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Practice Beat


Docket Watch; Peer Review; Looking Ahead-August; Fraud and Abuse.


Practice Beat

By Joan R. Rose, Senior Editor

Jump to:
Choose article section...Docket Watch US Supreme Court "sees no evil" in incentives to ration care Reaction to the Supreme Court decision Peer Review A state court bolsters confidentiality LOOKING AHEAD—AUGUST Fraud and Abuse Justice moves against a managed care plan that saw double

Docket Watch
US Supreme Court "sees no evil" in incentives to ration care

A health plan's use of financial incentives to encourage physicians to hold down treatment costs does not create a conflict of interest under the Employee Retirement Income Security Act, the US Supreme Court has declared. In a unanimous ruling last month, the court found that HMOs couldn't "survive without some incentive connecting physician reward with treatment rationing." While rationing necessarily raises some risks, the court said, allowing financial-incentive claims under ERISA would pave the way for "wholesale attacks on existing HMOs" merely because of their structure. Instead, a claim must target a specific decision that injured a patient. The decision reversed a federal appeals court ruling.

The case arose nine years ago when a young Illinois woman visited her internist at a local Carle Clinic office. She complained of a sharp pain in her groin, and the doctor, suspecting a urinary infection, prescribed antibiotics. Still in pain, she returned six days later. The doctor then found an inflamed mass in the woman's abdomen and ordered a diagnostic ultrasound at an affiliated facility. But the hospital was so heavily booked that the woman had to wait more than a week for the procedure. Before she could keep her appointment, her appendix ruptured, resulting in peritonitis. She later filed a negligence suit against the doctor and Carle Clinic in state court, winning $35,000 in compensatory damages. She then challenged the HMO's year-end bonus system in federal court, contending that it encouraged doctors to put their financial interests before patient welfare. (See "Invitation to a lawsuit: Financial incentives to limit care," Nov. 22, 1999.)

Under ERISA, those who manage or administer an employee benefit plan have a fiduciary duty to act solely in the interest of the participants or beneficiaries. The question for the court was not whether the actions of doctors providing services under the plan adversely affect a beneficiary's interest, but whether physicians making treatment decisions for the HMO are acting in a fiduciary capacity as defined by ERISA. They are not, said Justice David H. Souter, who wrote the opinion.

"Although coverage for many conditions will be clear and various treatment options will be indisputably compensable, physicians still must decide what to do in particular cases. In practical terms, these eligibility decisions cannot be untangled from physicians' judgments about reasonable medical treatment . . . and in this case, the eligibility decision and the treatment decision were inextricably mixed as they are in countless medical [settings] every day," Souter reasoned. When Congress addressed the subject of fiduciary responsibility under ERISA, he noted, lawmakers concentrated on fiduciaries' financial mismanagement—a focus far removed from this case.

The Health Maintenance Organization Act of 1973 allowed the formation of HMOs that assume financial risks, and Congress has amended the act several times without restricting how those HMOs are structured. Consequently, the court concluded, "Congress didn't intend any HMO to be treated as a fiduciary when making mixed decisions through its physicians."

Moreover, Souter wrote, if the lower court ruling were allowed to stand, every breach-of-duty claim would boil down to a malpractice claim, with HMOs arguing that the doctor's decision was medically appropriate. The fiduciary standard would then become nothing more than a traditional malpractice standard, and the only value to plan participants would be eligibility for attorneys' fees if they won. And doctors, as well as HMOs, could be sued for breach of duty because they would meet the ERISA definition of a fiduciary.

Reaction to the Supreme Court decision

"[While] consistent with the AMA's view that ERISA isn't the proper legal avenue for addressing medical decisions that harm patients . . . the ruling provides a compelling argument for a strong patients' bill of rights."

—AMA Trustee Donald J. Palmisano, MD

"The Court's decision validates the principle that the legal system isn't the place to make health care work."

—Karen Ignagni, president/CEO of the American Association of Health Plans

"With this ruling, the Supreme Court isn't just asking for Congressional action; they are shouting at the top of their lungs for us to act."

—Rep. Charlie Norwood (R-GA)

"The high court dealt a body blow against one of the key tenets of several baseless class-action suits launched recently against many health plans."

—Chip Kahn, president of the Health Insurance Association of America

"The Court's ruling underscores the fact that consumers can do little to hold their health plans accountable for decisions that wrongfully deny or delay needed care. . . . If this had been a doctor, a nurse or a hospital, the patient would have been able to sue, but HMOs . . . can escape responsibility for the harms they cause."

—Families USA Director Ron Pollack

Peer Review
A state court bolsters confidentiality

The Virginia Supreme Court has upheld the confidentiality of peer review proceedings. The decision came in a case involving a physician who sued a television station for defamation, conspiracy, trespass, and the unauthorized use of his name and picture. The lawsuit, filed in 1998, stems from a news report that characterized orthopedist Stephen M. Levin as "Dirty Doc" and the "X-Rated Doctor." Despite Levin's assertion that the techniques he employs are recognized as "medically appropriate and effective," a WJLA-TV news story accused him of using internal pelvic diagnostic examinations and "intrapelvic stretching techniques" to sexually assault female patients who suffered from "pelvic floor problems."

