Litigation Issues in Managed Health Care: Theories of Relief and Defenses

• Publication year: 1998
• Pages: 103
• Citation: Vol. 27 No. 9 Pg. 103

27 Colo.Law. 103 Colorado Lawyer 1998.

1998, September, Pg. 103. Litigation Issues in Managed Health Care: Theories of Relief and Defenses

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103

Vol. 27, No. 9, Pg. 103

The Colorado Lawyer
September 1998
Vol. 27, No. 9 [Page 103]

Specialty Law Columns
Tort and Insurance Law Reporter
Litigation Issues in Managed Health Care: Theories of Relief and Defenses
by Heidi Boerstler, Scot W. Nolte, Elwyn F. Schaefer

The growth rate of health maintenance organizations ("HMOs") has been incredible. It is estimated that 75 percent of the privately insured are now in an HMO. The federal government, by encouraging the use of HMO coverage for Medicaid and Medicare recipients, has greatly accelerated HMO growth. At last count, 160 million Americans were in some form of a managed care plan, commonly referred to as a managed care organization ("MCO"). The figure for Colorado probably exceeds 2 million

The carpet has thus effectively been rolled out for anyone who wants to expand somehow the obligations of managed care programs. This includes everyone who thinks it should be easier to sue managed care plans.1 Meanwhile, although many MCOs in Colorado grew in the past year (an average of 18 percent growth in membership), much of that growth came from pricing that resulted in financial losses. Ten of Colorado's 19 HMOs lost money last year.2

In an article in the July 1998 issue of The Colorado Lawyer these authors examined the means by which the Colorado legislature has attempted to protect consumers in their relationships with managed care plans in Colorado.3 This article examines key issues that are raised when medical malpractice claims encounter the complex world of managed health care plans

Theories of Recovery

Traditionally, the treating physician has been the target of malpractice claims of negligence, lack of informed consent, breach of express contract, or battery. In the past, hospitals frequently avoided malpractice liability by arguing that only licensed professionals could commit professional malpractice. The hospital could not, per se, practice medicine, even though its policies, procedures, or hiring decisions may have affected patient care. This distinction was eroded by courts in most jurisdictions.

Under the doctrine of respondeat superior, for example, hospitals were found to be liable for the negligence of their salaried professional staffs as they performed their assigned duties under the control and direction of the hospital administration. Colorado, however, adheres to the rule that only a licensed professional, and not a hospital, can commit medical malpractice.4 The doctor is deemed to have directed even hospital employees and is therefore responsible for the patient's treatment and diagnosis. Any theory of relief against a hospital, however, must be premised on other grounds, since it, unlike the physician, is not licensed to practice medicine.

Litigation Against HMOs

MCOs in part shift the responsibility for control and influence over medical decision-making with respect to ensuring the competency of physicians who provide care to insureds. The most common form of MCO is the HMO. The HMO clearly influences physician selection and patient treatment through a variety of contractual arrangements with service providers. Although some MCOs employ physicians through salaried arrangements, typically the MCO will contract with a provider or group of providers for physician services.

Contracts are made with primary care providers (often called "gatekeepers") to provide services to plan members. Primary care providers are responsible for providing medical procedures identified in the appropriate plan benefit schedule(s) and within the normal scope of their particular speciality (such as family medicine). Primary care providers also are responsible for referring plan members to specialists when the care these members require is beyond the scope of their specialty.

Typically, each primary care physician is paid a discounted capitation rate each month for every plan member for whom he or she is the primary care physician. The "discount" (usually a specified percentage) goes to fund a "withhold pool" from which specialists are paid. At year end, if there is a surplus in the individual physician's withhold pool, he or she receives all or part of it back in the form of a bonus. Additionally, physicians are often paid a bonus for keeping their plan members' hospital days below a target number. Thus, there are tempting financial disincentives to refer plan members to specialists.

In order to address this apparent conflict of interest, new insurance products are being offered in which the insured may pay a higher premium in order to be assured direct access to specialist care. However, it is likely that few employers will offer such a benefit due to the higher costs involved.

Although state and federal laws mandate certain treatments as well as some of the express terms of any health insurance policy, there remains considerable latitude in determining what services are covered, what course of treatment will be followed, and, in particular, what specialists, if any, will be utilized and whether hospitalization will be considered necessary for a given ailment. To make such decisions, MCOs frequently use the services of "utilization review" ("UR") organizations. UR decisions (and the basis for those decisions) open another area for potential litigation.

The patient has little control over his or her treatment. The patient will likely obtain coverage through an employer who has selected a health insurance plan. The insurance plan even if...