BOSTON -- Health maintenance organizations in Massachusetts can scale back prescription drug benefit coverage to Medicare beneficiaries, a federal judge has ruled.

U.S. District Court Judge Richard Stearns said a 1997 federal law pre-empts a 1994 Massachusetts law and regulation that requires Medicare HMOs to provide unlimited or no prescription drug benefits.

Judge Stearns' ruling follows nearly three months of battles between Massachusetts HMOs and the state's Division of Insurance over the right of the HMOs to cut prescription drug benefits (BI, Aug. 24).

That battle began in August, when several HMOs said they intended to pare back benefits to keep coverage affordable. The Division of Insurance said the cutbacks violated state law, and it sued Harvard Pilgrim Health Care to prevent any reduction in benefits. In turn, the Massachusetts Assn. of HMOs sued the Division of Insurance. Those suits later were combined before Judge Stearns.

Massachusetts is the only state with a prescription drug mandate on Medicare HMOs. But had state regulators prevailed, that could have given the green light to other states to impose their own benefit mandates on Medicare HMOs, raising the cost of coverage and making the plans less attractive to retirees.

A Harvard Pilgrim spokeswoman hailed the decision as enabling it to provide to its membership the "most generous benefits we can afford."

Massachusetts Attorney General Scott Harshbarger said he would attempt to work with the state's representatives in Washington to find a legislative solution.

Last month, Sen. Edward Kennedy, D-Mass., unsuccessfully tried to attach an amendment to a broader budget bill that would have protected the state mandate from federal pre-emption.

CIAB: Disclose compensation

WASHINGTON -- The Council of Insurance Agents & Brokers is urging its members to disclose to their clients any compensation arrangements they have with insurers.

"The Council's members believe that their clients' interests and concerns are paramount. We think that this disclosure will permit open and frank discussion about compensation arrangements with insurers, if the client chooses," Ken A. Crerar, president of the Council, said in a release on the association's position on producer compensation.

In its position statement, the Council said it supports the long-standing practice in the industry of insurers compensating agents and brokers. "We believe that such arrangements enhance an agent's or broker's ability to access markets in the clients' interest. Such arrangements also enable and encourage agent and broker investments in technology, market research and risk management methods that deliver value to clients over the long term by lowering the cost of risk."

However, because "even the perception of a conflict of interest is detrimental to developing a trusting relationship," the Council urges members to disclose to clients that they may have compensation arrangements with some insurers and to discuss the matter further if clients have questions or concerns.

Aetna appeals Texas decision

NEW ORLEANS -- Aetna Inc. is appealing a Texas federal court decision that upholds the right of injured patients to sue their health maintenance organizations for damages.

Aetna subsidiaries challenged Texas' groundbreaking "right to sue" law in 1997 almost immediately after it became law. But U.S. District Judge Vanessa Gilmore ruled on Sept. 18 that patients alleging inadequate care should have their day in court (BI, Sept. 28).

As part of her ruling, Judge Gilmore also invalidated an independent review process the law created for HMO members who are denied treatment by their health plan. Texas Attorney General Dan Morales has appealed that portion of the decision to the 5th U.S. Circuit Court of Appeals.

The case has been closely watched nationally because Texas was the first state to pass legislation allowing lawsuits against HMOs. Other states and Congress have been considering similar measures. Recent court decisions have permitted HMO malpractice suits in at least two jurisdictions:

* A federal judge in Connecticut ruled last week that patients can sue HMOs in that state for negligence. The ruling involved a 16-year-old who killed himself the day he was placed in a drug treatment program by Physicians Health Services, a Trumbull, Conn., HMO.

* A week earlier, a Pennsylvania appellate court issued a ruling opening the door to malpractice suits against HMOs in that state (BI, Oct. 26).

Aetna's appeal was filed just days before one of its subsidiaries became the first insurer to be sued under the 1997 law. The family of a 68-year-old Fort Worth man filed suit last Monday, alleging that NYLCare Health Plans denied him adequate hospitalization despite suicidal impulses and protests from his physician. After his discharge, the man drank antifreeze and died. NYLCare, which Aetna acquired in March, said it would vigorously defend itself against the allegations.

TIG mulls sale, other options

NEW YORK -- Insurer TIG Holdings Inc. is "considering strategic alternatives" with its investment banker, Goldman Sachs & Co., including a possible sale, restructuring or recapitalization of the company, officials announced last week.

The announcement was included in New York-based TIG's third- quarter results, which showed an unexpected loss of $46.8 million, compared with net income of $39.8 million during the year-earlier period.

