Articles

Anatomy of an HMO Liability Case

By Theodore J. Leopold, Esq.

I. Background

Chief Justice Brandeis once said that sunlight is the best disinfectant. This topic--Anatomy of an HMO Liability Case-is about just that: Bringing sunlight into the dark recess of a huge, complex industry, with great power over the lives of millions of people.

We live in a country in which ordinary life is made safe through our use of law to insure public protection. Imagine a world in which the manufacturers of cars, gas ranges, children's toys, even hair dryers, could not be held responsible for their products. Imagine a world in which a doctor, to whom you entrusted your life, could do whatever he or she wanted without concern for the consequences. Most of us cringe at the idea because we want the individuals and corporations who touch our lives to be accountable for what they know, what they do, the decisions they make, and the effects they have on our persons.

We all know that legal liability escalates as products become more dangerous. Makers of cars have more risks than makers of walking sticks. Liability also increases with degrees of preventable harm. In pre-managed care days of medicine, there was a clear distinction between persons who practiced medicine and persons who paid claims. But managed care merged the two-creating the notion of a "health plan"-whose new business is to control payment through its control of delivery. Health plans now "authorize" care and "manage utilization" -- euphemisms for telling patients what they can and cannot have, and telling physicians what they can and cannot do.

Claims paying isn't usually a dangerous activity, unless it becomes a means to practice medicine. But practicing medicine is risky only when there is accountability. It is this power over life and death, the chance of error, the means to prevent harm, the responsibility to do one's best despite other's cost that carries professional, financial, legal and moral peril.

The managed care industry justifies its machinery of denial with claims of better care through coordination and continuity of services. Yet, managed care has in essence disrupted the continuity of care, segmenting patients into industrial parts. Health insurance companies view patients as widgets moving down an assembly line to be processed as economically and efficiently as possible. We might treat the building of motors this way, but not patients. Health and healing depend upon each of us receiving the best level of care by someone who knows us, and someone we trust and care foremost about us. Unfortunately, the health care industry has lost sight that medicine is a deliberative, personal process, whose success depends upon in-depth knowledge and a committed relationship between a patient and a doctor. Medicine is just not an objective activity in which any doctor will do. It is also a subjective association enriched by a particular physician's understanding of a particular patient.

Economic assessment in managed care comes from keeping numbers low. That means denials of surgeries, admissions to the hospital, additional days once there, x-rays, lab tests, and visits to specialists. The physician advisors, those employed by the health care companies who make daily decisions about life and death are employed by companies whose goals are to limit care and save money. Some of these decision makers even receive cash bonuses to encourage more aggressive cost cutting. Unfortunately, when corners are cut in patients' care it can lead to catastrophic consequences. The decisions rest solely with a doctor who has never met the patient, never cared for the patient and whose main goal is to get the patient out of a hospital setting as quickly as possible. They never have to look into the eyes of a frightened, suffering patient who's very life might depend upon a medical need which is withheld with the stroke of a pen.

II. ERISA Exclusion

The health care industry acts with this callousness for they know they are shrouded with a cloak of never having their actions contested. For these companies know that they have the protection of Federal law. They have a shield called ERISA, which applies to all insureds except those employed by a governmental agency.

ERISA refers to the misleading title, "Employee Retirement Income Security Act," a 1974 federal law that prevents nearly 125 million Americans from collecting damages for denial of medical treatment that results in death, injury, or economic loss. ERISA allows people to recover only the benefits they were entitled to in the first place. For example, if you were denied an MRI test that would have diagnosed your cancer, and then died for lack of treatment, your family would be entitled to sue only for the cost of the MRI. Little wonder then that health plans can, with no regard for affect on patients, send a patient to substandard facilities, or to an incompetent physician; deny or delay access to necessary specialists or treatment; write ill-founded medical guidelines and hire non-medical persons to apply them; and, pay physicians in ways that cause them to deny or limit care.

