Cover Story

Peer Review Gone Awry

The bittersweet victory of Dr. Schulze

This Texas GP endured a two-year inquisition by an HMO and its medical director, then termination and the loss of hundreds of patients. He fought hard to regain his reputation.

By Berkeley Rice
Senior Editor

When Humana launched a peer review of John Paul Schulze, a GP in Corpus Christi, TX, the HMO may have had a legitimate reason. But somehow the review turned into a two-year campaign of harassment that resulted in the doctor's termination from the insurer's provider network.

Last fall, in a precedent-setting case that breached the traditional wall of immunity around peer review proceedings, Schulze won a judgment of nearly $15 million against the HMO, its medical director, and other defendants. "This was a witch hunt by Humana," claims one of Schulze's attorneys. "But they chose the wrong guy to go after, because he's got a lot of guts."

Until he tangled with Humana, Schulze had an excellent reputation in Corpus Christi, where he had practiced since 1958. Early in his career, he often treated poor black and Hispanic patients for free, after other doctors had turned them away. For many years, he was the team doctor for a local high school. He served as president of the county medical society, delegate to the state medical society, and board chairman at one of several hospitals where he had privileges.

His son, an FP, joined him in 1991; his daughter, also an FP, practices in Washington state; his daughter-in-law is a local pediatrician. In 35 years of practice, Schulze had never been sued or subjected to more than routine reviews by any hospital or HMO.

His troubles began in 1991, when family practitioner David P. Olson arrived in Corpus Christi as medical director of Humana's HMO, which insured many of Schulze's patients. Over the next few years, Olson carried out a number of cost-cutting measures that restricted Humana's primary care physicians: He limited the orthopedic groups they could refer to; required them to refer to optometrists, not ophthalmologists; and established an after-hours outpatient clinic as a substitute for the ER. While these new policies weren't technically mandatory, patients whose doctors didn't follow them risked having their coverage denied.

Olson also discussed a hospitalist program under which primary care physicians would turn over inpatient care to hospital doctors under contract to Humana. In conversations with Olson, and at meetings of Humana's primary care physicians, Schulze protested that these moves would interfere with his relationship with his patients. "I wanted to choose the specialists I referred to," he explains. "And I felt it was my responsibility to treat patients at the ER or the hospital, not turn them over to some doctor I didn't know."

During this period, Humana quality review nurses began making regular visits to Schulze's office, examining several charts each time. They found some of his records incomplete and raised questions about "inappropriate" use of narcotic prescriptions.

Schulze defended the medication as necessary for elderly patients with intractable pain. He also complained about the reviewers' "invasion" of his office, suspecting that Humana had singled him out for review because of his opposition to Olson's initiatives.

The HMO tries to silence its most vocal critic

Because he had treated many patients for decades, Schulze may well have become lax in updating their charts and ordering prescriptions. In 1993, those habits got him in trouble when he was sued for the first time in his career. The patient had suffered a mild stroke, which she blamed on the amphetamines Schulze had been prescribing for weight loss. With the doctor's reluctant agreement, his insurer settled the case in 1994.

The state medical board investigated and found that Schulze's office staff had been ordering refills for the woman by phone without an office visit or exam. In December 1994, the board restricted his license for five years, requiring him to order Schedule III drugs by written prescription only. The board also ordered him to improve his record-keeping and to take CME courses in risk management and pharmacology. Schulze complied, and the board lifted his restriction after two years.

As required, Schulze reported the suit, the settlement, and the license restriction to Humana, as well as to his other HMOs and hospitals. No action was taken against him at the time.

In January 1996, Olson announced Humana's new hospitalist program at a meeting of the HMO's primary care physicians. Schulze was the only one at the meeting to speak out against the plan. Using hospitalists, he warned his colleagues, would endanger their patients and constitute abandonment and malpractice.

Schulze believes his continued opposition to the hospitalist program may have been his undoing. He feels that Olson used the year-old state board action as a pretext for an intensive review of his clinical performance. Over the next two years, Humana nurse reviewers showed up at Schulze's office every month to examine his records. Those that seemed troubling were turned over to a physician reviewer, who then presented them to the HMO's peer review committee.

