New Liability Exposures and Insurance Needs for Managed Health Care Providers

By Paul Weber, JD

[Digest, Spring, 1997]

Payors’ dependence on managed care organizations (MCOs) has grown rapidly in the past five years as the search continues for ways to slow or reverse rising health care costs. MCOs have evolved into many different forms, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), individual practice associations (IPAs), and physician hospital organizations (PHOs). Although they differ in ownership and services provided, these organizations all attempt to lower costs by managing utilization of health care services and selecting and contracting with providers.

To remain viable in this new health care environment, many ophthalmologists are rapidly forming more sophisticated corporate entities and partnerships to provide services under managed care contracts. The individuals who serve as directors and officers of these entities and the entities themselves face liability exposures when administering managed care activities that are not typically covered under a standard malpractice insurance policy. The staff and employees of these groups also face new potential liability as they carry out and administer managed health care activities within these entities.

In response to these new liability exposures, many professional liability carriers, including OMIC, are adding coverage for Directors and Officers (D&O) Liability, Managed Health Care Errors and Omissions (E&O) Liability and Vicarious Medical Professional Liability.

D&O Liability

D&O insurance provides coverage for claims and lawsuits against the directors and officers of a corporate entity for wrongful acts in their capacity as such. A “wrongful act” is any actual or alleged breach of duty, neglect, misstatement or misleading statement, or other act or omission committed by directors and officers in the discharge of their corporate duties.

Common liability exposures faced by directors and officers that are covered under a D&O liability policy are:

• Corporate mismanagement. Shareholders bring an action on behalf of the insured corporation and seek to hold the directors and officers liable for financial loss due to corporate mismanagement.
• Wrongful termination. A former employee alleges she was terminated because of mental disability.
• Breach of duty, of loyalty and care, or fraud.Shareholders allege that directors and officers are liable for financial loss due to failure to detect and prevent embezzlement or self-approval of bonuses and loans.
• Misrepresentation of financial condition. Insurance regulators allege that the directors and officers misrepresented the financial condition of the corporation to induce new members.
• Unfair exclusion from provider network. A physician alleges that directors and officers failed to renew his provider agreement because of his age.

E&O Liability and Vicarious Medical Professional Liability

Managed health care E&O liability insurance generally covers organizations and their employees for specific tort liabilities associated with the managed care activities conducted by providers in a managed care setting.

Common liability exposures faced by managed care organizations or providers that are typically covered by a managed health care E&O policy are:

• Performance of utilization review. An enrollee holds an MCO liable for bodily injury and/or emotional distress after the MCO withholds pre-authorization of benefits for a glaucoma procedure.
• Performance of peer review. A patient holds an MCO liable for bodily injury allegedly resulting from the MCO’s failure to adequately investigate its healthcare providers.
• Vicarious liability for conduct of affiliated providers. An MCO is held vicariously liable by an enrollee for an employed or network ophthalmologist’s alleged negligence.
• Misrepresentation, unfair competition. A plaintiff alleges that an HMO solicited members through intentional misrepresentations in advertising about the quality of its care or scope of its benefits (e.g., ABC provides the best ophthalmic care in the Southwest).

These are new liability exposures faced by ophthalmic organizations as they carry out and administer managed health care activities within their entities. Unlike D&O insurance, E&O liability insurance can protect the organization as well as its employees, committee members, and medical directors from alleged errors, omissions, and breach of duties made in managed health care administration.

Managed Care Liability Claims

Although D&O and E&O policies provide coverage for claims arising from a number of different activities and operations, the majority of new liability exposures created by MCOs are associated with three activities: (1) employing or contracting with health care providers; (2) selection of providers; and (3) utilization review.

Managed care D&O and E&O claims typically are complex and involve many parties. Pinpointing “pure” managed care related claims is difficult because many claims that name directors and officers and MCO employees include allegations of personal injury, libel/slander, or breach of contract. As such, these claims can be very expensive and time consuming.

Unfair Exclusion from Provider Network

The following is an example of an MCO claim related to unfair exclusion from a provider network:

A corneal specialist, Dr. Smith, sued an ophthalmic-specific IPA, claiming that the IPA was operating under pressure to reduce utilization and excluded him from the IPA because he ordered too many diagnostic tests and made too many referrals to subspecialists. Dr. Smith alleged that the IPA defamed him and interfered with his ability to make a living after his termination by spreading rumors that he was senile, dysfunctional, incompetent, and no longer practicing.