These are just some of the ways money is saved at the expense of the life and well being of real people. With ERISA protection, health plans and medical directors never have to confront their patients. They never have to account for the consequences of their medical decisions. If any decisions result in harm or death, so be it. Patients' lives and experiences are just anecdotes, just the price of doing business. And, to compound the indignity, health plans take patients' own premium dollars and spend it against them through self-promotional public relations and lobbying campaigns. The figures for 1998 show that $16 Million Dollars were spent fighting patient protection bills!

To continue to allow the HMOs to practice behind the ERISA shield is like giving manufacturers or physicians the freedom to do, or not do, whatever they want, with no recourse against them for our harm or death. We would never be so foolish. Hopefully in the months ahead, national legislation will be enacted to protect patient rights and allow the insured to challenge the actions of his/her carrier. There is some goods news, however. ERISA preemption never applies to insurance benefits provided to employees of governmental agencies, i.e., public employees: city, county, state or federal are exempt from the reach of ERISA (which was the case in Chipps v. Humana.) In the meantime, those insured through a governmental agency can protect their rights by prosecuting common law causes of action against the health care provider.

III. The HMO Lawsuit

With this background, it is clear to see how modern managed care companies have shifted the practice of medicine from physicians, bound to the patient's best interest by the Hippocratic Oath, to corporate managers bound to the bottom line. Economics replaces clinical judgments. Utilization reviewers who are not doctors replace individual physicians; the careful deliberative process of deciding how best to care for a patient is usurped by financial guidelines and profit-based statistical models.

With little in the way of ethical, legal and safety protections for patients, Americans have become outraged over their mistreatment at the hands of corporate caregivers. No wonder, then, that a jury in West Palm Beach, Florida, sided with Caitlyn Chipps and her family in the $79.5 Million Dollar ground breaking lawsuit, Chipps v. Humana Health Insurance Company of Florida, Inc. Patients, ordinary citizens and even nurses and doctors across the nation applauded the family's courage and perseverance for exposing the cancer at the heart of the managed care system.

The Chipps case, probably better than any other, provides insight into a non-ERISA managed care lawsuit. The Chipps case brought to the forefront the essential ingredients necessary to expose the managed care companies for who they are. The ingredients, although not easily understood nor ascertained, must be relentlessly and fully understood in order to appreciate what is behind the managed care company's reasons for the denial of care.

It is necessary to understand
how the HMO denies care.

In an HMO lawsuit there are five primary components that managed care companies use in order to limit or deny care and thus allow them to be more profitable at the expense of the insured who oftentimes is already vulnerable and in many instances catastrophically ill or injured. These components are medical necessity, financial incentives, disease management companies, hospitalists/interventionists and slow-pay/no-pay. In order to be successful in an HMO suit, you must get a firm and clear understanding as to how each of these areas interrelate with the HMO carrier's decision to deny care to your client.

Medical Necessity:

Managed care companies tell participants that their health care coverage is based on "medical necessity," a phrase that is broadly worded and open ended. They explain that "medically necessary services" are provided when the "symptoms are appropriate with regard to standards of good medical practice." In fact, coverage is based on undisclosed, cost-based criteria and financial incentives unrelated to and more restrictive than "medical necessity." Care is too often "medically necessary" only if the corporate caregiver can make a profit providing it. Otherwise it is denied.

Financial Incentives:

Managed care companies have set up internal policies and procedures that give direct cash bonuses and other financial incentives to claims reviewers who deny claims for services or limit hospital admissions and stays regardless of medical necessity. For example, in 1995 and 1996, Humana instituted programs to deny patients access to hospitals. Bonuses and incentives were awarded to case managers, nurses and physicians if they discharged patients from hospitals earlier than the recommendations of treating physicians. These aggressive incentive programs are part of corporate efforts to cut costs and increase profits.

Disease Management Companies:

Managed care companies also pay third parties to review claims for some medical conditions. These third parties use undisclosed criteria that are different and more restrictive than the "medical necessity" criteria used by managed care companies in making coverage decisions. In fact, during a trial involving a women with cervical cancer who was denied a hysterectomy, it was learned that Value Health Services, which was paid by Humana to review claims, had a policy of denying one of every four requests for hysterectomies - regardless of the patient's real medical condition. Value Health Services estimated that it saved its clients $67.5 million a year.

