gavel.gif (3462 bytes) Health insurance misconduct 
in the medical malpractice case

By Gregory B. Heller, Esq.

As trial lawyers we try to identify the causes of accidents, and we sometimes find causes that are not immediately obvious. We might learn, for example, that a mobile scaffold tipped over not only because there was a hole in the floor, but also because someone removed necessary safety equipment from the scaffold. 

In a medical malpractice case, plaintiffs� lawyers look beyond the individual doctor. In a hospital setting, for example, we consider whether or not inadequate and unsafe procedures contributed to or caused the injury. Getting the procedure manuals in discovery and comparing them to what the standard of care requires is a reasonably straightforward process. 

In some cases, managed care misconduct is one of the causes contributing to a medical mistake. The agreements between managed care health insurance companies and medical providers can affect, and sometimes determine, a patient�s medical care. For example, these arrangements can affect and determine what tests are ordered, and when and where they are performed. Arrangements that can potentially affect medical care are not limited to HMOs: they can extend, in one form or another, to almost every form of health insurance including Preferred Provider Organization (�PPO�) plans. Some arrangements protect patients and pose little threat to their health; other arrangements impose direct and inappropriate pressures on physicians to deny necessary care. To investigate a negligent medical decision � particularly a decision that an expensive test or study is not yet necessary � without exploring and considering these arrangements is to ignore an 800-pound gorilla that may well be sitting in the corner of the doctor�s office. 

The Legal Landscape
In Shannon v. McNulty, 718 A.2d 828, 831 (Pa. Super. 1998), the Pennsylvania Superior Court held that the institutional duties that were applied to hospitals in Thompson v. Nason also apply to managed care organizations. �The law imposes a duty upon HMOs to conform to the legal standard of reasonable conduct in light of the apparent risk. . . . To fulfill this duty, an HMO must act as would a �reasonably careful HMO under the circumstances.�� Jones v. Chicago HMO, 730 N.E.2d 1119, 1129 (Ill. 2000) (citations omitted). Of course, where there is no medical mistake that causes harm, there cannot be any HMO misconduct that causally contributed to any harm. Bordlemay v. Keystone Health Plans, 789 A.2d 748 (Pa. Super. 2001).

The United States Supreme Court�s decision in Pegram v. Herdrich, 120 S. Ct. 2143 (2000) does contain some language that has been read by the managed care industry as broadly immunizing managed care financial incentives from review. Other parts of the Court�s opinion and analysis, however, acknowledge that the regulation of the quality of medical care is properly the subject of state laws and state causes of action. Indeed, in an important case decided after Pegram, the Pennsylvania Supreme Court has reaffirmed the continued viability of state causes of action against managed care organizations that implicate state-law regulation of adequate medical care. Pappas v. Asbel, 768 A.2d 1089, 1095 (Pa. 2001), cert. denied, 122 S.Ct. 2618 (2002).1

Claims and Issues
At its core, investigating managed care misconduct in a malpractice case involves nothing more than learning about the relationship between the provider and the insurance company and then, with the assistance of an expert, measuring that relationship against the applicable standards of care. You can expect your efforts to get this information to be vigorously contested, and in order to get the information you will need a clear sense of what you are looking for, and a clear sense of why the information is likely to be admissible at trial.

Before turning to particular claims, two general points bear mention.
First, the presence or absence of specific financial incentives is not the only issue. Some managed care organizations, for example, regularly provide information to physicians that compares their utilization of diagnostic studies to their peers�. If the physicians share a common financial stake in the financial performance of the system as a whole (or some component thereof), this kind of peer pressure can be even more effective, insidious, and ultimately harmful than financial incentives focused exclusively on individual physicians. 
Second, it is no defense � and certainly no bar to discovery � if the managed care organization and the negligent doctor maintain that insurance arrangements have no effect at all on the medical care patients receive. The managed care industry has always been sold to the public as a means of controlling healthcare costs by controlling the use of things like diagnostic tests, and of course it does so. The question is whether the insurer in a particular case has done so in a way that is acceptable and in accordance with medical and ethical standards, or whether it has done so in a way that unreasonably imperils patient health. Furthermore, managed care organizations have an affirmative obligation to assess whether or not their actions have an adverse effect on medical care, and if the insurance company refuses to admit that these effects can occur and do occur, it cannot even begin to carry out this vital assessment.

