[Congressional Record Volume 141, Number 197 (Tuesday, December 12, 1995)]
[Extensions of Remarks]
[Pages E2338-E2339]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     GIANT HEALTH NET H.M.O. SUES COMPANY THAT GIVES IT A BAD RATING

                                 ______


                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Tuesday, December 12, 1995

  Mr. STARK. Mr. Speaker, the movement to managed care is sweeping the 
country, and it is vital that patients know whether the HMO's and other 
organizations they are being asked to join provide quality care or are 
financially sound.
  A bad sign for consumers is the lawsuit of giant Health Net HMO 
against the tiny rating firm of Weiss Ratings, Inc. Health Net claims 
that Weiss' analysis of Health Net's very shakey financial status--a 
``D-'' rating--was harmful to the HMO.
  Mr. Speaker, the law suit smacks of intimidation. The financial data 
was very clear. At the time of the rating, Health Net was in bad shape. 
Weiss has an excellent reputation for spotting companies in trouble. 
Customers and investors have a right to know. If lawsuits like this 
succeed in silencing the analysts and critics, there will be no 
competitive marketplace because the consumer will have no hope of 
making an informed decision. Ignorant customers don't make good 
customers--and Health Net's lawsuit is an effort to keep the public 
ignorant. The problem is, ignorance in picking a health plan can cause 
customer bankruptcy or even death.
  Enclosed is a portion of the New York Times article of November 24, 
1995, that describes the kind of anticonsumer lawsuit that Health Net 
is pursuing.

                [From the New York Times, Nov. 24, 1995]

             Rating Agencies Facing Lawsuits For Low Grades

                           (By Michael Quint)

       Rating agencies that grade the financial strength of 
     companies and local governments are accustomed to lawsuits by 
     investors who say that the ratings failed to alert them to 
     serious problems. But the agencies are not used to being sued 
     by the entities they rate.
       Now that is changing, as agencies ranging from the giant 
     Moody's Investors Service in New York, a unit of the Dun & 
     Bradstreet Corporation, to tiny Weiss Group, of Palm Beach 
     Gardens, Fla., are learning that they are vulnerable to suits 
     from companies or governments who say that their ratings were 
     so low as to be libelous.
       Rating agencies defend their right to publish opinions as a 
     matter of freedom of the press, regardless of whether they 
     were hired to issue the rating.
       But in two current disputes, one by the second-largest 
     health maintenance organization in California and the other 
     by the largest school district in Colorado, rating agencies 
     that issued unsolicited ratings were accused of using their 
     reports to drum up business.
       Unsolicited ratings can become an issue when companies and 
     local governments that paid to be rated wanted to choose the 
     agencies that they thought would give them the best ratings, 
     testifying to their strength. If an unsolicited rating was 
     much different from what the company thought it deserved, 
     sparks could fly.
       Malik Hasan, a doctor and chairman of Health Net, a 
     California health maintenance organization, said a D- rating 
     by Weiss ``made us into their poster boy.'' Mr. Hasan said 
     that Weiss used the rating to attract attention and sell more 
     of the agency's reports. Late last year, after Weiss gave 
     Health Net the lowest rating of any of the country's 13 
     largest H.M.O.'s, Health Net filed suit in Federal court in 
     Los Angeles accusing Weiss of interfering with its business, 
     and of defamation, slander and libel.
       Martin Weiss, chairman of the rating agency, said he had 
     spent more than $350,000 of his own money defending the 
     agency against the lawsuit and was in no mood to back down. 
     ``I am fighting to the bitter end, because if I cave in now, 
     the word would get around that the way to get a better rating 
     or to shut up Weiss is to sue him,'' he said.
       Although Mr. Weiss has sold only 21 reports about Health 
     Net, he hopes that H.M.O. ratings will raise his company's 
     revenues above the $764,000 total for 1994. The financial 
     ratings of H.M.O.'s were important, he said, because the 
     groups were growing and ``a group that is under financial 
     pressure could be more likely to cut corners on medical 
     care.''
       Concern about his reputation led Mr. Weiss to reject a 
     compromise settlement proposal a week ago, because it would 
     not have made clear that Mr. Weiss did not pay any damages to 
     Health Net, nor would he have been able to talk publicly 
     about the case.
       Dr. Hasan of Health Net said he was pushing the suit 
     because the criteria for Weiss ratings remained secret and 
     put too much emphasis on measures of financial strength that 
     did not accurately reflect the ability of his company to pay 
     the medical costs of its 1.4 million customers in California.
       Mr. Weiss defended his rating formula, saying it was 
     similar to one being developed by state insurance 
     commissioners for H.M.O.'s. 

[[Page E2339]]
     He said that his standards did not condemn the entire industry. Nearly 
     half the 385 H.M.O.'s he now rates are in the A or B 
     categories, with another 32 percent in the C rating group.

                          ____________________