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When Aetna Inc. fired its healthcare unit’s Chief Litigation Officer David F. Simon May 2, it turned a page in the legal history of managed care. Simon is described as combative, abrasive and unbending in interviews with 11 former colleagues and adversaries. Five years ago, those were key ingredients in a management tonic that Hartford, Conn.’s, Aetna prescribed for itself when it bought US Healthcare, the aggressive Blue Bell, Pa., HMO founded by druggist-turned-billionaire Leonard Abramson. But with public pressure mounting to remove barriers to HMO lawsuits, Aetna is now actively working to rebuild bridges with doctors, policyholders and the public. As a result, abrasiveness is out, as Simon and other key executives from US Healthcare are now learning. As chief legal officer, Simon was famously quick to sue and slow to settle, according to a former Aetna in-house lawyer. Simon’s departure came just after the surprise retirement announcement of Aetna US Healthcare president Michael Cardillo — a move that company insiders more realistically describe as an ouster. In addition, Cardillo’s top field executive Timothy Nolan left in January. With those departures, Aetna appears to be reclaiming its traditional, noncombative, identity, while purging key members such as Simon and Cardillo from the five-year-old U.S. Healthcare management team. Most significantly, in February Aetna’s board forced the departure of CEO Richard L. Huber — a former banking executive whose controversial public statements placed him closer to US Healthcare’s brash style. Huber and Simon were succeeded by two veterans as smooth as the previous two were rough, men with blue-chip credentials. Longtime board member William Donaldson became CEO and chairman. He is a former president of the New York Stock Exchange and founder of Donaldson, Lufkin & Jenrette. Edward Shaw replaced Simon as general counsel. He’s a 13-year veteran of New York’s former Millbank, Tweed, Hadley & McCloy and the former general counsel of Chase Manhattan Corp. Shaw said Simon’s speedy removal was not a reflection on his performance. “All managed-care companies have witnessed an explosion in litigation. As the largest, we get our fair share, which means more than anybody else,” Shaw said. Nonetheless, Shaw indicated a stronger desire to solve controversies without resorting to court battles. He acknowledged the perception that Aetna has been “tougher on our contract negotiations with our providers — hospitals, physicians — and that we would tend to litigate things when there are differences of opinion, rather than try to resolve them and compromise.” Although Shaw was not critical of Simon, one former colleague, who spoke on a not-for-attribution basis, said Simon had maintained an aggressive and unbending style, imported from US Healthcare, which damaged Aetna’s reputation with the public and in the medical and political establishments. While Simon was not a popular boss, his firing at the company’s Blue Bell headquarters was unexpected, and fraught with emotion. A Hartford-based Aetna attorney confirmed. Simon declined to comment on events during his tenure at Aetna, and directed inquiries to “people who know me well,” such as former U.S. Healthcare executives and former partners at a firm he left in 1990. He provided part of a goodbye e-mail that he sent to selected veterans of his former law department, recounting 12 highlights over his 17-year history with HMOs: “We’ve basically created the field of managed care law,” he wrote. ROUGH GOING In the financial arena, Aetna has also had a rough ride. Over the past 12 months Aetna’s share price has fallen from $95 to under $40 — a period Donaldson has called “a rough patch.” Now the company is reorganizing into two separate firms — a health company and a financial services company — while embarking on a legal and public relations campaign to rebuild trust with the broad constituencies it serves. Donaldson’s goal is to eliminate pent-up popular frustration that could lead to additional large jury awards against HMOs, or to government countermeasures, including legislation authorizing lawsuits against HMOs. William J. Sweeney, of New Britain’s Sweeney & Griffen, is a former president of the Connecticut Trial Lawyer Association. He agrees that Simon’s tough-guy stance — with doctors and with lawyers — has helped make Aetna a defendant “that everybody loves to hate.” Aetna recognizes that, and Simon’s recent firing, along with the exits of Cardillo and Huber are part of a deliberate corporate plan, Sweeney asserts. “The health-care business is about relationships,” he says. Those range from hard-to-quantify relations with doctors, relationships with consumers who have few clear ways of knowing what they’re buying and relationships with the public at large, which include future customers and jurors. “Aetna’s finally realized,” says Sweeney, “that the hard-ass approach wasn’t working.” PICKING FIGHTS When it caught the eye of Aetna, the US Healthcare was a great success story — the brainchild of druggist-turned-billionaire Leonard Abramson. The company made money by taking tough positions and “not settling things,” as one Aetna veteran insider put it. Simon, by all accounts, excelled at that. Although technically Aetna bought US Healthcare, it was Simon’s executive team that wound up running the show and remaking Aetna’s image. After the merger, Simon came in as Aetna US Healthcare’s general