The eight-member PRC examined dozens of Schulze's cases over this period and found fault with many of them. Often, however, they did so based on summaries by the physician reviewer or by Olson, rather than by examining the actual medical records—a violation of HCFA peer review standards.

Upon receiving his first notice of the peer review, Schulze called Olson to discuss the cases involved, but Olson didn't inform the committee of that fact. The PRC then instructed Olson to write to Schulze and insist on a response to its concerns about his patient care. Olson never sent such a letter.

At the PRC's February 1996 meeting, committee members complained about Schulze's failure to respond and directed Olson to demand a reply. Again the medical director failed to do so, leaving Schulze unaware of the committee's growing frustration at his apparent lack of cooperation.

At its March meeting, the PRC found fault with two more of Schulze's cases, after reviewing only partial records for one and no records for the other. They recommended that Humana consider terminating him because of their concerns over his quality of care and failure to respond to their demands.

This time, Olson informed Schulze of the PRC's recommendation in a formal letter, which contained a detailed critique of specific cases. Schulze brought the letter to the next meeting of the HMO's primary care physicians, attended by Olson. He read the letter to the group, claiming Humana's threat of termination was an attempt to punish him for his opposition to its hospitalist plan. "If they can do this to me," he warned his colleagues, "they can do it to you, too."

Schulze replied to Olson's letter within a week, defending his treatment of the last two cases. But at the PRC's next meeting in April, Olson apparently didn't provide the committee with a copy of Schulze's letter. Schulze replied to another letter from Olson in April. This time, Olson informed the committee that Schulze had responded, but didn't show them the letter. The PRC grew increasingly upset by Schulze's apparent continuing failure to respond to their demands.

An appeals panel decision supports the doctor

Every month, Humana's review nurses continued to show up at Schulze's office and request dozens of charts, copying those they found troubling. At the PRC's June 1996 meeting, Olson informed the members that Schulze had frequently obstructed the reviewers by blocking their access to his charts.

When Olson wrote to Schulze reprimanding him for this behavior, Schulze denied the allegations and urged Olson to investigate the matter. When he did, Olson discovered that Schulze had not blocked the reviewers; rather, his office staff had been rescheduling the reviewers' appointments. So the medical director apologized. Later, however, when the PRC finally voted to terminate Schulze, they specifically cited that incident as one reason for their decision.

In August 1996, Humana recredentialed Schulze for only six months—instead of the usual two years—because of the PRC's concerns about the quality of his care. In October, the committee recommended that Schulze be terminated for providing "substandard care." Schulze protested and requested a hearing before the HMO's appeals committee.

The hearing took place in November before a panel of three Humana network doctors. It was conducted by a Humana lawyer, with Olson presenting 21 cases as grounds for termination. Although he'd had only eight days to prepare, Schulze defended his treatment in each case, the first such opportunity he'd had to do so in person. He also complained about the lack of communication he'd received from the PRC, and questioned the accuracy of its clinical judgments.

Instead of a lawyer, Schulze brought FP Charles Clark Sr., a longtime colleague and former Humana medical director, to speak in his defense. The appeals panel found that many of the complaints against Schulze involved inadequate documentation, not quality of care. In several of those cases, they noted, the PRC had either ignored or misread details in Schulze's charts that justified his treatment decisions. In the few cases that did raise quality-of-care issues, one or two panel members considered his treatment entirely appropriate.

In its final report, the panel concluded that Schulze's faults did not warrant termination, and recommended that the PRC try a more collaborative approach. It also approved a "corrective action plan" (CAP), proposed by Clark, calling for improvements in Schulze's chart documentation over the next six months.

At the next meeting of the PRC, Olson summarized the appeal panel's conclusions. But he didn't provide the committee with a transcript of the hearing; nor did he relay the panel's criticisms of the committee's review process. Without consulting Schulze, Olson rewrote the CAP, making its documentation demands much more rigorous. In a letter to Schulze, Olson informed him that by agreeing to the CAP, he would thereby waive his right to appeal any future termination if he failed to meet the CAP's restrictions.

