellate courts each agreed with Aetna that the CMA didn’t have standing to bring a lawsuit under this law because of a state referendum—Proposition 64—that voters passed in 2004.

The CMA appealed and the Litigation Center of the American Medical Association and State Medical Societies filed an amicus brief (PDF) urging the state’s highest court to overturn the lower court ruling.

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In a unanimous decision, the California Supreme Court ruled that the CMA did have standing under the law and said that their claims can proceed. That is because the physician organization used resources in response to a perceived threat to its mission that includes advocacy and education on issues involving companies’ interfering with physicians’ sound medical judgment and, in turn, patients’ health.

While CMA isn’t an Aetna competitor or a consumer for the health plan’s services, the court said the physician organization’s mission was nonetheless affected by the company’s policy.

“This is not a case of an organization attempting to manufacture standing and insert itself into a dispute in which it had no natural stake,” said the California Supreme Court ruling in the case, California Medical Association v. Aetna Health of California Inc. 

“CMA is far from the type of disinterested plaintiff Proposition 64 sought to bar from suing” under the Unfair Competition Law, the court said.

Find out more about the cases in which the AMA Litigation Center is providing assistance and learn about the Litigation Center’s case-selection criteria.

The California Supreme Court’s decision is significant because it sets a precedent that a public interest advocacy organization can have standing to sue under the Unfair Competition Law if the organization endures costs while responding to perceived unfair competition that threatens the organization’s mission.

The CMA had argued that it directed staff time and resources to combat Aetna’s policy. And in its brief, the AMA Litigation Center told the court that “this is personal and concrete economic harm suffered by the organization” and that the CMA should be allowed to go forward with a lawsuit “to prevent Aetna from continuing to harm the organization and the public.”

The California Supreme Court agreed.

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The AMA Litigation Center in its brief said the CMA lawsuit is “exactly the type of lawsuit” that the Unfair Competition Law intended because it “seeks to protect California physicians and patients from an insurance company’s unlawful and unfair business practices.”

In a statement, the CMA said the ruling empowers membership organizations and other public-interest advocates in the state “to defend their interests and the interests of their constituents against corporations engaging in unlawful conduct.”

CMA President Donaldo Hernandez, MD, said “the practice of threatening physicians who refer patients to out-of-network providers is unlawful and we are pleased that the court agrees that CMA has the right to challenge these practices in court.”