UnitedHealth to Pay $500 Million Over Hepatitis Doctor

Two UnitedHealth Group Inc. (UNH) units must pay $500 million in punitive damages for failing to oversee a doctor blamed for giving colonoscopy patients hepatitis C through shoddy medical practices, a Nevada jury found.

Jurors in state court in Las Vegas deliberated more than six hours yesterday before handing down the punitive-damages award against Health Plan of Nevada and Sierra Health Services for turning a blind eye to Dipak Desai’s actions. The gastroenterologist has been blamed for infecting HMO patients with hepatitis C by reusing anesthetic vials and failing to sterilize equipment.

The award, the largest U.S. verdict this year, came less than a week after the same jury ordered the UnitedHealth units to pay a total of $24 million in compensatory damages to Bonnie Brunson and Helen Meyer, two of Desai’s former patients who contracted hepatitis after having colonoscopies performed by the doctor.

The trial is the first against units of Minnetonka, Minnesota-based UnitedHealth over the 2007 hepatitis C outbreak. Nevada officials were forced to notify 50,000 patients they may have contracted the potentially fatal blood disease from Desai’s miscues.

The total $524 million award is the largest in the U.S. in 2013, according to data compiled by Bloomberg. The next largest, for $400 million, is an award against Dow Chemical Co. (DOW) over claims the company conspired to fix urethane prices. That award is subject to tripling under U.S. antitrust laws. UnitedHealth’s 3.95 percent bonds, set to mature in October 2042, fell more than 1.1 percent today according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority, in the wake of the Nevada verdict.

Photographer: Dawn Villella/Bloomberg

A sign outside the headquarters of UnitedHealth Group Inc. is displayed in Minnetonka, Minnesota. Close

A sign outside the headquarters of UnitedHealth Group Inc. is displayed in Minnetonka, Minnesota.

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Photographer: Dawn Villella/Bloomberg

A sign outside the headquarters of UnitedHealth Group Inc. is displayed in Minnetonka, Minnesota.

‘Fantasy Damages’

“The number announced today has no grounding whatsoever in reality,” Tyler Mason, a UnitedHealth spokesman, said yesterday in an e-mailed statement. “It represents fantasy damages, not punitive damages.”

Health Plan of Nevada officials said on a website created to provide information about the trial that Brunson’s and Meyer’s cases were “driven only by attorney greed.” The insurers officials said yesterday they are planning to appeal the jury’s findings in the case.

The verdicts against the UnitedHealth care subsidiaries could set a “new legal precedent that is potentially of longer- term concern for all health plans, Sheryl Skolnick, co-head of research at Stamford, Connecticut-based CRT Capital Group LLC, said in a note to investors today.

Other States

The jury’s decision to hold the insurers responsible for Desai’s malpractice could prompt other states to follow Nevada’s lead and pass laws allowing such suits, Skolnick said. She has a buy rating on UnitedHealth’s shares.

Lawyers for Brunson, 70, and Meyer, 76, had asked jurors to award a total of $2.5 billion in punitive damages against the UnitedHealth units, which they said represents 15 percent of the companies’ profits over a 10-year-period.

The verdict should help prod insurers to put the quality of services provided by their doctors ahead of profits, Robert Eglet, Brunson’s lawyer, said in an interview after the verdict was announced.

‘‘Insurance companies make hundreds of millions of dollars and patients still don’t get the kind of care” to which they are entitled, the lawyer added.

Teva Verdicts

Nevada juries already have handed down multimillion-dollar punitive awards against Teva Pharmaceutical Industries Ltd. (TEVA), maker of the anesthetic Propofol that Desai reused in his procedures. Three juries awarded colonoscopy patients more than $750 million in punitive damages over the drugmaker’s decision to sell the anesthetic in oversized vials that invited such reuse.

Teva, based in Petach Tikva, Israel, agreed last year to pay $250 million to settle more than 80 lawsuits over Propofol sales.

Desai, 62, and two nurse anesthetists face second-degree murder charges over the death of a colonoscopy patient. The former doctor also faces federal fraud charges. Desai is set to go to trial April 22 on charges filed by state prosecutors.

Last week, jurors found the UnitedHealth units were negligent for failing to properly monitor Desai’s performance and “acted in bad faith.” That left the companies open to a punitive-damage award.

‘Loud Enough’

Robert Eglet, Brunson’s lawyer, urged jurors to return a hefty punitive award to send a message to insurers to properly monitor doctors they hire for their HMO networks.

The message had to be “loud enough to hear from Las Vegas to Wall Street,” Eglet told the panel in arguments over the punishment damages.

Lee Roberts, a lawyer for the UnitedHealth units, countered that the companies had been sufficiently punished by the $24 million jurors awarded in compensatory damages and urged the panel to forgo a punitive award.

If UnitedHealth had to face a $2.5 billion punitive judgment, the “amount would destroy us,” Roberts added.

Meyer and Brunson sued under a Nevada law requiring HMOs to file annual reports showing officials reviewed the quality of health services provided to their members.

The women’s lawyers argued officials of the UnitedHealth units knew Desai had a reputation for sloppy practice before giving him a contract to handle colonoscopies and then didn’t check the quality of his work. At one point, Desai was a member of Nevada’s Board of Medical Examiners, which oversees the licensing of doctors in the state.

Cavalier Attitude

During the trial, witnesses said Desai adopted a cavalier attitude toward patient safety, speeding through procedures so he could see as many as 20 patients in a three-hour period.

The women’s lawyers argued the insurers’ executives had an obligation to insure Desai was providing quality care to their HMO members and were required to vet his practices before hiring him.

Lawyers for the UnitedHealth units argued in court papers that health insurers shouldn’t be responsible for providing full-time monitoring of physicians hired as part of an HMO network. Health Plan of Nevada said Desai had been credentialed at several Nevada hospitals when it hired him.

The companies’ attorneys also said in court filings that Judge Timothy Williams wrongfully prevented them from putting on their full defense to the women’s claims.

The UnitedHealth units sought to show that administrators followed established practices when vetting doctors for their networks. Williams refused to allow jurors to hear that evidence.

The insurers also contend Williams erred in excluding files showing Nevada officials who inspected Desai’s clinic “never uncovered any evidence of supposed wrongdoing” at the facility.

The case is Meyer v. Health Plan of Nevada Inc., A5837999 (Consolidated), Clark County District Court (Las Vegas).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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