Home / Medicine & the Law / Avoiding liability for HMO denials

Avoiding liability for HMO denials

By David J. Lowe, Esq.By David J. Lowe, Esq.

“I’m sorry Mrs. Smith, but your HMO won’t pay for that test.” In this era of managed care, it is likely that many physicians have had to speak those or similar words to a patient. Those words not only bring disappointment to the patient but also bring concern to the physician that the denial of payment could lead to a malpractice suit.

As more and more Americans obtain their health care through managed care organizations, greater scrutiny is being given to medical decisions made by such organizations. Denials of referrals, treatment and other care are often becoming the subject of malpractice cases.

For example, in a recent California case, a jury returned a $2.9 million judgment against a medical group for an 11-week delay in referring a 35 year old patient with inoperable cancer to a specialist. In that case, and in many others, the plaintiffs’ lawyers are pointing to the financial incentives offered by managed care organizations to those physicians who limit their referrals for tests and specialist care as causes of the denials or failures to refer.

To make matters worse for the physicians, managed care organizations have often been able to successfully claim immunity from malpractice suits. Many courts have found that the Federal Employee Retirement Income Security Act of 1974, commonly known as ERISA, exempts managed care organizations from liability because of their status as employer-sponsored health benefit plans. In such cases, the only viable claim against the managed care organization is for breach of the contract with the patient. However, damage awards for such claims are typically much smaller than for malpractice claims.

Physicians, therefore, remain a favorite target in cases involving denial of treatment or referrals. The complaint in many of these cases includes a malpractice claim against the treating physician. The claim is typically for negligence in failing to insist on the test or referral or for failing to order another test or referral which would have been more appropriate and thus would have been approved. The claim may also be for failure to adequately advise the patient of the need for such test or referral even if denied by the managed care organization.

A recent wave of state legislative action is seeking to extend malpractice liability to managed care plans. Several states are currently considering legislation which would hold managed care organizations liable for negligent medical decisions that affect a patient’s health. The first law of this type will go into effect September 1, 1997 in the state of Texas, and many other states are likely to quickly follow Texas’ lead.

The Texas law imposes on managed care organizations a “duty to exercise ordinary care when making healthcare treatment decisions.” This would permit managed care organizations to be sued for malpractice type liability for its negligent decisions on preauthorization of care, denials of coverage, physician credentialing and matters such as quality control efforts, among other things.

Legislation has also been introduced in the U.S. Congress by Representative Pete Stark that would hold managed care plans liable for injuries suffered by patients as a result of the plans’ cost containment practices or from its improper utilization practices. Furthermore, certain federal courts have begun to hold that ERISA is not an absolute shield for managed care organizations against malpractice-type liability.

While these new laws, if and when enacted, and recent court decisions may make managed care organizations a more attractive target, physicians will still face potential liability for decisions relating to denial of treatment or refusal to refer. Therefore, physicians should take certain steps to reduce their risk of liability in such cases.

The most important thing a physician can do when a managed care organization denies treatment or a referral is to fully document his or her actions. The physician’s records should include a detailed description of the diagnosis and recommendation to the patient, a copy of the request made to the managed care organization for treatment or referral and, if available, a copy of the denial showing the reasons for such denial.

In cases where the physician objects to the denial, he or she should also fully document any appeal of that decision made in accordance with the appeal process of the organization. This step is important in seeking to avoid a claim by the patient that the physician was negligent in failing to object to the denial of treatment or referral.

It is also helpful in these cases to provide the patient with a form explaining why the treatment or referral was denied which the patient can sign and return. If such a form is not provided, then it is essential for the physician to keep a record that he or she clearly informed the patient about the reasons for the denial and clarify that the patient understood such reasons.

All of this documentation is helpful, and may even be essential, to avoiding ultimate liability for medical malpractice. However, none of this documentation is likely to prevent the filing of a malpractice action against the physician, particularly by a patient who has been harmed by a refusal to refer or a denial of treatment. Furthermore, scrupulous documentation could in some cases be a detriment to the physician where it reveals a failure on the part of the physician to order an appropriate test or make an appropriate referral.

Physicians should also prepare themselves for the possibility of dealing with a denial by first investigating the managed care organization. Ideally this should be done before the physician becomes a provider for the organization. The investigation should include an examination of the managed care organization’s track record of dealing with patient complaints and the extent to which it has been a party to lawsuits involving malpractice and denial of coverage claims.

This investigation should proceed on a number of fronts. First, the physician should make inquiries of his or her colleagues who are participating providers for the managed care organization as to their experience with such organization. Second, the physician should ask for this information directly from the managed care organization. Finally, this type of information may also be available from the state insurance and health regulatory bodies and from competitors of the managed care organization. Of course, information from the latter source may be slanted and should be reviewed with an appropriate degree of caution.

The physician should also familiarize him or herself with the circumstances in which the managed care organization is likely to deny a referral or payment for a particular test or medication and also should be familiar with the organization’s process for appealing a denial of treatment or payment. The physician should also consider participating in or providing input to any committees of the managed care organization which review and address these types of issues.

It is likewise helpful for the physician to develop a relationship with the individuals who will make the final decision on such appeals so as to understand their concerns and constraints. This would include meeting personally, perhaps over lunch or dinner, with such individuals. At such meeting, the physician should attempt to communicate his or her particular concerns and expectations regarding the types of referrals and tests he would expect to require for his patients, particularly any of a recurring nature which are in any respect unusual.

It will be much easier to make a convincing case for a referral or test if the physician is known personally to the decision-maker. While this relationship building may not reduce the physician’s risk of liability where a test or referral is denied, it may limit the number of times which such test or referral is denied.

If all these steps are followed carefully, the next time the physician has to tell Mrs. Smith that her HMO won’t pay for a test, the physician will have substantially reduced the risk of liability related to denial of treatment or refusal to refer.

David J. Lowe, Esq., is a director with Cohen & Grigsby, P.C., a full service national law firm headquartered in Pittsburgh, PA.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.