LOUISVILLE, Ky. -- For high-profile plaintiffs' attorneys suing the managed-care industry, the path to the courthouse leads through the home of Linda Peeno.

A team of lawyers headed by David Boies, the government's lead attorney in its antitrust suit against Microsoft Corp., visited Dr. Peeno in January and later signed her to a $250-an-hour consulting contract. In October, they filed a suit seeking class-action status against Dr. Peeno's former employer, Humana Inc.

Before suing Aetna Inc. last month, lawyers associated with Richard Scruggs, whose small Pascagoula, Miss., firm earned hundreds of millions of dollars suing the tobacco industry, flew to Louisville for a two-hour meeting with Dr. Peeno.

A physician and former insurance-claims reviewer, Dr. Peeno knows managed care from the inside. In recent years she has been remarkably successful as an expert witness in more than 20 suits brought by individuals against their health-maintenance organizations. Now the class-action attorneys are saying she could be critical to the success of their cases, too.

"Had she not been speaking out, articulating the problems, it would have been difficult to come up with the legal theories that underlie our case," says Hiram Eastland, a Greenwood, Miss., lawyer in the Scruggs group.

Dr. Peeno has testified repeatedly that HMOs promise coverage based on medical need but that they actually use various strategies to put cost savings first. The new wave of class actions allege that this discrepancy amounts to fraud. The theory has yet to be tested in court. But because the suits seek to represent millions of HMO members, they escalate the pressure on the plans to treat patients more generously or risk massive court judgments.

The companies say they haven't done anything wrong and will vigorously defend themselves. As for Dr. Peeno, lawyers for several HMOs say managed care has changed since she last worked for an HMO, in 1990. Noting that she still maintains health coverage with Humana under her husband's plan, Humana spokesman Tom Noland adds, "It's not very credible for her to voluntarily continue to be a member of a plan she criticizes." She says she needs insurance and doesn't have a choice about which plan her husband's employer uses.

Dr. Peeno's home on a quiet street here is piled with documents gleaned from the suits she has testified in. A 1995 internal Humana memorandum, for example, says case managers can earn bonuses of up to $750 per month by keeping the number of days members are hospitalized below set goals. In a 1995 report prepared for Humana, the consulting firm Coopers & Lybrand recommended that Humana adopt stricter medical-necessity guidelines that had been developed by an actuarial firm.

Mr. Noland acknowledges that Humana paid bonuses and uses the guidelines. "This is what the managed-care industry does," he says.

Earlier this week, the Scruggs group filed five new suits seeking class-action status against HMOs. Mr. Eastland says Dr. Peeno is so vital to the group's strategy that he suggested she sign a contract to work exclusively with his team, an offer she refused. Nevertheless, "we plan to have enough work to keep her busy full-time," Mr. Eastland says. Indeed, when Mr. Scruggs himself first appeared on ABC's "Good Morning America" to talk about his lawsuits, he went prepared with talking points drafted by Dr. Peeno.

Impressive Record

Dr. Peeno's record in cases brought by individuals is impressive. In two cases in which she testified, plaintiffs won verdicts totaling $64 million, though both are on appeal. Ten other plaintiffs got confidential settlements of six and seven figures, lawyers say. The other cases are pending.

Trained as a doctor, Dr. Peeno opted in the early 1980s to stay at home with her children rather than start her own medical practice, as her

husband had. In early 1987, she went to work part-time reviewing claims for Humana as an independent contractor.

It didn't take long for her to grow disillusioned. Dr. Peeno says she was shocked when her superiors told her to maintain a 10% denial rate on claims she reviewed. Humana says it has never ordered reviewers to deny a certain percentage of claims.

In October 1987, she confronted a case that still haunts her. She received a request to authorize coverage of a heart transplant. Though she believed it to be medically necessary, her supervisor and co-workers were worried about the hundreds of thousands of dollars the procedure would cost.

With that in mind, she called several colleagues to see if there was any basis to deny the request. One of them found a clause in the contract between the patient's employer and Humana that specifically excluded heart transplants. When Dr. Peeno called the heart surgeon and told him she was denying coverage, he said, "You've just issued a death sentence.' "

Humana's Mr. Noland says the patient's employer "elected specifically to have a contract with Humana for its employees that did not cover heart transplants. There was no discretion to be exercised."

The patient was discharged from the hospital, never received a transplant and died from heart failure 28 months later.

The fact that the decision boiled down to language in the contract "allowed me to soothe my conscience" at the time, Dr. Peeno says. But later, she was troubled by the feeling that she had made a medical decision based on economic imperatives instead of patient needs.

Leaving the Industry

Dr. Peeno quit after eight months and became medical director of a nonprofit HMO and the hospital that was its part-owner. In 1990, she left the industry for good.

"By that point I began to understand that this whole phenomenon of managed care was evolving without a real ethical critique," she says. "I decided to make it my goal to learn more about managed care than the managed-care industry knew about itself."

She spent the next two years studying health-care law, philosophy and ethics at the University of Louisville and Louisville Seminary. She began to speak to consumer and physician groups about the ethics of managed care. In 1993, she was asked to testify before a congressional committee about ways HMOs avoid paying claims.

Then in 1995, an Oklahoma City lawyer named Jerry Pignato called an attorney at the American Medical Association looking for an expert witness who could help him in a lawsuit he filed against an HMO for repeatedly denying his client referral to a specialist.

Despite frigid relations between doctors and plaintiffs' lawyers, the AMA attorney was glad to play matchmaker and recommended Dr. Peeno. Mr. Pignato hired her and won a six-figure settlement for his client, and Dr. Peeno's career as an expert witness took off. Last year, she says, she earned $19,000 as a witness and consultant. She expects that to rise to about $30,000 this year.

Dr. Peeno's repeated appearances have led defense lawyers to mount attacks on her credibility. In a recent case in state circuit court in Palm Beach County, Fla., Humana filed a motion to block her testimony, saying she wasn't qualified as an expert in medical ethics. The judge rejected the motion, in part, because the plaintiff's lawyers produced an internal Humana e-mail message that referred to Dr. Peeno as an "anti-managed care ethicist."

In her deposition in that case, defense lawyers pursued a highly personal line of questioning. "Have you been accused in any current legal proceeding of needing to curb your frivolous and uncontrolled spending habits?" she was asked. "Do you see a therapist?"

Dr. Peeno says the questions referred to allegations her husband made in June when their divorce proceedings were acrimonious. They have since agreed on terms of their divorce, and her husband has disavowed the allegations in a new affidavit. "It's taken a while to get used to it," she says, "but I'm resigned to living in a bell jar and having my life dissected by lawyers."

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