A "fresh start" quickly goes sour

Over the following months, the PRC continue to review Schulze's performance. But there wasn't much improvement in the quality of the committee's work or its communication with him. The committee reviewed more cases from the previous year, sometimes skimming or not even examining his charts. One involved a patient Schulze had never treated; in another, the patient had been treated by his son.

Of the 14 new "issues" raised by the PRC at its March 1997 meeting, most involved matters of documentation, not quality of care. As before, Olson often failed to relay the PRC's criticisms to Schulze, which meant he had no opportunity to defend himself. Once again, this led the committee to complain that he was being uncooperative.

Later that spring, Schulze and Olson clashed over the care of an elderly patient with a fractured hip. Schulze wanted to keep her in the hospital, because he feared pneumonia, but Olson refused to authorize the extended stay. Schulze discharged the woman to a nursing home, noting in her chart that he'd done so against his judgment because of Humana's decision.

Within two weeks, the woman was readmitted with pneumonia. Olson objected to Schulze's comment in the chart, claiming the discharge was Schulze's responsibility, not Humana's. He suggested that Schulze add a correction to the chart to avoid "professional liability exposure for yourself." Schulze refused, and the PRC later cited the incident as another example of his poor attitude.

After not reporting the results of PRC meetings to Schulze for several months, Olson sent him a letter in May, threatening him with termination for "noncompliance" with the CAP, and giving him two weeks to justify his care in 26 cases then under review. Schulze replied with a detailed letter defending his care, along with supporting excerpts from the charts.

Olson provided the committee with Schulze's letter, but not the excerpts. In May 1997, the committee voted unanimously to terminate him, claiming he'd failed to respond to its demands and live up to the CAP requirements.

The PRC members made their final termination decision mainly on the basis of five cases in which they concluded that Schulze's "substandard care" posed a risk to patient safety. But even at that stage, they failed to examine the medical records carefully. For example, they criticized him for not doing a rectal exam on a patient with rectal bleeding, without spotting a nurse's notation that he'd done a sigmoidoscopy on the patient at the ER. They faulted him for not calling in a pulmonologist for an elderly patient dying of COPD, without noticing the DNR order in the chart.

As in their earlier sessions, the committee didn't bother to consult any of the specialists involved in the cases. Several of those doctors wrote letters to Olson supporting Schulze, and when questioned later during deposition or at trial, they defended his treatment as entirely appropriate.

Termination leads to litigation

In July 1997, Humana's Executive Director Ronald Yarborough met with Schulze and urged him to resign voluntarily to avoid the embarrassment of another termination proceeding. Schulze refused. Early that August, Olson sent him a letter reporting the PRC's termination recommendation and giving him 30 days to appeal the decision. Less than three weeks later, however, in response to additional cases that raised concerns, Yarborough personally delivered a formal suspension notice to Schulze at his office, effective immediately. (Upon the advice of their attorney, both Yarborough and Olson declined to be interviewed for this article.)

The following day, Humana sent letters to about 750 of Schulze's patients enrolled in the HMO, informing them that he was "no longer participating with Humana." Since the letters gave no reason, many patients assumed he'd simply resigned or retired. Over the next few weeks, his office was inundated with calls from patients he'd treated for decades. Some were dismayed, some angry, and some cried, asking why Schulze had "abandoned" them.

Some of those patients switched to other HMOs that Schulze contracted with. A few stuck with him under private pay plans. He continued to treat without charge those who couldn't afford to pay.

Most of his remaining Humana patients wanted to choose his son, John Edward, as their new physician, but Humana refused. Instead, it reassigned them to three other network doctors, including internist Isaac Chitrit—one of the PRC members who had just voted to terminate Schulze. Chitrit had come to Corpus Christi to direct Humana's hospitalist program, but later opened his own private practice.