The lawsuit against the IPA, its directors, and CEO included causes of action for termination of contract in violation of public policy, age discrimination, breach of contract, defamation, tortious interference with prospective economic advantage, blacklisting, and intentional and negligent infliction of emotional distress. It sought unspecified economic and punitive damages.

The IPA, which staffs the ophthalmic departments of two prestigious hospitals, denied Dr. Smith’s claims. The CEO refuted Dr. Smith’s allegations and stated that “Dr. Smith, like all physicians in the IPA, worked on the basis of annual contracts, renewable each year.” In light of the lawsuit, the CEO could not discuss the reasons for not renewing Dr. Smith’s contract.

The above scenario is based on an actual claim brought by a California pediatric gastroenterologist against a medical group. Although the specialties and corporate form are different, it is not hard to imagine such a claim being brought against an ophthalmic-specific group.

A physician’s exclusion from a program may trigger claims that economic or other concerns prompted the exclusion or wrongful termination from the program, resulting in a reduction in the physician’s potential patient market and earnings. In these cases, the peer review process can offer grounds for anticompetitive allegations, particularly if the peer review panel includes a competitor who may benefit financially from the denial of member status or removal of the physician from the panel. Given the need to include physicians practicing in the same specialty who can consider the quality of a physician’s care adequately, peer review panels provide fertile ground for these allegations. The risk is increased if a physician’s professional activities need improvement but are not grossly negligent.

Risk management tip: If a physician is to be excluded or removed from a panel, the MCO may wish to have an independent credentialing agency review the case and approve the proposed action. Concurrence of an independent agency improves the MCO’s defense against claims of antitrust or wrongful termination.

Vicarious Liability and Negligent Selection of Provider Claims

The following is an example of a claim brought by a patient-enrollee for vicarious liability and alleged negligent selection of a provider by an MCO:

An individual ophthalmologist and IPA are sued by the husband and child of a deceased patient who participated in an employer-sponsored health plan that directly contracted with the IPA for ophthalmic services. The lawsuit alleges that the patient’s death resulted from the ophthalmologist’s failure to diagnose a pituitary tumor, and the IPA was vicariously liable for its agents’ medical negligence. The patient’s lawsuit also includes breach of warranty and misrepresentation claims against the IPA, specifically citing the marketing materials of the IPA that stated, “We guarantee the highest quality of care and provide the best ophthalmologists in the Northeast.” The facts in the lawsuit further allege that the ophthalmologist who allegedly misdiagnosed the patient had never passed the ophthalmology boards and had been sued five times for medical malpractice.

An IPA spokesperson states that the ophthalmologist was acting independently and that it (the IPA) had no control over and set no guidelines on how to treat patients. Furthermore, the IPA states that the ophthalmologist went through a thorough credentialing process and that the credentialing committee had determined that the five lawsuits brought against the ophthalmologist were vicarious liability claims arising from his former partner’s care.

When there is an unfavorable outcome associated with health care provided by a physician, a patient may allege that the MCO was either vicariously liable and/or negligent in its selection of health care providers. Regarding vicarious liability in the above example, if it is found that the patient reasonably believed that the ophthalmologist was acting as an agent of the IPA, the IPA could be held liable for the ophthalmologist’s actions regardless of whether the IPA actually controlled his actions.

Risk management tip: To minimize vicarious liability exposures arising from an agency relationship, the IPA should eliminate any situations that create the impression of an employer-employee relationship and inform all patients that providers act independently and are not employed or controlled by the managed care system. Advertising and marketing often can create the impression that the ophthalmologist “works for” the managed care organization.

Regarding claims of negligent selection of a health care provider, when a patient is under the “custody” of a health care system, the patient relies on the system to monitor and supervise the quality of care provided. Courts have considered the limitation of a patient’s choice of physicians in a managed care system to be a form of custody. Through its credentialing and recredentialing procedures, the managed care entity arguably assumes a duty to members to ensure that panel physicians are not likely to provide negligent care. The plaintiffs alleging negligent selection in the above scenario must prove that the IPA knew or should have known with reasonable effort that malpractice was likely and that this negligence resulted in injury.

In this case, the IPA may be able to successfully defend itself by demonstrating that it carried out a thorough screening of the defendant ophthalmologist and his past claims history.