Factors in the weaker results included expenses related to the runoff of an automobile insurance program, increased allowances for reinsurance recoverables and other receivables, severance paid to former employees, Year 2000 expenditures and the write-off of certain capitalized software, the company reported.

Bermuda exchange sets rules

HAMILTON, Bermuda -- The Bermuda Stock Exchange has developed new regulations aimed at attracting securitized insurance products, such as catastrophe bonds and swap contracts.

A stock exchange listing will become increasingly important for these products as they are marketed more widely to institutional investors that face limits on investments in unlisted securities, the BSX notes.

Under the new regulations, now in effect, cat bonds and other products may be issued by "special purpose" companies set up for the issues. The securities must be fully negotiable and may be purchased only by qualified investors in amounts not less than $100,000.

The issuer also must maintain a paying agent acceptable to the BSX, and the securities must be eligible for deposit with the BSX's clearing and settlement facility or another such facility approved by the BSX.

The regulations also set out application procedures for securities issues, requirements for offering prospectuses and continuing obligations of issuers. For example, a prospectus must include general information about the issuer, a description of the structure of the deal and information about any simultaneous offering of some of the securities in other markets.

An issuer's continuing obligations include notifying BSX of material events that could affect the issuer's financial position and changes in any terms of the securities.

BSX fees are $2,500 for an initial debt securities offering from a new issuer, $1,000 for subsequent offerings from listed issuers, and an annual fee of $1,000 for both categories.

Medical groups sue Oxford

NEW YORK -- Three medical groups are suing Oxford Health Plans Inc., accusing the troubled HMO of withholding important information and failing to make required payments.

The three groups are Complete Medical Care PC and United Medical Care PC, both physician groups; and Comprehensive Health Care Corp., a medical management company, all controlled by Dr. Oscar Fukilman.

The groups allege that by withholding information about its members and failing to make payments for medical services provided, Oxford breached its capitation agreements. As a result, the suit claims the medical groups could not make payments to their physicians.

Filed in New York state court, the suits seek a total of $155 million in compensatory damages and $1 billion in punitive damages.

Plaintiffs' attorney Milton Mollen said through a spokeswoman that the $1 billion amount was requested "to teach them a lesson."

In a written reply to the suit, Oxford called the charges "totally absurd." The HMO said it stopped paying the plaintiffs and started paying the physicians directly in August, "based on reports that these groups were not properly paying their affiliated physicians."

PBGC proposes rule change

WASHINGTON -- Employers will be able to pay Pension Benefit Guaranty Corp. premiums at the same time they file the chief pension financial report with the Internal Revenue Service, if a forthcoming PBGC proposal is approved.

Under the change, the PBGC premium filing date for employers with calendar year plans would be pushed back to Oct. 15 from Sept. 15 to match the deadline for filing Form 5500.

The proposed change, which would take effect next year, is intended to cut employers' administrative burdens, said PBGC Executive Director David Strauss.

Briefly noted

The Risk & Insurance Management Society Inc. has released the Quality Toolkit. The toolkit teaches professionals how to use the Quality Scorecard, a customer satisfaction survey developed by RIMS and the Quality Insurance Congress. . . .GE Capital Corp. has completed its acquisition of Kemper Reinsurance Co., which will be renamed and become a unit of GE Global Insurance Holding Corp. . . .Gerling Global Reinsurance Corp. has completed the acquisition of Constitution Re Corp. and its subsidiaries. Gerling Global Re also has acquired Bermuda-based Rex Re. . . .Bermuda-based PartnerRe Ltd. said last week that it signed an agreement to purchase Winterthur Group's reinsurance operations in New York and Dallas. PartnerRe previously signed a similar agreement to acquire Winterthur's Swiss reinsurance operations (BI, Sept. 21). . . .The board of directors of Poe & Brown Inc. approved changing the name of the Daytona Beach, Fla.-based broker to Brown & Brown Inc. The change, a return to the original name before it merged with Poe & Associates Inc. in 1993, is subject to shareholder approval at the next annual meeting. . . .Insurance Commissioner James Long announced late last month that North Carolina's workers compensation base rates would remain unchanged in 1999. . . .Charles E. Huff, former chief fraud investigator for the Georgia Insurance Department, died of a heart attack last week at age 51. Mr. Huff, who led an investigation of insurance con man Alan Teale, left the Georgia department in 1995 to become a senior manager with Murphy & Maconachy Inc., a Fairfax, Va., investigations firm.