Schulze announced his intention to appeal his termination again, but Yarborough told Schulze's representative, Charles Clark, that the decision was final, regardless of the outcome of an appeal. Several of Schulze's colleagues wrote letters to Humana supporting him, to no effect. One cardiologist later testified that Yarborough called to advise him against writing such a letter, warning that if he did so anyway, the HMO would reconsider his participation in its network.

As required by law, Humana reported Schulze's termination for "quality of care issues" to the National Practitioner Data Bank, the state medical board, and the hospitals and other HMOs he was affiliated with. After investigating, none of those institutions found grounds to take action.

Schulze tried to get a court injunction to block the termination and to stop Humana from transferring his patients. But a judge denied his request, ruling that Humana had a contractual right to do so.

Schulze turned to Pat Kasperitis, a young Corpus Christi lawyer whose family members are devoted patients of Schulze and his son. In November 1998, Schulze sued Humana, Olson, and Yarborough, accusing them of fraud, breach of contract, conspiracy, and defamation; causing emotional distress; and damaging his practice and reputation. "I didn't really know if I'd win or lose," Schulze says, "but I felt I had to fight back, because they had attacked my integrity and my honor."

Adds Kasperitis: "We could have sued the committee members also, but Dr. Schulze didn't want to. Besides, adding them as defendants would have made the case much tougher for us. We felt they were basically dupes in this affair, and we figured the trial itself would be embarrassing enough for them."

Despite his willingness to take the case, Kasperitis saw it as "a real long shot, and a risk for us and Dr. Schulze. I admire his courage. Humana did intensive reviews of four other doctors during that period, and all of them resigned rather than contest their termination. He was the only one willing to fight back. But he was putting his career on the line with this case. If he'd lost, he could have faced close to $1 million in litigation expenses, both ours and—under his HMO contract—Humana's. It would have ruined him financially."

Breaking the barriers of privilege and immunity

Kasperitis and his partner, Justin Williams, faced a daunting legal hurdle: Federal and state laws (the Health Care Quality Improvement Act and the Texas Medical Practice Act) protect the confidentiality and immunity of peer review proceedings. For that reason, such cases are usually dismissed on summary judgment.

Fortunately for Schulze, Humana's lawyers decided they had to introduce some of the peer review records in order to defend the HMO. In doing so, Humana essentially waived its right to peer review privilege. The HMO ultimately turned over all the records to Schulze's lawyers, making them admissible at trial. "That was Pandora's box," Kasperitis recalls. "Once Humana opened it, those records were terribly harmful to them."

Proving legal damages was only half the battle. Getting a court to award them was another obstacle, since federal and state laws also provide immunity to peer review institutions and their committee members as long as they act "in good faith." That protection, however, does not cover defendants who engage in fraud, malice, or "unreasonable conduct"—exactly what Schulze alleged in this case.

The trial took place over five weeks last fall, and for Humana it was a disaster. When questioned about their work, several PRC members agreed that the process had often been unfair to Schulze. Some were embarrassed to learn—only then—that Olson had frequently failed to relay their criticisms and requests to Schulze, and to provide the GP's replies to the committee. When numerous medical charts and documents turned out to be missing from the PRC records, the judge declared that "the defendants have either negligently or intentionally destroyed evidence in this case."

Internist Charles R. Cain, a peer review consultant to the state, reviewed the PRC proceedings as an expert witness for Humana. While he agreed with some of the committee's concerns about Schulze's care, he was troubled by the PRC's failure to communicate those concerns to the doctor. The main goal of the peer review process, he testified, "is to provide feedback to the affected physician, to permit him to change his practice patterns and improve the quality of care he provides. Without this feedback, the primary purpose of peer review is lost."

Schulze attended every day of the trial, seeing patients and making rounds before and after court. When he took the stand himself, he told the jury that he'd lost about 700 patients as a result of his termination. He claimed that his net income had dropped more than 40 percent—from $230,000 in 1997 to $132,000 in 1998.

Asked about the emotional effects of his termination, he said, "I couldn't eat, couldn't sleep, couldn't laugh." The worst thing, he testified, was "not being able to take care of the patients I've been treating for years." When his wife was asked how he'd reacted to the termination, she replied, "Like he'd been raped."

