Blue Cross Ads Misled, Hmo Operator Testifies

Posted: January 06, 1988

The top officers of U.S. Healthcare and Blue Cross of Greater Philadelphia squared off in federal court yesterday in the ongoing battle over an ad campaign that the HMO operator charges is fraudulent, defamatory and malicious.

But the debate unfolding in U.S. District Judge Marvin Katz's courtroom goes beyond whether the advertisements Blue Cross ran for its Personal Choice prepaid health plan are accurate or misleading.

The testimony by the heads of the area's two leading health insurers frames a debate over which system provides the best medical care to its subscribers, and whether efforts to cut the cost of medical care also lower the quality of care that patients receive.

It's a complex subject that's loaded with medical jargon: HMOs, PPOs, prospective care, quality assurance reviews and second surgical opinions.

In the suit, U.S. Healthcare seeks $20 million in compensatory damages and $20 million in punitive damages, saying the ad campaign launched in July damaged its relationships with some doctors, leading them to withdraw from participation in its HMOs.

David Markson, president of Blue Cross of Greater Philadelphia, described the ad campaign as "almost a public service that explains various features of the HMO program that are well-known in the industry but not known to the public."

U.S. Healthcare, whose president, Leonard Abramson, also testified yesterday and Monday, contends the campaign is a deliberate effort to mislead the public. In its complaint, U.S. Healthcare said the ads contained false information and that the ads were born of Blue Cross' desperation to halt its decline in subscribers.

Markson testified that, before Personal Choice was introduced and helped stem the losses, Blue Cross was losing about 1.5 percent of its subscribers each year - about 400,000 subscribers overall - mostly to HMOs.

Personal Choice mimics an HMO by offering such HMO-style benefits as coverage for some routine visits to family doctors. But it is actually a preferred-provider network (PPO) - a system in which doctors and hospitals deliver medical care at a discount because of the volume of patients the plan brings to them.

The aggressive ads that spurred the suit sought to compare Personal Choice benefits with those of an HMO. The campaign was prepared by the firm Spiro & Associates, which has since merged with Earle Palmer Brown.

The ads said Personal Choice offered subscribers a broader choice of doctors and hospitals and that HMOs push family practice doctors to see more patients and limit access to specialists.

Although the ads didn't specifically target U.S. Healthcare's HMOs, they described Personal Choice as "better than HMO." They also said Personal Choice offered the advantages of "HMO" without the disadvantages.

U.S. Healthcare, the region's dominant HMO with 400,000 subscribers in Pennsylvania and 170,000 in New Jersey at the time, took the campaign personally. The firm responded that it offers a broader selection of doctors than Personal Choice with no more restrictions on access to care than its competitor.

The debate in the courtroom also touches on such issues as:

* Whether HMOs, and specifically U.S. Healthcare's HMOs, ask primary-care doctors to be "gatekeepers" who operate with financial incentives to deny access to specialists.

* Whether the Personal Choice ads were deliberately misleading because they didn't disclose that many doctors signed with Personal Choice don't have admitting privileges at any of the 16 participating Personal Choice hospitals. Patients using non-participating hospitals face co-payments of up to $1,000.

* Whether either of the plans offers incentives to doctors and hospitals to decrease hospital admissions and whether those incentives diminish the quality of medical care.

The trial, which began in early December, is expected to stretch out over another two weeks or more.

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