Emerging Physician and Organization Liabilities under Managed Health Care

By Penhallegon, John R. | Defense Counsel Journal, July 1997 | Go to article overview

Emerging Physician and Organization Liabilities under Managed Health Care


Penhallegon, John R., Defense Counsel Journal


THE managed care model for health care creates new potential liabilities for both physicians and the managed care organizations. Without some alleged error in the diagnostic or treatment decisions made by the front-line practitioner, theories of liability against the organization that may have played a role in those decisions become an academic exercise. The decisionmaking process of the physician in the trenches, and some resulting harm to the patient, is still the trigger for the various efforts to hold the managed care entity financially responsible.

Physicians now are confronted with new theories of liability that have their genesis in the managed care model. Traditional fee-for-service practitioners had to ensure that the care they provided met the relevant standard of care, but they rarely found themselves confronted with allegations that their treatment decisions were motivated by personal financial gain. With managed care and with capitation, where physicians may do better financially by not recommending certain diagnostic tests or treatment modalities, physicians may now find themselves defending not only their professional judgment but also their economic motivation.

PHYSICIAN LIABILITIES

A. Financial Conflict"

According to the plaintiffs' bar, the root of the financial pressures on physicians is the manner in which they are compensated under a managed care model. Primary physicians are often paid through a mechanism termed "captitation." Capitation is an actuarially determined amount that is prepaid to physicians for each patient who chooses them as their primary care physician. The primary physician might be paid 80 percent of the capitation amount, with the remaining 20 percent pooled into a risk-sharing find as a reserve against specialty referral costs and hospital stays. A surplus from the specialty fund might be returned to the primary physician's office. Similarly, a surplus in the hospital fund may be returned to the primary provider. Conversely, if utilization is higher than expected, the primary physician might be obligated to reimburse a portion of that excess.(1)

The contention is that primary care physicians are forced into an untenable conflict of interest between their own financial interests and the well-being of their patients. In its most simplistic form, the argument is that a particular diagnostic test or a particular specialty referral was not made because to do so would take money from the primary care physician's pocket.

It is an argument fraught with danger for defendants. Although fewer patients today have a deity-like view of their doctors, they certainly don't want to find out that the reason they were not referred to a specialist for an indicated diagnostic study was their doctor's personal pecuniary motive. Juries won't react well to that evidence. If a jury concludes that referrals were not made for pure profit motive, there is certainly an increased potential for at least a de facto punitive award.

B. Defenses

How does one successfully diffuse the emotionally charged appeal that your client considered his financial interest or gain paramount to the health of his patient?

The most important single strategy is to avoid being dragged into defending the economics of managed care in the first place. Defense counsel must avoid that battle -- arguing the economics of capitation, the nuances of risk sharing pools, or suggesting that the few dollars that might have potentially been realized by your client couldn't possibly have been enough to cloud professional medical judgment. If plaintiffs are allowed to litigate this issue, and defense counsel joins that battle, the case no longer is being tried simply on standard of care. Instead of the jury's determining whether the physician's decision complied with the standard of care, it is deciding whether the physician is guilty of greed.

How to diffuse this issue? …

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