Managed care companies also subcontract with third parties to care for high-cost patients, those who are catastrophically ill and require continuous care, expensive treatments and long hospital stays. These companies, referred to as "carve out" companies, cap the care and treatment of these patients. Managed care companies reason that if high-cost patients are closely monitored, the cost of treating them will go down and profits will go up. However, when a managed care company decides to closely monitor one group of patients, they do so without adding new staff. Instead they shift personnel away from other patients, who are then left to suffer. In the case of Caitlyn Chipps, Humana decided to terminate about 100 catastrophically ill children as part of a scheme to lower hospital admissions and hospital stays to free up staff to work in areas that were money makers for the company.

Managed care companies also use accounting firms to recommend ways to make notice requirements trickier so care can be denied. Some managed care companies require their subscribers to obtain advanced approval for emergency care or to call a toll-free number within 24 hours of receiving emergency care. These "notice requirements" are usually buried deep in the policy where people can't find them so they can be invoked by the managed care companies to deny coverage when it otherwise should be provided.

Hospitalists/Interventionists:

Denial of care is also accomplished by the managed care companies by the use of "hospitalists" or "interventionists." These are physicians employed by for-profit managed care companies to oversee patients in local hospitals, nursing homes and rehabilitation centers. Their primary mission is to discharge patients as quickly as possible to save money and increase profits. They have had no prior contact with the individual patients, whose primary care physician no longer directs their care and treatment.

Slow-pay/No-pay:

Still another ploy is to delay or refuse to reimburse providers or insureds whose treatments were approved. The systematic delay or denial of payments - which often violates state law - enables the health care companies to reap substantial additional profits from the millions of dollars they ware obligated to pay hospitals, nursing homes and doctors but which they retain in their own coffers and invest for additional gain.

An understanding of the corporate structure
of the HMO is important in deciding who to sue.

Because of the corporate structure of the HMO, it is incumbent to thoroughly review the certificate of coverage of your client before filing suit. Among other things, the certificate of coverage will oftentimes allow you a full understanding of exactly who the potential defendants are. For example, here in Florida, Humana, Inc. - the parent - uses its subsidiaries, Humana Health Insurance Company of Florida, Inc. or Humana Health Plans, Inc. to provide health insurance to some of its over 6.2 Million insureds. In essence, these 2 subsidiaries are nothing more than puppets of the parent company. For example, Human Health Insurance Company of Florida, Inc., pays management fees and dividends to Humana, Inc. All major decisions including medical decisions related to Humana of Fla. insureds are being made by employees of Humana, Inc., located in Louisville, Kentucky. Many of the other insurance carriers, such as United Health Insurance Company of Florida and it's parent, United Health Group, Inc., located in Minnesota are set up the same way. Consequently it is important that where possible suit be brought against the parent as well as the subsidiary.

Causes of Action.

Depending on the type of policy involved-an HMO versus a PPO-there are several different types of claims that can be brought against the managed care company. Some of these causes of action are listed below.

Breach of Contract:

The insured usually obtains his coverage under a group plan offered by his/her employer. Usually, the plan provides coverage for the insured and his dependents. The breach of contract occurs during the course of the policy period, where there is a denial of care that is in direct violation of the coverage provided for under the group plan.

Fraud in the Inducement:

Fraud in the inducement arises in the context of promises made by the carrier to the insured, usually during the open enrollment phase. During the open enrollment the managed care company or its representative makes several promises that unfortunately are never meant to be kept. However, the insured relies upon these representations, usually including that medically necessary and appropriate health services and supplies would be provided by the health care providers under contract with its participating providers. Consequently, the insured relying upon the representations of the managed care company selects the carrier, believing the carrier would honor its promises. Little does the insured know that the carrier intentionally failed to disclose to the insured at the time of the representations that the carrier had set in place an established set of criteria, namely financial in nature, designed to deny claims and benefits without regard to the medical needs of the insureds. As a result, the insured usually gives up desperately needed care that she could have gotten with another carrier.