Sources of duties and standards for managed care organizations can include state laws and regulations, the managed care organization�s own regulations and guidelines, industry standards and guidelines, and the literature. The following are some examples of underlying substantive standards, which also illustrate what you will need to ask for in discovery.

� The amount of financial risk or gain for physicians should be small. There is evidence that if 5 to 15% of a physician�s income is �at risk� through incentives physician behavior could be �noticeably affected,� and an aggregate risk of more than 20% is �unacceptably high.� Ethical Guidelines for Physician Compensation Based on Capitation, The New England Journal of Medicine, vol. 339, no. 10, p. 689 (September 3, 2023), at 689. Furthermore, any bonuses should be paid out in installments based on progress toward a goal or through some similar interim measures, and not in a single all-or-nothing distribution.

� Capitation (in which a provider is paid a set dollar amount per patient) should not be used for small groups of patients, and there is an �emerging consensus that the number of enrollees covered by the agreement should be larger than 250.� Id. at 691.

� Narrowly targeted incentives for specific services, such as a particular kind of radiographic diagnostic study, pose a particular risk of adversely affecting treatment decisions. As a result, narrowly targeted incentives should be accompanied by evidence-based guidelines, and the effect of the incentives �should be monitored to ensure that under-use does not result.� Id. at 692.

� There are limits on the number of patients that can safely be assigned to a single physician, and an excessive patient load can be a significant contributor to medical mistakes. See Jones v. Chicago HMO.

� A managed care organization cannot have unreasonable procedural rules, such as requiring that the patient call first before visiting the office or obtaining emergency care. See Jones v. Chicago HMO.

� A managed care organization is required to have a quality assurance plan that contains standards for appointment access, and is required to conduct annual studies of �access and availability�. 28 Pa. Code �9.674(c)(1(v).
Pursuing this avenue can add a substantial amount of work to a medical malpractice case, and running these issues to ground does not make sense in every case. But it should be considered in every case, and in a case where something doesn�t smell right�where there�s no sensible reason for a doctor�s failure to order a test�it might be worth a fair amount of effort. Pursuing these ideas can provide the tools you need to teach the jury about the real causes behind a serious medical mistake. Uncovering this evidence and putting this part of the case together can help ensure that the jury awards your client an amount that fairly and accurately represents the full value of his or her injuries.

1The Employee Retirement Income Security Act of 1974 (�ERISA�) does contain a preemption provision that has historically been held to eliminate many state-law causes of action, whenever a patient receives health insurance through private employment. 29 U.S.C. � 1144(a). A discussion of ERISA preemption is far beyond the scope of this article (for a detailed treatment, see Greg Heller, Managed Care Liability and ERISA Preemption, Pennsylvania Bar Quarterly, Vol. LXIX, No. 3, at 93 (July, 1998)). For present purposes it is sufficient to note that ERISA immunity is not all-encompassing, and appears to be receding. In Pappas v. Asbel, for example, the Pennsylvania Supreme Court held that negligence claims against U.S. Healthcare were not preempted. Similarly, courts have recently given broader scope to ERISA�s savings provision, which exempts state insurance laws from preemption. See Rush Prudential HMO v. Moran, 122 S. Ct. 2151 (2002). This has given new life to insurance bad faith claims under 42 Pa. Stat. Ann. � 8371. See Rosenbaum v. UNUM Life Ins. Co., 2002 WL 1769899 (E.D. Pa. July 29, 2023) (holding that a claim under section 8371 fell within the savings clause and was not preempted); but see Sprecher v. Aetna U.S. Healthcare, 2002 WL 1917711 (E.D. Pa. Aug. 19, 2002) (reaching a contrary result and holding such claims preempted).


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