LIABILITY
FOR COVERAGE DENIALS BY MANAGED CARE PLANS
Brock D. Phillips
5. Strategies to Reduce Liability for Malpractice Claims
There is an inevitable tension between the desire to more aggressively "manage" care and control access to providers, and exposure to potential liability for malpractice claims under theories of direct or vicarious liability. To the extent that market forces continue to push Plans toward exerting greater control over their providers and care which is delivered, Plans must accept the increased risk of liability claims.
Some strategies to reduce the potential burden of malpractice liability claims include:
1. Obtaining appropriate insurance to cover malpractice risk;
2. Have an effective and well-qualified medical policy team which can carefully consider policies on access to specialists, length of stays, level of intensity of in-patient care, etc;
3. Do real, meaningful credentialing of the Plan's panel of providers. This should include periodic recredentialing to ensure that providers continue to qualify. This should also include a program to deal with impaired providers. This duty may be contractually delegated to IPAs or large medical groups with requirements that the groups defend or indemnify the Plan if litigation arises;
4. Evaluate the possible value of including a requirement in Plan documents for binding arbitration or mediation of any malpractice disputes;
5. Consider an external review process for controversial or high risk claims (some state statutes have begun to require this procedure);
6. Employ a good risk manager who can work with Plan providers to lower risk and improve quality of care; and
7. Involve knowledgeable counsel in policy decisions and high-risk individual situations. Counsel should ensure that the Plan is in compliance with the many state and federal laws being enacted which dictate management of certain medical problems (for example length of stay legislation, etc.)
6. Liability for Failure to Disclose Financial Incentives
In early 1997 the Eighth Circuit shocked followers of managed care law with its decision in Shea
v. Esensten . In that case plaintiff Dianne Shea, the widow of decedent Patrick Shea sued
Medica, an HMO provided to Mr. Shea through his employment at Seagate Technologies. Mr. Shea had various cardiovascular symptoms and complaints, but his primary care physician repeatedly reassured Shea that no referral to a cardiologist was necessary. Shea could not see a cardiologist without the consent of his gatekeeper primary care physician. Shea died of a heart attack shortly after his request to be referred to a cardiologist was turned down by his primary care physician. Pleaded in the complaint are allegations that Medica's contracts with its primary care physicians provided financial incentives not to refer patients to specialists.
Medica invoked ERISA preemption of the Shea complaint and removed the matter to federal court, where the case was later dismissed for lack of an actionable ERISA claim. Shea appealed to the third circuit, urging that her suit should not be deemed preempted by ERISA, and even if it is, that she stated claims actionable under ERISA.
The third circuit ruled (somewhat reluctantly) that ERISA does govern Shea's claim, but went on to hold that Ms. Shea had framed a legitimate claim against the plan for failing to disclose its financial incentives designed to discourage referrals to consultants. The court found that the plan had a fiduciary duty to disclose such financial incentives to all plan participants in its plan documents. The ruling was petitioned to the U.S. Supreme Court, which declined to grant certiorari.
It seems certain that an enormous number of managed care plans have financial incentives regarding referrals (and perhaps other relevant care issues) which, under
Shea, they are required to affirmatively disclose to all plan members in the plan documents. It seems equally certain that this announced disclosure duty is presently widely breached by plans across the country. This state of affairs invites smart and aggressive plaintiffs attorneys to bring claims based upon Shea for breach of fiduciary duties against plans which have not disclosed plan financial incentives to providers as required by
Shea.
Two cases have come down since Shea that develop the issue of potential liability for treatment disincentives. The first such case is Pegram
v. Herdrich. In this case the U.S. Supreme Court recently overturned a decision of the 7th Circuit which had held that a physician owned HMO may be sued for breach of fiduciary duty under ERISA for adopting a financial incentive structure which rewarded the physician-owners for limiting medical treatment, tests and referrals for the HMO's subscribers.
The facts of Pegram are common to these types of cases. The patient was enrolled in a physician owned HMO and brought suit related to allegations of delayed diagnosis of appendicitis. She suffered a ruptured appendix and consequent peritonitis arising out of an alleged 8-day delay in her diagnosis. The district court granted summary judgment to the HMO, but the circuit court reversed, holding that the plaintiff had stated a viable cause of action under ERISA for breach of fiduciary duty. The 7th Circuit observed that ERISA requires plan fiduciaries to act solely in the interest of plan beneficiaries. It held that the HMO's physician owners were plan fiduciaries as they had the exclusive right to control every aspect of the HMO's governance, including resolution of claims for benefits made by subscribers. The court ruled that the plaintiff had adequately pled a breach of fiduciary duty by alleging that the HMO's financial incentive structure created a conflict of interest which encouraged the HMO's physician owners to maximize their incomes by limiting subscribers' medical treatment, testing and referrals.
