Last week, a Nevada jury found that the state’s largest health maintenance organization (HMO) owed $24 million in damages for signing a penny-pinching contract that led to at least nine people being infected with hepatitis C. On Wednesday, that same jury went further, ordering the Health Plan of Nevada and Sierra Health Services — two companies that are now part of insurance giant United HealthCare — to pay an additional $500 million in punitive damages to the three plaintiffs in the case.

The trouble started in 2008, when Southern Nevada Health District in Las Vegas informed over 50,000 people that they might be at risk for hepatitis, AIDS, and other blood-borne illnesses. The subsequent investigation led officials to the endoscopy clinics of Dipak Desai, where at least nine people — and possibly up to 114 — were infected with hepatitis C during procedures in 2007:

[The two] companies…signed a low-bid contract with the physician who ran the clinic where the outbreak started, despite warnings that he sped through procedures and pinched pennies at his clinics so much that patients were at risk of contracting blood-borne diseases, attorneys for those suing the companies argued. [...]

“The jury sent a strong message not only to HPN and Sierra Health, but to every HMO and health insurance company in this country,” [plaintiffs' attorney Robert Eglet] said. “You’ve got to provide a fair and responsible reimbursement rate to medical providers so that they are able to provide quality health care to their insured members.”

Desai allegedly rushed through the outpatient procedures in an effort to reap as many reimbursements as possible from the UnitedHealth group, which hired him through a paltry contract allowing them to skimp out on spending too much money.

Lawyers for UnitedHealth plan to appeal the ruling, arguing that Desai alone should be held accountable for the consequences of his slapdash medical services. But private HMOs’ systematic use of these so-called “low-bid contracts” in an effort to preserve profits often leads to a race-to-the-bottom that trades public health for bigger profit margins. Without adequate reimbursements, providers have less incentive to spend more time on patient care, particularly when it comes to relatively quick outpatient procedures such as the ones involved in the Nevada case. That kind of corner-cutting can seem harmless until it leads to a public health disaster.

Such bottom line-oriented behavior is particularly worrying in light of states’ increasing use of privately managed Medicaid plans that contract with HMOs. These plans offer lower costs and premiums that can make private providers money while easing pressure on state governments’ budgets — but they can also lead to low-quality, dangerous medical care that disproportionately affects low-income Americans on the supposedly public entitlement. Several GOP-led states have declared that they will only participate in Obamacare’s Medicaid expansion if given the option to completely privatize their Medicaid programs.