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Practice Beat


HMO Liability, Antitrust, Health Plan Failure, Online Prescribing, Managed Care


Practice Beat

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Choose article section... HMO Liability A federal court opens a narrow window for patient suits Antitrust This IPA got caught in a price-fixing web Looking Ahead— Health observances in September Health Plan Failure Did the overseers of this plan let it blow away? Online Prescribing Are doctors who affiliate with Internet pharmacies asking for trouble? Managed Care The gatekeeper system is not only annoying, it may cost more, too

By Joan R. Rose, Senior Editor

HMO Liability
A federal court opens a narrow window for patient suits

When Texas enacted the first HMO liability law in 1997, Aetna promptly sued, claiming that statute was pre-empted by federal law. Now, in a major test case, a US court of appeals has interpreted the relationship between federal and state authority.

It amounts to a fine line. The court upheld patients' right to hold an HMO vicariously liable for a treating physician's negligence in providing care, but struck down a provision that allowed patients to seek independent review of treatment denials or coverage questions. Texas law imposes "liability [on HMOs] for a limited universe of events," the court noted, and its provisions do not include "claims based on a managed care entity's denial of coverage for a medical service recommended by the treating physician: That dispute is one over coverage specifically excluded by the [law]." With similar reasoning, the court struck down a portion of the Texas law that gave patients the right to appeal adverse determinations to independent reviewers.

The Texas law also forbids HMOs to use language in physician contracts that holds the plans harmless for their own acts, and it prevents HMOs from retaliating against doctors who advocate for patients. In their ruling, the justices overturned, in part, a lower court finding that declared the antiretaliation provision protected by federal law. Those two clauses "complement the [law's] liability provisions by realigning the interest of managed care entities and their doctors," the appellate court noted. And they "better preserve the physician's independent judgment in the face of the [plan's] incentives for cost containment. Such a scheme is . . . the kind of quality of care regulation that has been left to the states."

Calling the ruling a "very positive step toward protecting patients' rights and the quality of medical care in Texas," the Texas Medical Association notes that it "also highlights the need for . . . Congress to act quickly to establish national patient-protection standards, including independent review of health plan decisions to delay or deny medically necessary care."

Six other states have enacted laws allowing patients to sue HMOs: Arizona, California, Georgia, Maine, Oklahoma, and Washington. Thirty-seven states and the District of Columbia have laws permitting patients to seek independent reviews. This appellate court decision, however, applies only in Texas, Louisiana, and Mississippi.

This IPA got caught in a price-fixing web

A Texas IPA has agreed to change business practices that the Federal Trade Commission had alleged were anticompetitive. In signing a proposed consent order, however, the doctors of Austin-based Texas Surgeons IPA admit no wrongdoing.

According to the FTC, Texas Surgeons and the six competing medical groups that make up its membership conspired to force two health plans to raise reimbursement rates by refusing to deal with the plans individually. As a result of the IPA's coercion, the FTC says, the plans, patients, and employers (including the State of Texas Employees Retirement System) were forced to pay more than $1 million additional for surgical services in 1998 and '99.

Last year, after the FTC began investigating Texas Surgeons, the state enacted legislation that permits the attorney general to approve, under certain conditions, joint negotiations between health plans and groups of competing physicians. However, the FTC notes that the conduct the surgeons were accused of wouldn't necessarily have met the conditions set forth in the new law.

Looking Ahead—
Health observances in September

A handy reference of telephone and fax numbers, as well as e-mail and Web site addresses for sponsoring organizations.

1­30 Gynecologic Cancer Awareness Month
Gynecologic Cancer Foundation

1-30 Leukemia Awareness Month
The Leukemia and Lymphoma
Society of America
1-800-955-4572 or contact
your local chapter

1-30 National Cholesterol Education Month
National Heart, Lung, and Blood Institute
301-592-8563 (fax)

1-30 National Sickle Cell Month
Sickle Cell Disease Association of America

1-30 Ovarian Cancer Awareness Month
National Ovarian Cancer Coalition
888-OVARIAN or 877-682-6622

17-23 National Rehabilitation Awareness Week
National Rehabilitation
Awareness Foundation
570-341-4331 (fax)

17-23 National Reye's Syndrome Week
National Reye's Syndrome Foundation

18-25 Ulcer Awareness Week
Centers for Disease Control and Prevention

Health Plan Failure
Did the overseers of this plan let it blow away?

New Jersey is suing neurologist Magdy Elamir, chairman and sole shareholder of an HMO that went out of existence early last year. The state alleges that he and the plan's officers and directors operated American Preferred Provider Plan in a way that allowed them to use company funds for personal purposes, while falsely inflating the plan's net worth and concealing its true financial condition.

From 1996 through '98, according to the complaint, Elamir and his associates transferred more than $4 million from APPP to other affiliated companies for no apparent business purpose. More than $1.4 million in transfers allegedly were made to Elamir personally, the state contends, and he received $317,000 in excess of amounts due him for repayment of capital contributions to APPP. Elamir and three officers/directors are also accused of paying nearly $6 million to unknown parties via wire transfers. This depletion of APPP's assets, together with the plan's expansion, the state says, left APPP unable to satisfy its regulatory minimum net worth requirements. The state also claims that the officers/directors prepared unaudited annual and quarterly financial statements that inflated assets and underreported liabilities.