counsel, reporting exclusively to Cardillo, the CEO of Aetna US Healthcare. Simon did not have to relocate from Blue Bell or to report to Aetna, Inc.’s general counsel. Even so, Simon helped set the public tone of Aetna in a cataclysmic period of its history as the company remade itself into the nation’s largest health insurer, carving a 10 percent market share. With its giant size, however, came giant setbacks. In January 1999, Simon’s law department sustained a record loss for an HMO, a $120 million plaintiff’s award in California. In the wake of that stunning verdict, Simon commented that the jurors were “driven by emotion, not any logic.” Escalating the attack, CEO Huber told The Hartford Courant that the loss was caused by “a skillful ambulance-chasing lawyer, a politically motivated judge and a weeping widow.” Although Huber later apologized to the widow, he is being sued by the lawyer. His three-pronged remark had something to offend everyone, and was a portentous slip towards his end. Finesse was not Simon’s strong suit either. For example, in 1998 Texas sued the nation’s top HMOs, charging they had created secret incentives so doctors would skimp on care. Simon’s law department took the position that Aetna US Healthcare had done absolutely nothing wrong, and that Texas was simply “trying to extract its pound of flesh, because everybody hates HMOs,” says Linda Eads, state’s deputy attorney general for litigation. Ironically, hardball expert Simon may have sensed the limits of tough tactics long before Huber’s fall, and well in advance of Donaldson’s housecleaning. Midway through the negotiations in Texas last fall, Aetna’s early intransigence changed, said Eads. Initially, Aetna’s positions were so negative that Eads was sure litigation was inevitable. But something changed. Simon may have concluded that a negotiated settlement would be good for Aetna, Eads said. Indeed, none of the other defendants seemed as willing to negotiate as Aetna at that point, and the only settlement Texas reached was with Aetna. The Texas settlement, reached in April, establishes a consumer ombudsman at Aetna to process complaints for policyholders in Texas, and gives doctors greater autonomy in treatment decisions. While critics note that the agreement has evident loopholes, optimists say the Aetna-Texas plan could become a model for other insurers and other states. Simon, she says, came up with key terms for small physician groups. Under the final agreement, some doctors can be paid on a fee-for-service basis, rather than on the one-rate-for-all payment plan. “He was very instrumental in breaking that logjam,” Eads said. “Certainly David Simon was not the ogre here.” QUESTIONABLE STRATEGIES Yet as a proponent of forceful litigation, Simon helped set the stage that kept Aetna’s stock price at the same level it was 20 years ago. As a rich industry that stood low in public esteem, managed care became a litigation magnet. Top plaintiff veterans, flush with victory in the fight against Big Tobacco, have to date filed six actions against Aetna US Healthcare in the past year, to the dismay of Wall Street insiders, already worried that states or Congress could give policyholders the power to sue HMOs. The class actions remain stayed while a test case is considered by the 3rd U.S. Circuit Court of Appeals. In Maio v. Aetna US Healthcare, Aetna argues that statements about delivering quality health care were not promises, and should only be regarded as so much “puffing.” Of all the cases Simon’s law department oversaw, one in particular stands out. Michael J. Bidart, the trial lawyer from Claremont, Calif., is the man Huber called an ambulance-chaser, without evident basis. Indeed, Bidart says he first met his future client, David Goodrich, at Pepperdine School of Law, where they were both students. Goodrich, a state prosecutor, developed stomach cancer, which was eventually fatal. During the course of his treatment, Aetna declined to authorize expensive procedures it deemed experimental. Bidart says Aetna sped a letter to Goodrich’s deathbed to inform him of its decision to limit coverage. Says Bidart: “He went to his grave believing he’d left his wife with about $750,000 in medical bills.” Of Teresa Goodrich, David’s widow, Bidart says, “She was a saint.” Despite the grim facts and high medical bills, Simon’s defense team never offered Teresa Goodrich more than $1.2 million, Bidart says, and that was rejected as inadequate. The case failed to settle, and the jury’s whopping $120 million verdict, of which $116 million was punitive, was evidence that “ordinary people are mad at HMOs,” Bidart said. The amount is currently on appeal, and Aetna lawyers predict that it will be substantially reduced. DAMAGE CONTROL Donaldson isn’t waiting for appellate courts to trim Aetna’s attitude. In an unusual speech May 10 to Connecticut doctors, he introduced a theme of respect and conciliation — without a word of blame to be found. He acknowledged that Aetna’s relationship with physicians had been “contentious, to say the least.” As the industry leader, “Aetna has become the ‘lightning rod’ for all that is right, and all that is wrong, with managed care.” Moreover, Donaldson vowed new flexibility; less red tape and confrontation. “There are those who say the pendulum has swung too far,” Donaldson said. “I agree with them. I think it’s time to bring it back to center.” James S. Bourne contributed to this article.

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