Risk Management

Risk Management Issues in the New Managed Care Environment

By Jerome W. Bettman Sr., MD, Byron H. Demorest, MD, and E. Randy Craven, MD

[Digest, Spring, 1996]

If the goal of managed care is to keep health care costs as low as possible, it follows that referrals to “expensive” specialists and costly laboratory and diagnostic radiographic tests will be kept to a minimum. Unfortunately, it also follows that patients who receive a hasty examination will go away angry and confused because their physician no longer has time to talk to them. Both situations encourage patients to seek the advice of an attorney when response to treatment is suboptimal.

Under capitated care plans, which pay the same overall fee per patient regardless of the services rendered, and reduced fee-for-service plans, which encourage physicians to see high volumes of patients, there are greater opportunities for mis-diagnosis, denial of treatment, and loss of doctor-patient rapport, all of which increase a physician’s exposure to malpractice claims. The following scenarios point out some of the health and liability risks raised when cost cutting takes priority over patient welfare:

  • Ancillary medical personnel assuming patient care responsibilities beyond the scope of their training. Improper screening can delay timely and effective treatment for patients with sight-threatening problems, while inappropriate treatment can result in a poor therapeutic response.
  • Primary care optometrists or physicians diagnosing and treating complex ocular problems, which may delay the correct diagnosis and treatment beyond the optimal time for referral to an ophthalmologist.
  • Sharing responsibility for patient care between primary physicians and ophthalmologists or between optometrists and ophthalmologists. Under some plans, only one visit to the ophthalmologist may be authorized. If a patient’s ocular condition deteriorates while being followed by a primary physician and there is a poor outcome, any ensuing malpractice action is likely to name the ophthalmologist as well as the primary physician. Shared responsibility translates into shared and increased risk.
  • Denial of care by the managed care organization, particularly for perceived nonemergency problems, leading to serious complications and visual debility.

Courts Define Physician’s Duty

What should a physician do if the elements of proper care are denied, whether in the form of denial of hospitalization, a shorter than optimal confinement, or refusal to use consultants or order certain diagnostic tests? A physician’s first duty is to the patient, not to an insurance company, HMO, or PPO. At the same time, over-utilization may result in a physician being dropped from a plan’s provider list. While physicians find themselves caught in the middle of these conflicting obligations, a series of court decisions has redefined the scope of a physician’s duty to the patient, as noted below.

Wickline v. State of California1 – A Medi-Cal (California Medicaid program) patient was approved for a 10-day hospital stay for vascular surgery. The patient, a diabetic, developed post-surgical complications necessitating additional surgery. The patient’s physician and two surgeons filed the appropriate paperwork to request an eight-day extension from Medi-Cal, but only a four-day extension was approved. Although they disagreed with Medi-Cal’s decision, the physicians discharged Mrs. Wickline after the approved four-day extension. The patient subsequently lost her leg and sued. Stressing that the ultimate responsibility for medical decisions belongs to the physician, the court stated: “While we recognize, realistically, that cost consciousness has become a permanent feature of the health care system, it is essential that cost limitation programs not be permitted to corrupt medical judgment.” Interestingly, the court also stated that third party payers are responsible for defects in cost containment mechanisms, but a physician who does not protest on behalf of a patient cannot avoid ultimate responsibility.

Wilson v. Blue Cross2 – A physician recommended extended hospitalization for a depressed suicidal drug abuser. When the HMO reviewer certified only three days additional hospitalization, the psychiatrist protested and carefully documented his protest as the patient was being discharged. The patient committed suicide and the family sued the Blue Cross utilization review group and won on appeal when the court accused the group of bad faith benefit denial. Unlike the Wickline case, which placed the burden of responsibility on the physician, in Wilson, the court made it clear that liability is shared by the HMO.

Fox v. Health Net of California3 – A patient with breast cancer won a $90 million jury award after she was denied treatment with high dose chemotherapy and an autologous bone marrow transplant. This case reinforced the fact that cost containment will not be tolerated by juries when it is based solely on corporate economic interests, and it asserted that medical denials must be black and white, not gray.