Even though its credentialing procedures may be adequate, the advertising claim that the IPA provided the “best ophthalmologists in the Northeast” leaves it open to possible claims of misrepresentation. The fact that one of its member-ophthalmologists did not pass the boards could become a relevant issue for a jury deciding if representations in the IPA’s marketing materials are accurate.

The Health Care Litigation Environment

As the country’s health care industry has moved rapidly toward managed health care, consumer groups, physicians, and other providers have complained that profits, rather than quality of care, too often drive health care decisions. Increasingly, entities such as MCOs and large physician groups and networks are the target of lawsuits.

In April 1997, an Orange County, California, jury awarded a family $10.9 million in a case against Friendly Hills Medical Group of La Habra. Friendly Hills, a large multispecialty group, allegedly failed to perform a diagnostic test on a woman who later died of cervical cancer. Evidence from doctors at three medical centers supported defense arguments that the patient’s cancer was incurable months before she first visited Friendly Hills for tests and treatment. However, the plaintiffs were able to attack the group’s record keeping and to characterize the service the patient received as “depersonalized.” After the verdict, one juror was quoted in the newspaper, “People are being herded through HMOs rather than receiving personalized service.”

Interestingly, no individual physicians were sued in this case, only the medical group. Plaintiff attorneys are using the public’s current negative perception of managed care to inflame juries. Basic problems with record keeping was the real issue in this case, but juries are being hypervigilant about patient management issues and are painting all groups of health care providers (HMOs, IPAs, group practices, etc.) with the same broad brush whenever a plaintiff’s attorney characterizes treatment as “mismanaged.”

Conclusion

Ophthalmologists who are forming corporate entities and partnerships in response to managed care ought to consider carrying D&O and E&O insurance. OMIC and the American Academy of Ophthalmology have developed a comprehensive insurance package that can protect against many of the exposures associated with ophthalmic MCOs. These specially designed D&O and E&O liability coverages can be purchased together or separately. Each policy offers a $1 million limit per claim and in the aggregate (including defense costs) and a $5,000 deductible for each claim. All policies are written on OMIC paper and are reinsured through CNA International RE of London. Contact OMIC’s Underwriting Department for further information.

Practical Application of HIPAA Privacy Rules (Part 1)

Kimberly Wittchow, JD, OMIC Staff Attorney

Digest, Winter, 2003

The April 14, 2003 deadline to comply with the HIPAA Privacy Rules is fast approaching. OMIC enumerated the many components of compliance in its Guide to Implementation of the HIPAA Privacy Standards sent to insureds in November 2002. OMIC has since fielded many questions from insureds about the practical application of the Privacy Rules to their practices. The following are a sample of questions we continue to address.

Q  Can I avoid being a Covered Entity under HIPAA if I contract with a billing service to transmit all electronic claims submitted on my behalf?

A  No. Submitting even one electronic claim after April 14, 2003, whether directly or through a contracted service, will trigger application of the Privacy Standards to you.

Q  Do I have to comply with HIPAA if I am a physician in a small, rural practice?

A Your practice size and location generally do not affect your status under HIPAA. However, you are not a Covered Entity if you maintain either paper or electronic files but do not transmit PHI electronically and have not volunteered to be a Covered Entity by contract or certification. You should be aware though that as of October 16, 2003, Medicare will require practices with 10 or more employees to file claims electronically.

Q  Can I post a one page summary of my Notice of Privacy Practices in my office?

A  Yes. But in addition, you must post your entire Notice in a clear and prominent location in your office and make it available on your web site. If you make changes, you must post the amended Notice in your office and on your web site, but you do not need to redistribute it to your patients unless they ask for a copy.

Q  Can my office staff contact patients before we give them our Notice of Privacy Practices?

A  Yes. You must provide the Notice to each patient no later than the date of first service delivery or as soon as practicable in emergencies. Where you contact the patient by telephone to schedule an appointment or collect information in anticipation of a procedure, you can wait to provide the Notice until the patient comes into your office. When you do provide the Notice, you must make a good faith effort to obtain the individual’s written acknowledgment of receipt of the Notice or document your efforts to obtain the acknowledgment and the reason it was not obtained.

Q  Can I ask patients to sign a blanket HIPAA Authorization form for any use or disclosure of their PHI?

