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Responsibilities to patients of insolvent MCOs

By John W. Jones, Jr., Esq..

Nationally, there has been an increase in the number of managed care organizations (MCOs) that have faced deteriorating financial prospects and have either voluntarily or involuntarily agreed to liquidate under state law. According to a recent study, the financial strength of MCOs nationwide has weakened and several are experiencing continuing losses in capital deficits. The health plans in this region are of no exception.

Within the past year, we witnessed the demise of two New Jersey health plans, and the liquidation of a physician-run health plan in Pennsylvania, Physicians Care PPO, Inc. (Physicians Care). Physicians need to plan for such eventualities when they contract with MCOs.

Liquidation Of Physicians Care

Physicians Care, which served approximately 21,000 subscribers within 450 groups primarily in the central, northeastern and Lehigh Valley regions of Pennsylvania, operated as a risk-assuming, preferred provider organization and was among several physician-run health plans started in the mid-1990s which have since merged or collapsed because of lack of capital.

During the weeks preceding Physicians Care’s liquidation, the Pennsylvania Insurance Department’s number one priority was to find another managed care entity to accept responsibility for the members so there would be no lapse in coverage. Unfortunately, lapse in coverage began sooner than anticipated and came harshly in the form of denial of care. Notwithstanding their contractual obligation to do so, some participating physicians of Physicians Care began denying treatment (most likely out of fear of non-payment for the treatment) almost immediately after the Commonwealth Court’s Order to liquidate Physicians Care.

Pursuant to their provider agreements, participating physicians were obligated to continue treatment of patients through the effective date of liquidation of Physicians Care. Thereafter, the physicians would become non-participating providers, meaning that the physicians would then have no contractual obligation to continue treatment of patients and could therefore deny care or charge patients directly for any care that was provided. This, however, is not always the case. In fact, whether a physician is required to provide treatment to patients of an insolvent PPO or HMO through the effective date of liquidation or beyond typically depends upon the physician’s obligations under the provider agreement or state statute(s). Failure to adhere to such contractual and statutory obligations can result in significant liability exposure to the physician.

Contractual and Statutory Obligations

Under Pennsylvania law, a physician’s obligation to continue treatment of patients of an insolvent MCO with whom the physician has contracted turns on a number of factors. They include an examination of the agreement between the parties, whether the insolvent MCO is a preferred provider organization (PPO) or a health maintenance organization (HMO), and additionally, whether the PPO or HMO falls within the scope of the recently enacted Pennsylvania Quality Health Care Accountability and Protection Amendments (Act 68).

Generally, the provider agreement between the physician and the MCO should deal with the issue of a physician’s obligation to continue treatment of patients when the MCO becomes insolvent and subsequently liquidates. For example, some provider agreements state that insolvency is an event of default under the agreement and, therefore, the physician’s obligation to provide treatment to patients continues through the effective date of liquidation only. Others, however, impose an obligation on the physicians to continue treatment beyond the effective date of liquidation for some transitional period. This distinction becomes critical when the physician is required to provide treatment to patients of the insolvent MCO and may, in fact, never get paid for his or her services. Although the physician has a right to payment under the provider agreement and can file a claim against the insolvent MCO for non-payment, treatment of the claim is often fact sensitive and the likelihood of recovery (given the financial strength of the MCO) is marginal at best. Accordingly, the physician need be ever mindful of his or her contractual obligations to continue treatment of patients of an insolvent MCO and the risks inherent in providing or not providing that treatment.

PPOs

Under Pennsylvania’s Preferred Provider Organization Act and regulations (PPO Act), physicians generally have no statutory obligation to continue treatment of patients of an insolvent PPO on or after the effective date of liquidation of the PPO. The PPO Act is completely devoid of any mechanism which provides for the continuation of benefits to patients of an insolvent PPO. Depending on the PPO model, however, as of January 1, 1999, the physician may have certain obligations to continue treatment of patients of an insolvent PPO under Act 68.

Act 68 applies to managed care plans that use a gatekeeper to manage the utilization of health care services, integrate the financing and delivery of health care services to patients by arrangements with health care providers selected to participate on the basis of specific standards, and provide financial incentives for patients to use the participating health care providers in accordance with procedures established by the plan. Accordingly, the provisions of Act 68 would apply to PPOs, that, among other things, feature a gatekeeper which manages the utilization of health care services (Gatekeeper PPO).

Under Act 68, if a Gatekeeper PPO initiates termination of its contract with a participating physician (which necessarily occurs upon insolvency and liquidation of the PPO), a patient may continue an ongoing course of treatment with that physician, at the patient’s option, for a transitional period of up to 60 days from the date the patient was notified by the plan of the termination or pending termination. Additionally, the Gatekeeper PPO, in consultation with the patient and physician, may extend the transitional period if determined to be clinically appropriate.