Hughes v. Blue Cross4 – The court found in favor of the family of a 21-year-old hospitalized schizophrenic patient after Blue Cross authorized only $6,500 in coverage toward payment of a hospital bill exceeding $23,000. The court stated that the utilization review was not based upon the standard of care and that Blue Cross was responsible for seeking all relevant information before denying a claim.

Physicians Obligated to Appeal Denial of Care

As these cases indicate, the courts will not allow a defense based upon cost containment whether it is at the hands of a physician or managed care organization. Economic constraints must not determine what should be done for the patient. When an HMO, PPO, or capitated group denies care, it is the physician’s duty to protest and attempt to change the decision. Verbally and in writing, the physician should clearly state the reasons for the recommended therapy, the consequences of denial, and provide supporting literature to demonstrate the standard of care. A copy of the letter should be sent to the patient and all protestations documented in the chart.

Since the Wickline decision, physicians are required under California Law to appeal a plan’s decision to deny care. Such appeals must be made carefully, as many agreements between physicians and the HMO include a so-called “gag rule” where the physician agrees not to criticize the HMO to the patient. In California, physicians who advocate for their patients are now legally protected from retaliation by health care organizations, and if a physician is dropped from a plan because of patient advocacy, damages may be recovered. Gag clauses are banned in Massachusetts, and legislative efforts are under way to eliminate them in other states, including California.

Additionally, so-called “hold harmless” clauses, which attempt to shift responsibility for economic harm or liability from one party to another, are no longer permitted in health care contracts in California,5 where both the physician and medical plan are held equally responsible for damages.

Interestingly, the legal profession has allied itself with physicians on the issue of securing proper care under managed care contracts. There have been many more claims brought against managed care organizations than the ones cited in this article. In Texas alone, there are 17 medical negligence cases in the courts naming an HMO as a defendant. In some cases, insurance companies and health maintenance organizations are settling out of court to avoid precedent-setting court decisions that will open the door to other claims involving significant financial loss. Several recent cases suggest that a financial compensation scheme may violate the standard of care. The following case is illustrative of this trend:

Bush v. Dake6 – An HMO that had eliminated PAP testing to reduce costs was sued by a woman who had clinical signs of cervical carcinoma. The patient sued her primary care physician, her gynecologist, and the HMO alleging that the HMO’s capitated gatekeeper arrangement violated the standard of care when it deferred referral for consultations and procurement of indicated laboratory procedures. The cost control provisions at issue included: (1) that participants were required to see a primary care physician before referral to a specialist could be made and (2) that a financial incentive system encouraged HMO physicians not to refer patients to specialists. Prior to trial, the court determined that the plaintiff offered sufficient evidence supporting an allegation that the cost control system had contributed to a delayed diagnosis of cervical cancer and inadequate treatment. The case quickly settled out of court under a protective order.

Clearly, an HMO is exposed to the risk of potentially enormous damages when a jury is confronted with testimony and evidence that an HMO’s “cost control measures” contributed to or caused a patient’s injury. In the Bush v. Dake case, the HMO probably believed an appeal would have risked setting a bad precedent and decided to settle out of court before matters got worse.

Risk Management Recommendations

Always act in the patient’s best interest. A physician’s duty is to the patient, not to the HMO. Adverse decisions and denial of care should be protested vigorously but honestly. Such protests should involve the patient and be carefully documented. If proper care is denied, help the patient find other avenues to secure treatment. Do not abandon the patient! Cost containment should never reduce a physician to substandard practice. Remember that in the courts, the “dollar defense” is no defense.

  1. Wickline v. State of California. 192 Cal App 3d 1630 (1986).
  2. Wilson v. Blue Cross. 222 Cal App 3d 660 (1990).
  3. Fox v. Health Net of California. California Superior Court, Riverside County, No. 219692.
  4. Hughes v. Blue Cross. 215 Cal. App. 3d 832.
  5. Prohibition of “Hold Harmless” clauses in Health Plans. California AB 1840.
  6. Bush v. Dake. Michigan Circuit Court, Saginaw County, No. 86:25767-NM
    (April 27, 1989)
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