A  No. A HIPAA Authorization is required for certain specific, non-routine uses or disclosures of PHI. Its required use is best defined by the exceptions. You do not need Authorization to disclose PHI to the subject of the PHI, the Department of Health and Human Services, or to people in the patient’s “circle of care.” You also do not need Authorization to use or disclose PHI for payment, treatment, health care operations, as required by law, or for many public health-related activities. In most other situations, Authorization is required. For example, you need Authorization to disclose PHI if you want to sell cataract/IOL outcome data that includes patient identifiable information to IOL manufacturers. You also need Authorization to disclose PHI if the patient is applying for disability insurance and the insurer requests the patient’s medical record to make an underwriting decision.

Q  Do I have to enter into Business Associate Agreements with janitorial or other service providers?

A  No. Your Business Associates are persons or entities that perform certain functions or activities on your behalf or provide services to you that involve the use or disclosure of PHI. Certain service providers, such as janitors, electricians, and couriers of information, are not Business Associates because their services do not involve the use or disclosure of PHI.

Q  Are my patients’ health plan insurers my Business Associates?

A  No. When you submit a claim for payment to a health plan and it assesses and pays the claim, you are each acting on your own behalf as Covered Entities and not as Business Associates of one another.

Q  How do I find out if my state privacy laws are stricter than HIPAA’s?

A  Your state ophthalmic or medical society may have undertaken such an analysis for its members. You also may want to engage legal counsel to advise you on your specific responsibilities under both state and federal privacy laws.

The primary resource for this article was the OCR Guidance Explaining Significant Aspects of the Privacy Rule – Dec. 4, 2002.

Don’t Ever Alter Records in an Attempt to Change Facts

By Jerome W. Bettman Sr., MD

Argus, October, 1991

Altering records in an attempt to change the facts is one of the most certain ways to lose a malpractice suit. Never do it. It is dishonest, unethical and is nearly always detected. Once the plaintiff’s attorney is able to show that a physician has improperly changed a patient record, the attorney can maintain that nothing the physician says can be trusted and the defense will lose.

There is often a great temptation to alter records when a claim has been filed. For example, if an ophthalmologist has neglected to record the intraocular pressure in a patient on whom another ophthalmologist later makes the diagnosis of glaucoma with significant nerve damage, the defendant-ophthalmologist may be tempted to insert a pressure reading, especially if there is plenty of space on the record. The ophthalmologist may even consider using the same pen as was used for the rest of the record and make it correspond in all respects to what has been written before.

How Can These Careful Alterations Be Detected?

Records are frequently duplicated for insurance reports. If the plaintiff’s attorney obtains a copy of the record before it was altered and then receives a copy of the altered record, the defense loses. In addition to this hazard, there are companies whose business it is to detect such changes.

When is Making Changes in a Record Proper and How Should It Be Done?

When taking a history, the patient may change his or her story, or the ophthalmologist might be interrupted in his recording or thought process and write something that is irrelevant or wrong. These are instances when corrections may and should be made. The proper way to make such a correction is to draw a line through the unwanted statement in such a manner that it is still legible, write the appropriate statement, date and initial it. A plaintiff’s attorney cannot maintain that this method of change is an attempt to conceal the true facts and a defendant-ophthalmologist who handles corrections in this manner will be accepted as honest and his statements are more likely to be believed.

In conclusion, once a claim has been made, never, never alter the plaintiff’s record no matter how tempting or damning the document.

Timely Referrals: Reducing Your Risk

By Byron H. Demorest, MD

Argus, November, 1991

Timely and appropriate referral of a patient for subspecialty care beyond your area of expertise is fundamental to responsible patient care and prudent risk management. But when you’re deeply engrossed in an effort to save a patient’s eye, it can be easy to forget that another ophthalmologist may be better equipped to treat the patient. Remember, however, that the patient himself may come to the conclusion that a better result might have been reached if he had been referred to the specialist before serious complications were allowed to develop.

A case from the OMIC files helps to illustrate this issue. A cataract surgeon was referred a patient whose eye had been repaired for a traumatic corneal laceration four months earlier. As the eye seemed quiet, an apparent uncomplicated cataract extraction with implantation of an IOL was performed. On the third postoperative day the eye became photophobic and very uncomfortable. The physician noted cells and flare in the anterior chamber and felt that the patient had an iritis. Vision was foggy and it was noted that the pupil did not dilate with Atropine. On the fourth postoperative day an aqueous tap was obtained since it appeared that the media was becoming cloudy. Nothing was found on culture. On the sixth postoperative day the vitreous was opaque. It was only at this point that the patient was referred to a vitreo-retinal surgeon who performed a vitreous tap and instilled intraocular antibiotics. The eye became phthisical and was lost. The claim was settled with an indemnity payment.