Because the health plan and its eight affiliated companies were treated as one entity, New Jersey is targeting all of those assets as well as Elamir's personal property. In all, the state seeks to recoup nearly $17 million. APPP managed to stay afloat for three years, covering 42,000 Medicaid enrollees in 13 counties.*

Meanwhile, the New Jersey Association of Health Plans is suing the state over a new law that requires them to assume a large chunk of the debt left by APPP and a second plan (HIP of New Jersey) that went under last year. The statute is unconstitutional, the health plans say, because it deprives them of due process and equal protection and interferes with their contracts with members. The New Jersey Insolvent Health Maintenance Organization Assistance Fund Act of 2000, signed into law in April, orders the association to pay half of a $100 million bailout of physician and hospital claims made against HIP and APPP. Under the law, HMOs are forbidden to pass the cost on to their enrollees; that puts them at a disadvantage with other health insurers that can pass along solvency surcharges, the HMOs argue. The lawsuit seeks an injunction against implementation or enforcement of the bailout fund and an order to return any money the plans have paid into it.

The health plans affected are Aetna US Healthcare, AmeriHealth HMO, Cigna of New Jersey, Horizon Blue Cross Blue Shield of New Jersey, Oxford Health Plans, PHS Health Plans, and UnitedHealthcare.

*See "Why was this doctor allowed to start a health plan?" Oct. 25, 1999.

Online Prescribing
Are doctors who affiliate with Internet pharmacies asking for trouble?

With hundreds of Internet sites willing to provide patients with prescription medications, online pharmacies and their physicians are drawing more and more attention from state regulators. Pennsylvania, for example, recently filed three lawsuits charging online companies, pharmacies, and physicians with violating state law by selling prescription drugs (Viagra, Propecia, and Xenical) without a state license.

From December 1999 through January 2000, Bureau of Consumer Protection agents (two men, a woman, and a 15-year-old girl who assisted in the investigation) made undercover online purchases of the popular prescription drugs. Posing as consumers, the investigators were able to buy the drugs by agreeing to a waiver of liability and claiming to answer limited medical-history questions truthfully. Some of the questions included already-marked answers that required no consumer response at all.

In addition to the unlicensed sale of those drugs, the lawsuits accuse the pharmacies or their affiliated physicians of:

Not confirming consumers' identities, ages, or medical histories, and not providing doctors' examinations.

Failure to disclose that they're not permitted to dispense prescription drugs in Pennsylvania.

Selling and prescribing drugs to Pennsylvanians who had not been seen, examined, or spoken with by the issuing physician.

Requiring consumers to accept, in advance, a "waiver of liability" releasing the defendants from all responsibility associated with their drug purchases.

The attorney general has asked the court to stop the defendants from selling prescription drugs online and to order them to make restitution to online buyers who seek refunds. He's also seeking civil penalties of $3,000 for each violation involving consumers aged 60 or older, and $1,000 for each of the others. Furthermore, he wants the defendants to pick up the tab for the state's investigation.

Named in the suits are:

Louisiana-based 4 Health Drugs and At-Cost-Drugs and their owner, FP Henry Eugene Jones.

Phoenix-based KwikMed and Cymedic Health Group, their officers, and their physician agent.

California-based Cyber Health Services (doing business as Access Prescriptions Online or Access Propecia Online and Florida-based Teamcare Infusion (doing business as Teamcare Pharmacy Services) and Lee-Ann Drugs, and their presidents and physician agents.

According to the Federation of State Medical Boards of the United States, at least 12 states have taken action against physicians for online prescribing violations, nine have adopted rules or statements clarifying standards for the prescription and distribution of medications, and five have introduced legislation to establish standards for Internet prescribing.

For more on Internet apothecaries, see "Are online pharmacies good for your patients—and for you?" June 5, 2000.

Managed Care
The gatekeeper system is not only annoying, it may cost more, too

Giving managed care patients direct access to medical specialists doesn't necessarily increase physician costs for health plans, according to a new study sponsored by the Agency for Healthcare Research and Quality.

Researchers analyzed physician claims for about 50,000 privately insured patients and found that only 3 percent of enrollees in a point-of-service HMO had self-referred in 1994-95, and they accounted for less than one-tenth of the money spent by the plan for medical specialists' services. Moreover, depending on the copayment patients were required to make when visiting specialists, physician costs in the gatekeeper HMO were as much as 7 percent higher.

The study, which appears in the June issue of Medical Care Research and Review, was funded as part of an AHRQ program to examine the impact of managed care referral policies on patient health, access to services, and costs. Since the study was so narrow and just a first look at how POS plans may affect patient demand for medical care, researchers drew no conclusions as to why physician costs in the gatekeeper HMO were higher.


Joan Rose. Practice Beat.

Medical Economics


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