Therefore, if a Gatekeeper PPO, which otherwise satisfies the definition of a managed care plan under Act 68, initiates termination of its contract with a participating physician as a result of the PPO’s insolvency and subsequent liquidation, patients have a statutory right to continue an ongoing course of treatment with that physician during the transitional period of 60 days (or longer, if clinically appropriate), and the physician has a statutory obligation to provide such care if requested. If, however, as was the case for Physicians Care, the PPO is a non-gatekeeper model PPO and does not fall within the scope of Act 68, the physician’s obligation to continue treatment of patients of an insolvent PPO terminates when the contract between the parties ceases.

HMOs

Unlike the PPO Act, the Pennsylvania Health Maintenance Organization Act and regulations (HMO Act) provides for the continuation of benefits to patients of an insolvent HMO. Specifically, under the HMO Act, an HMO must have a plan for handling insolvency which allows for the continuation of benefits for the duration of the contract period for which premiums have been paid. It must also have an obligation for the continuation of benefits to patients who are confined on the date of insolvency in an inpatient facility until either their discharge or expiration of benefits (limited to services directly related to the condition which occasioned the admission) whichever comes later.

Additionally, the Insurance Commissioner may require that the provider agreement between the HMO and physician obligate the physician to provide services for the duration of the period after the HMO’s insolvency for which premium payments have been made and until the patient’s discharge from the inpatient facility. Therefore, depending on the express language of the provider agreement between the physician and the HMO, the physician may have a statutory obligation under the HMO Act to continue treatment of patients even after the HMO is declared insolvent for so long as premium payments have been made and the patient is discharged from an inpatient facility. If, however, the patient has an opportunity to obtain replacement coverage and fails to obtain such coverage, the provider agreement may limit the continuation of care to the expiration of the patient’s benefits.

Irrespective of whether the physician’s contract with the HMO obligates the physician to provide services for the duration of the period after the HMO’s insolvency, the physician may have certain other statutory obligations to continue treatment since the HMO likely qualifies as a managed care plan under Act 68, as the use of a gatekeeper is a required feature of an HMO under the HMO Act. Accordingly, the physician would have an obligation to continue treatment of patients, at the patient’s option, for a transitional period of up to 60 days (or longer, if clinically appropriate) from the date the patient was notified by the HMO of the HMO’s termination or pending termination of the participating physician’s agreement as a result of the HMO’s insolvency. Finally, in addition to any existing contractual or statutory obligation to continue treatment of patients of an insolvent PPO or HMO, a physician may also have an ethical obligation to do so.

Ethical Obligations

Under the Pennsylvania Medical Practice Act (MPA), it constitutes unprofessional and immoral conduct for a physician to abandon his or her patients. Abandonment occurs when a physician withdraws medical services after a physician-patient relationship has been established by failing to give notice to the patient of the physician’s intention to withdraw in sufficient time to allow the patient to obtain necessary medical care. Accordingly, at a minimum, upon insolvency and subsequent liquidation of a PPO or HMO with whom the physician has contracted, the physician (most likely in coordination with the PPO or HMO’s policies) would have to provide notice to his or her patients that treatment is terminating and any such notice would have to be given sufficiently in advance of the termination date to permit the patients to obtain the necessary medical care from another physician.

Typically, this occurs when the patients are transferred to a new plan and select a new primary care physician. Failure to comply with these minimum requirements, however, may result in licensure discipline against the physician. Additionally, under the current American Medical Association principles of medical ethics (Code of Ethics), the physician likewise has an ethical obligation to support continuity of care for his or her patients. While the physician has the option of withdrawing from a case, failure to provide notice to the patient, relatives, or responsible friends sufficiently long in advance of withdrawal to permit another physician to be secured, is also a violation of the Code of Ethics.

The Physician’s Dilemma

A physician’s obligation to continue treatment of patients of an insolvent PPO or HMO is not always clear and typically depends upon a number of factors. What is clear is that if a physician is contractually or statutorily obligated to continue treatment under such circumstances, the physician must do so (no matter what the financial consequences may be to the physician), or face exposure to liability and possibly licensure discipline.

If, on the other hand, the physician’s obligation to continue treatment is unclear under both contract and statute, the physician should take all necessary steps to follow the guidance in Act 68, the MPA and Code of Ethics. Specifically, upon the PPO or HMO’s insolvency and subsequent liquidation, it would be prudent for the physician, (with the assistance of the insolvent PPO or HMO), to provide notice of the withdrawal of care and likewise, to provide patients with the opportunity to continue treatment for at least until patient coverage is transferred to a new plan or the transitional period provided under Act 68 terminates, whichever comes first.

In conclusion, many physicians have joined MCOs without attention to the solvency of the MCO or its financial position. This discussion demonstrates that physicians who wish to avoid providing services without payment should change that approach. Instead, before signing a provider agreement with an MCO, the physician should:

• Review the MCO’s financial reports and any financial information filed by the MCO with the Insurance Department.

• Review the MCO’s financial ratings published by Moody’s, A.M. Best or Standard and Poor’s.

• Negotiate the contractual language in the provider agreement so that the obligation to continue treatment of patients after insolvency and subsequent liquidation of the MCO is limited to the requirements of the state statute and not beyond.

John W. Jones, Jr., Esq., is a member of the Health Law Department at Schnader Harrison Segal & Lewis LLP in Philadelphia, Pa.

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