The ophthalmologist who is wise enough to know when to refer a difficult problem for specialty care often prevents a malpractice action. Referring a patient to a colleague does not indicate a weakness or inability on the part of the referring physician. Nor should the fear of losing a patient to another physician be a factor. The overriding concern here must be to give each patient the best possible care – the same care you would want if you were the patient.

Always consider referral of a patient under any of the following circumstances:

When you are working with a medical or surgical problem that is outside your area of expertise.

When the patient refuses to follow your instructions for eye care.

When, in spite of your best efforts, a patient’s eye is doing poorly.

Caring physicians usually know instinctively when to seek help for difficult problems. Patients rarely sue doctors who communicate and show compassion. Don’t wait for the patient to seek another opinion. Get it yourself before it’s too late.

Risk Management Begins with the First Phone Call

 By Arthur I. Geltzer, MD

Argus, February, 1992

It is a truism of risk management that patients rarely initiate claims solely on the basis of poor results or even perceived malpractice. Frequently, it is dissatisfaction with office staff or office procedures that causes a patient to lose confidence in a doctor and become an adversary.

By categorizing the ancillary staff component and analyzing each step of the patient’s experience in the office, we see that risk management guidelines for ancillary personnel generally consist of common sense procedures. The summation of these steps should be the perception that the ophthalmologist is an attentive physician who has helped the patient even in the face of a bad result. If, on the other hand, the patient has been poorly prepared by the staff, it can be the cause of a malpractice action.

The first impression the patient receives of your office is usually by telephone. Make sure that impression is courteous and helpful. Everyone answering the phone must understand the difference between an emergency, an urgent visit and a routine appointment. Telephone messages should be dated, documented and systematically brought to the ophthalmologist’s attention so potentially serious patient complaints can be dealt with.

In one incident, a patient called the doctor’s office on a Thursday to report that she had been involved in an automobile accident and feared that she had glass in her eye. The staff person answering the phone replied that the earliest the doctor could see the patient was the following Tuesday. No suggestion was made that another physician might be able to see her sooner. The patient called again the next day complaining that she was feeling worse. Again the staff person put her off, and again she failed to suggest that the patient speak to another physician. The patient left a message for the doctor to return her call. He did not because the message was never relayed nor was the patient’s call documented in the chart. Fortunately, the patient did go to another physician who found no glass in the eye. However, if the patient had sustained injury, there may very well have been serious exposure on the part of the doctor for his staff’s failure to discern between a routine appointment and an urgent one and for not bringing to the physician’s attention the seriousness of the call.

The next point of interaction is the patient’s arrival at the office. Make sure the patient is greeted and made to feel that his or her problem will be received competently and compassionately. Waiting time should be no more than 15 minutes. Encourage ancillary personnel to introduce themselves and explain what they are doing and how it will result in the doctor’s enhanced examination and evaluation. The entire experience for the patient ought to convey professionalism, competence and caring.

Informed consent for surgery begins when the patient first speaks to the office staff on the phone. It continues when the ancillary staff greets the patient and begins the examination, and it culminates with the ophthalmologist’s discussion of the planned surgery. It is, however, not over until all the information has been documented and the record is carefully stored. The patient should receive precise instructions about the surgical appointment and must be fully informed about what will happen before, during and after surgery.

In a case involving an OMIC insured, a patient sued the doctor in part because she alleged he never explained the risks, complications or alternatives to the surgery. In this particular office, the practice was for the patient to meet with the ophthalmic technician prior to the scheduled surgery to sign the informed consent form. If the patient had questions that the technician could not answer, he or she was referred to the optometrist on staff. If the patient still had questions that the optometrist could not answer, only then was the patient referred to the ophthalmologist. Part of this patient’s motivation for filing the lawsuit was her anger at the doctor for not being accessible during the informed consent gathering process.

Ophthalmologists must observe and be aware of the quality of care and treatment their patients receive from all members of their staff. It is a worthwhile exercise to learn how things are done in your office and to examine each step in your office procedure from the patient’s point of view. Direct your staff with written notices and compile them into a procedures manual. This material should be shared with each new member of the staff and periodically reviewed by you and your office manager with the lines of responsibility clearly defined. If you do not have an office manager, review the procedures personally with each member of your staff. If you lose control of this important part of your practice, you put at risk the confidence of your patients.