Humana's lawyer, Rick Foster, who also represented Olson and Yarborough, argued that the peer review had been motivated solely by an obligation to safeguard Schulze's patients. For that reason, he contended, the committee had examined the GP's records thoroughly and fairly, despite occasional lapses in communication. He insisted that Humana's decision to terminate Schulze was totally justified, based on both its contractual rights, and on the committee's unanimous finding that he had delivered "substandard care."

After deliberating for four days, the jurors concluded that Schulze's termination had been "unreasonable" and that Humana, Olson, and Yarborough had acted with fraud and malice in their dealings with him. They awarded Schulze $500,000 in economic damages, nearly $1 million for damage to his professional reputation, $3 million for emotional distress, and $500,000 for attorneys fees.

In addition, the jurors awarded Schulze $15 million in punitive damages: $8 million against Humana, $6 million against Olson, and $1 million against Yarborough. (A Texas cap reduced the total punitive damages to $9.2 million.) Humana intends to appeal the verdict. (Yarborough now runs Humana's HMO in Houston. Olson is now medical director for a health plan in Ohio.)

Although he's no longer involved with Humana, Schulze still belongs to several other HMOs. Now 71, he continues to practice full time with his son. He doesn't seem concerned about whether he'll ever see the multimillion-dollar award. "This was never about money," he insists. "I was only trying to justify myself as a doctor, and to defend my honor. I hope that what the court did here will change how health plans handle these things in the future."

If you were on the jury, would you have voted to award GP John Schulze $15 million (or more) in damages? Cast your vote in our Instant Poll at www.memag.com .

How fair are HMO peer reviews?

GP John Paul Schulze's suit against Humana may be the first in which an HMO has lost the immunity that traditionally insulates the peer review process against legal challenges. The AMA has publicly opposed legal attempts to breach peer review confidentiality and immunity, arguing that those protections are necessary to encourage physicians to participate in candid reviews of their colleagues.

Humana's attorney, Rick Foster, argues that Schulze's trial victory "damages the confidentiality of the peer review process, which protects us from poor quality health care. As a result of cases such as this, we now live in an environment where physicians, hospitals, and health care plans will no longer wish to critically review the care of a physician, for fear of being sued."

That argument makes sense, however, only if the review process is fair and if the rights of the doctor under review are protected by the usual rules of due process. In Schulze's case, the jury concluded, they weren't.

Justin Williams, Schulze's co-counsel, thinks HMO reviews aren't always aimed at evaluating a doctor's care. "HMOs claim they do peer reviews to protect their patients' welfare," says Williams. "But this case shows that they also use them as a tool to control doctors who oppose their programs. They'll look at a doctor's performance until they find something they can characterize as substandard. It's not just a matter of refusing to renew a doctor's contract; the big HMOs can threaten someone's entire practice."

Pat Kasperitis, who also represented Schulze, adds: "There's a big difference in due process between hospital and HMO peer reviews. Hospital reviews generally have much more accountability, because the doctor usually knows who's on the committee and has a chance to defend himself if the committee gets close to revoking or restricting his privileges. But HMOs don't have to reveal who's on the review committee, and the doctor doesn't get a chance to confront them and defend himself in person. There's more secrecy and less accountability, which increases the chance for abuse."

To prevent such abuse, a state representative from Corpus Christi—inspired by Schulze's experience—recently introduced a bill in the Texas legislature that would guarantee legal recourse for doctors terminated by managed care plans without due process, which includes the right to a fair peer review.

Kasperitis warns physicians targeted by HMO peer reviews not to wait until there's a threat of termination before seeking help. "Even if your lawyer can't do much during the early stages," he says, "the fact that you've retained one may convince the committee and the medical director to treat you more fairly. A lawyer can also examine your HMO contract and explain what rights it gives you. And if there's an appeal hearing, your lawyer should be there to defend you."

 

Berkeley Rice. Peer Review Gone Awry: The bittersweet victory of Dr. Schulze. Medical Economics 2001;11:106.