To validate its statements and fight Levin's claim for lost income resulting from the alleged defamation, the station subpoenaed the doctor's peer review records from Reston Hospital Center, Pentagon City Hospital, and Inova Health System. The hospitals moved to quash the subpoenas, asserting that the records were privileged and not discoverable. But WJLA argued that because the statute at issue was codified in the state's medical malpractice law, the legislature intended that it apply only in that context. The trial court agreed and denied the hospitals' motions. The lower court also found that Levin had waived the statutory privilege by filing suit and putting his reputation at issue. Moreover, the court noted, even if the statute were applicable, the station had shown the required "good cause arising from extraordinary circumstances" because the peer review records were "clearly relevant to the issue of the truth of the alleged defamatory statements, as well as the mitigation of Levin's claim for loss of income resulting from the alleged defamation." When the hospitals refused to comply with the discovery order, the trial court found them in contempt and fined each $150 a day until they handed over the documents.

The hospitals appealed, and the state medical and hospital societies, as well as the AMA and American Hospital Association, filed amicus briefs on their behalf. The supreme court disagreed with the lower court on all points, finding that:

  • The statutory language was clear, unambiguous, and unqualified, and its application wasn't limited to a particular type of suit or action.

  • Restricting the privilege would ignore the underlying purpose of the statute—to improve the health care system through open and frank discussion among health care providers.

  • The statutory privilege did not belong to the physician who was the subject of peer review and could not be unilaterally waived by him.

  • Allowing the subject of peer review to waive the privilege would discourage physicians from participating candidly in the peer review of other physicians, if they feared the information (their opinions) might later be publicly disclosed.

  • The information sought by the subpoenas wasn't "clearly relevant" to the issues of truth or the mitigation of damages. There's a vast difference between the legal principle of "relevance" and the term "extraordinary circumstances," and there is nothing "extraordinary" about the mere need to defend a lawsuit.


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

How to Practice Evidence-based Health Care

Vail, CO
CME credits:
  30 hours AMA-PRA Category 1
  30 hours AOA Category 2a
Sponsor: University of Colorado
  School of Medicine
  Office of Continuing Medical Education
Contact: Sharlyn Walling, UCSM
  Continuing Medical Education
  4200 East Ninth Ave. #C-295
  Denver, CO 80262
Phone: 303-315-7606
Fax: 303-315-1010
E-mail: sharlyn.walling@uchsc.edu
Web: www.uchsc.edu/cme

1999-2000 Medical-Dental-Legal Update
Lahaina and Wailea, HI; Myrtle Beach,
SC; Aruba; Grand Cayman;
St. Maarten; and St. Thomas*
CME credits:
  20 hours AMA-PRA Category 1
Specialty: All physicians
Sponsor: American
  Educational Institute
Contact: David Victor, JD
Phone: 800-354-3507
Fax: 800-789-3299
E-mail: AEIinfo@AEIseminars.com
Web: www.aeiseminars.com
*A five-day course, offered each
week (Mon.-Fri.) in multiple locations

Alternative and Complementary Therapies

Jackson Hole, WY
CME credits:
  17.5 hours AMA-PRA Category 1
  10 hours ACOG (family physicians
  may use Category 1 CME credit as
  elective credit)
Specialty: All physicians
Sponsor: Contemporary Forums
11900 Silvergate Drive
Dublin, CA 94568-2257
Phone: 925-828-7100
Fax: 800-329-9923
Web site: www.cforums.com

Neurology for the Non-neurologist

Sea Island, GA
CME credits:
  12 hours AMA-PRA Category 1
  12 hours AAFP
Specialty: All physicians
Sponsor: Medical College of Georgia
Contact: Division of
  Continuing Education
  Medical College of Georgia
Phone: 800-221-6437 or
Fax: 706-721-4632
E-mail: info@mail.mcg.edu
Web site: www.mac.mcg.edu/services/coned/MedicalCE/neurology00.html

National Medical Association Annual Convention and Scientific Assembly

Washington, DC
For a copy of the convention brochure,
Phone: 202-347-1895
Fax: 800-555-9016
Web site: www.natmed.org

Critical Care Medicine

Sea Island, GA
CME credits:
  20 hours AMA-PRA Category 1
  20 hours AAFP
Contact: Division of Continuing Education
Sponsor: Medical College of Georgia
Phone: 800-221-6437 or 706-721-3967
Fax: 706-721-4642
E-mail: info@mail.mcg.edu
Web site: www.mac.mcg.edu/services/coned/MedicalCE/critcare00.html

A Core Curriculum for Practice in the Managed Care Era

North Lake Tahoe, CA
CME credits:
  25 AMA-PRA Category 1
Specialty: Primary care physicians
Sponsor: University of California,
San Francisco Department of Medicine
Contact: University of California,
  San Francisco Department of Medicine
  Continuing Medical Education
  UCSF Box 0656
  San Francisco, CA 94143-0656
  Phone: 415-476-5208

Fraud and Abuse
Justice moves against a managed care plan that saw double

For the first time, a managed care plan has agreed to settle allegations that it defrauded the Medicare program. The $14.5 million settlement concludes an investigation into payments made to Louisville, KY-based Humana from 1990 through 1998. The government's investigation revealed that Humana misreported that beneficiaries were eligible for Medicaid as well as Medicare in order to inflate payments.

Managed care plans receive a fixed monthly amount for each enrollee. Under Medicare rules, those payments are adjusted to reflect demographic differences, including a higher amount for dual eligibility.

As part of the settlement, Humana has entered into a comprehensive five-year corporate integrity agreement. In exchange for not being booted out of Medicare, Humana will provide compliance training to employees, undergo annual independent audits, and submit annual reports to the HHS Office of Inspector General.

Most of the beneficiaries for whom fraudulent claims were filed reside in south Florida; the rest live in Arizona, Illinois, Kentucky, and Missouri.


Joan Rose. Practice Beat.

Medical Economics

Jul. 24, 2000;77:28.

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