HMO SUITS: Shares Stumble on Threats of Lawsuits
The stocks of some of the nation's largest HMOs took a major tumble yesterday as the Wall Street Journal reported that "several high profile plaintiff's attorneys involved in tobacco litigation are now planning a wave of class action suits against health maintenance organizations" (Lerner, Reuters/CBS MarketWatch, 9/30). Aetna Inc.'s stock dropped 17%, UnitedHealth Group's 20%, Cigna Corp.'s $9.25 and Humana Inc.'s $.69 (Padley, St. Paul Pioneer Press, 10/1). The loss is especially difficult for Aetna, whose shares have plummeted 30% since last week based on doubts about the soundness of the recent $1 billion purchase of Prudential HealthCare. The Hartford Courant reports that industry insiders are downplaying the threat of litigation and market analysts are calling "the stock slide an overreaction," yet industry critics say the lawsuits "heighten the challenge insurers face in the courts and in Congress as lawmakers consider promoting patients' rights to sue health plans." William Sweeney, a lawyer who has sued insurers, said, "The managed care industry's untouchable reign is crumbling as court decisions come in all over the country." He added, "People are beginning to realize the only way to get anyone's attention in the insurance industry is to sue them" (Levick, 10/1). The Pioneer Press reports that some "analysts were surprised at the magnitude of the drop, given that no lawsuits have been filed yet and no specific companies were mentioned as likely targets." John Rex, a Bear Stearns analyst, said, "There are a lot of unanswered questions at this point," adding that "litigation worries are likely to cloud the outlook for HMO stocks for some time." The Supreme Court's decision to review an Illinois right-to-sue HMO case involving ERISA will also put a strain on HMOs (10/1). Deutsche Banc Alex. Brown analyst Gary Frazier put a different spin on the situation, saying, there is a buying opportunity "with [higher quality] HMOs trading near the five-year low of their trading range." He added that "[T]hird quarter results that do not indicate dramatic increases in medical cost trends or defeat of the Norwood-Dingell legislation in Congress could provide the catalysts needed to scrap the sector off its bottom" (CBS MarketWatch, 10/1).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.