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Class-Action Suit Aimed At Managed Care Antitrust Practices

An unprecedented class-action lawsuit alleging antitrust violations by nine behavioral health care companies that supporters think will end many managed care practices was the focus of intense interest at APA's annual meeting in San Diego. Seeking their support of the litigation, the lead plaintiff, a psychiatrist, and the attorney eagerly answered questions and discussed their case with many interested psychiatrists. APA is supporting the lawsuit from its litigation fund (Psychiatric News, April 4).

The lawsuit charges that approximately 200,000 psychiatrists, psychologists, and clinical social workers nationally have lost billions of dollars in income because of the defendants' illegal price-fixing schemes during the last four years.

Price competition has been restrained and eliminated throughout the U.S. because the defendants collectively control the psychiatric health care market for an estimated 80 million Americans nationwide, the lawsuit alleges.

Professional fees for mental health services have been fixed at artificially low and noncompetitive rates throughout the United States.

Joseph Sahid, lead counsel for the plaintiffs in New York City, told Psychiatric News, "The managed care rates for psychotherapy by psychiatrists have been pushed down to an average of $60 per session in some markets. In contrast, the nonmanaged care rates for psychiatrists performing psychotherapy average $150 per session."

Sahid specializes in complex litigation involving large antitrust and class action cases.

The plaintiffs are seeking $11 billion in damages and injunctive relief, said Sahid. "The magnitude of the amount represents money taken from the hands of providers as well as treatment denied to patients," he commented.

The lawsuit, Stephens et. al v. CMG Health et. al, was filed by Sahid on behalf of six therapists in New York last October in the U.S. District Court for the Southern District of New York.

CMG Health is one of nine named defendants in the suit. The others are FHC Options, Foundation Health Psychiatric Care Services, Green Spring Health Services, Merit Behavioral Care, MCC Behavioral Care, United Behavioral Systems, and Value Behavioral Health.

Lead plaintiff Edward Stephens, M.D., told Psychiatric News, "I have taken the position in my lawsuit that there has been a criminal conspiracy to defraud the public and patients. Mental health providers are dealing with a conscienceless class of business people." Stephens is a member of the New York County District Branch and a private practitioner in New York City.

A named defendant, Green Spring Health Services, issued a statement in response to the lawsuit allegations.

"The class-action lawsuit is completely without merit. As a national organization, we at Green Spring pride ourselves on our success in developing mutually beneficial relationships with providers as together we serve over 15 million people. Green Spring is sensitive to the economic pressures faced by providers in a competitive environment, but the allegations of antitrust conspiracy levied in this lawsuit are without basis in fact or substance."

Named defendant Merit Behavioral Care would not comment to Psychiatric News on the lawsuit, and CMG Health did not respond to a request for comment.

The plaintiffs also allege that the carveouts enforced a "total package of policies which permit them to have control over the provider," said Sahid.

Such policies included "insisting on cost-cutting methods, such as short-term mental health therapy, that were not justified under the circumstances."

The named carveouts also allegedly imposed gag clauses, refused to disclose their policies, and excluded or terminated providers who did not accept their policies, according to the lawsuit.

"Managed care is just a euphemism for managed denial, which is arbitrarily based on cost considerations and not diagnoses or outcomes," said Stephens.

His research on the merits of the case helped persuade the American Association of Private Practice Psychiatrists (AAPPP) to join the lawsuit as the first organizational plaintiff. The AAPPP was founded a few years ago by Eist, Edward Kirby, M.D., a consultant to APA's Headquarters Committee, Lawrence Kline, M.D., chair of APA's Council on Economic Affairs, and Lawrence Sack, M.D., AAPPP president, to "oppose corrupt practices of the managed care organizations," wrote Stephens in a March-April issue of The Bulletin of the New York State Psychiatric Association.

The AAPPP has since been joined by the New Jersey Psychiatric Association, APA, and the Nassau County and Suffolk County psychological associations in New York.

Sahid said it is important for the mental health disciplines to unite behind the lawsuit to pursue a common goal of restoring "a truly competitive environment." He referred to an African proverb often quoted by Eist, "Sticks in a bundle are unbreakable."

Stephens commented, "Once we deal with the collusive aspects of the defendant organizations, we hope to create a new deal for therapists and patients that would allow normal marketplace forces to emerge."

Stephens plans to present a list of injunctive-relief measures to the court to improve the mental health system for providers and patients. Possible measures include:

  • Barring any agreements among the defendants on subjects they should not be discussing and setting an outside "watchdog" to monitor compliance.
  • Creating an enforceable mechanism to prevent the defendants from dominating the NCQA and other standard-setting organizations.
  • Barring the use of "gag" and "termination without cause" clauses.
  • Requiring the defendants to put procedures in place to minimize the time they take from providers.
  • Regular disclosure to patients and providers of the defendants' financial compensation and statistics on utilization review decisions and appeals.

    Because treatment has been allegedly denied by managed care organizations based on arbitrary factors, Stephens is seeking accurate outcomes data to show the benefits of psychiatric treatment.

    Psychiatrists interested in crafting the request for injunctive relief can contact Stephens at (212) 249-8861. Psychiatrists with firsthand information related to the plaintiffs' allegations may contact Sahid at (212) 308-5930; e-mail:

    (Psychiatric News, July 18, 1997)