Emerging physician and organization liabilities under managed health care.

• Author: Penhallegon, John R.
• Position: The New Perils of Health Care Law

THE managed care model for health care creates new potential liabilities for both physicians and the managed care organizations. Without some alleged error in the diagnostic or treatment decisions made by the front-line practitioner, theories of liability against the organization that may have played a role in those decisions become an academic exercise. The decisionmaking process of the physician in the trenches, and some resulting harm to the patient, is still the trigger for the various efforts to hold the managed care entity financially responsible.

Physicians now are confronted with new theories of liability that have their genesis in the managed care model. Traditional fee-for-service practitioners had to ensure that the care they provided met the relevant standard of care, but they rarely found themselves confronted with allegations that their treatment decisions were motivated by personal financial gain. With managed care and with capitation, where physicians may do better financially by not recommending certain diagnostic tests or treatment modalities, physicians may now find themselves defending not only their professional judgment but also their economic motivation.

PHYSICIAN LIABILITIES

1. Financial Conflict"

   According to the plaintiffs' bar, the root of the financial pressures on physicians is the manner in which they are compensated under a managed care model. Primary physicians are often paid through a mechanism termed "captitation." Capitation is an actuarially determined amount that is prepaid to physicians for each patient who chooses them as their primary care physician. The primary physician might be paid 80 percent of the capitation amount, with the remaining 20 percent pooled into a risk-sharing find as a reserve against specialty referral costs and hospital stays. A surplus from the specialty fund might be returned to the primary physician's office. Similarly, a surplus in the hospital fund may be returned to the primary provider. Conversely, if utilization is higher than expected, the primary physician might be obligated to reimburse a portion of that excess.(1)

   The contention is that primary care physicians are forced into an untenable conflict of interest between their own financial interests and the well-being of their patients. In its most simplistic form, the argument is that a particular diagnostic test or a particular specialty referral was not made because to do so would take money from the primary care physician's pocket.

   It is an argument fraught with danger for defendants. Although fewer patients today have a deity-like view of their doctors, they certainly don't want to find out that the reason they were not referred to a specialist for an indicated diagnostic study was their doctor's personal pecuniary motive. Juries won't react well to that evidence. If a jury concludes that referrals were not made for pure profit motive, there is certainly an increased potential for at least a de facto punitive award.

2. Defenses

   How does one successfully diffuse the emotionally charged appeal that your client considered his financial interest or gain paramount to the health of his patient?

   The most important single strategy is to avoid being dragged into defending the economics of managed care in the first place. Defense counsel must avoid that battle -- arguing the economics of capitation, the nuances of risk sharing pools, or suggesting that the few dollars that might have potentially been realized by your client couldn't possibly have been enough to cloud professional medical judgment. If plaintiffs are allowed to litigate this issue, and defense counsel joins that battle, the case no longer is being tried simply on standard of care. Instead of the jury's determining whether the physician's decision complied with the standard of care, it is deciding whether the physician is guilty of greed.

   How to diffuse this issue? First, it is important to recognize that the managed care model, including having physicians bear financial consequences of excessive or unnecessary treatment, was not created from thin air. Managed care exists because of important public policy considerations, namely the effort to increase access and affordability of health care. Enabling legislation specifically recognizes that financial incentive plans are a necessary tool for fulfilling that policy.

   In Pulvers v. Kaiser Foundation Health Plan,(2) a health plan member sued the plan and a participating physician for failure to refer the member for a biopsy that, it was alleged, would have led to a timely diagnosis of a condition known as Bowen's disease. The plaintiff alleged that because the financial workings of the plan included an incentive payment plan whereby individual doctors were financially encouraged to be conservative with regard to tests and treatments, patients were fraudulently led to believe they would receive "the best quality" of care and treatment when such was not the case.

   The California Court of Appeal rejected that theory, pointing out that Section 1301 of the Health Maintenance Organization Act of 1973, 42 U.S.C. [sections] 300e, specifically requires the use of incentive plans as a means of reducing unnecessarily high medical costs. The court found that the Kaiser plan, while incorporating those financial incentives, in no way suggested that individual doctors refrain from recommending whatever diagnostic procedures or treatments might be required by the standard of care.

   Various state statutes also legitimize the effort to control health care costs with financial risk sharing arrangements between individual doctors and the plans themselves. One example is found in the California Business and Professions Code, Section 16770(a) of which states: "It is the intent of the legislature that the citizens of this state receive high-quality health coverage in the most efficient and cost-effective manner possible."(3)

   With that public policy background, defense counsel must-seek, by way of motion in limine or other pretrial proceedings, to eliminate the financial issues from the case and to refocus on standard of care. After all, if the standard of care was met with respect to a particular patient, the fact that the primary physician might tangentially receive a financial "benefit" should be irrelevant.

   That was the conclusion reached by the Minnesota Court of Appeals in Madsen v. Park Nicollett Medical Center.(4) The physician allegedly failed to recommend hospitalization of his obstetrical patient in possible labor with premature rupture of membranes, ultimately leading to premature delivery of a severely afflicted baby. The expert testimony on whether hospitalization, as opposed to home care, was required under the circumstances was hotly contested. The plaintiff sought to introduce evidence at trial that the physician's status as an HMO member meant that her hospitalization would have adversely affected her doctor's profits. The court affirmed the trial court's decision to exclude the evidence, noting that it was "only marginally relevant, and potentially very prejudicial."

   Defense counsel's ability to exclude financial incentives by way of pretrial rulings requires an understanding of the true nature of the incentives that exist in any particular contract and the manner in which the incentives are calculated. A primary care physician's participation in a shared "pool" is further removed from a direct incentive not to treat than reimbursement tied solely to one doctor's referral history.

   In Swede v. Cigna Health Plan,(5) the plaintiff alleged that financial considerations prompted a gatekeeper physician not to authorize biopsy of a breast lump. In holding that any connection between the HMO financial arrangement and the nonreferral decision was too remote to be of any probative value, the Delaware Superior Court noted that the number of referrals or hospitalizations by any one physician did not directly determine their compensation, but instead the risk was pooled by a number of participating physicians. The decision not to refer an individual patient therefore did not directly affect payment. There also was no evidence that the physician had ever been told that...