A perfect example of how a fraud in the inducement cause of action works can be seen in the Chipps v. Humana case. At the time of open enrollment back in 1993, Mark Chipps was faced with a decision of whether to go with the representations of Humana or to seek insurance from another carrier. At the time Mr. Chipps' catastrophically ill daughter, Caitlyn, was covered with an Accordia/Anthem policy that was providing all of the necessary physical and occupational therapies that she needed. Although the Accordia/Anthem policy was being discontinued in order to obtain the insurance contract for the Palm Beach County Sheriff's Office, of over 2,500 insureds, Humana made oral representations to Mr. Chipps and others that there would be a no-loss/no-gain of Caitlyn's policy if Mr. Chipps were to sign up with Humana. Relying upon the representations of Humana, Mr. Chipps signed up with Humana's coverage beginning in January of 1994. However, Mr. Chipps soon realized that Humana's representations were false and misleading as they never intended to provide the no-loss/no-gain coverage that Caitlyn had under the Accordia/Anthem policy. The fraud in the inducement claim was prosecuted to success in the Chipps matter.

Intentional Infliction of Emotional Distress:

Because of the outrageous conduct of the managed care company of denying medically necessary care, it is possible to bring an intentional infliction of emotional distress claim. Oftentimes you can bring these claims not only on behalf of the insured but also in circumstances where the aggrieved party is a minor, you could bring the claim both on behalf of the minor and the parent. Although the threshold for an intentional infliction of emotional distress claim is high -- one that constitutes extreme and outrageous conduct which goes beyond all possible bounds of decency and is shocking, atrocious and utterly intolerable in a civilized community - it is winnable.

Insurance Bad Faith under F.S. 626.9541:

If you are dealing with a PPO policy you can bring an Unfair Claims Settlement practice claim in violation of §626.9541 Fla. Stat. This statutory claim can be made when it can be shown that the carrier has improperly denied care or payment for the medical bills of your client. In these circumstances it can often be shown that the carrier failed to deal in good faith when under all of the circumstances, the carrier could and should have done so, had it acted fairly and honestly toward your client and with due regard to his interest. In addition, if a general business practice can be shown, a claim for punitive damages can be prosecuted. It is important to remember, however, that this cause of action does not apply to HMO coverage.

Discovery is one of the key
components in litigating an HMO lawsuit.

At the core of the managed care company's business practice is their engagement in a scheme to defraud and to deny scores of insureds, usually those who are catastrophically ill, the medical treatment they were promised and desperately needed, resulting in actual physical and emotional injury. Through discovery -- interrogatories, request for production and depositions -- you can get critical information about the managed care company's promise to provide critical medical care to insureds but yet abandon that contractual commitment purely for its own economic benefit.

The discovery to the HMO must be broad based. In order to accomplish this goal, the discovery should be focused in the following areas:

1. You want to find out all third parties that are used by the managed care companies to help with the medically necessary decision making process;
2. You will want to know the identification of those individuals involved in the review, handling and investigation of any and all medical requests and claims made by your client as well as the legal grounds, factual basis and medical basis upon which the medical request or claim made by your client was denied;
3. You will want to have an understanding of how the HMO defines "medical necessity";
4. You will want all information related to the health services covered under the certificate of coverage, including all health services provided for the particular program in which your insured was enrolled.

Set forth below are specific types of
documents that should be requested.

1. Medical and claims files related to your client;
2. Manuals and internal procedure memos regarding the handling of medical requests;
3. Authorizations or claims;
4. All standards for reviewing reasonable medical requests;
5. All guidelines or criteria for handling, adjusting, investigating or payment of medical requests;
6. Corporate Organizational Charts;
7. Documents that discuss the internal quality monitoring of decisions made by nurses, medical management reviewers or case management reviewers;
8. Costs/Savings reports;
9. Utilization review reports,
10. Personnel files for all individuals involved in the decision making process to deny care to the insured;
11. All documents which discuss or summarize financial incentives and/or disincentives;
12. All meeting minutes or memoranda discussing non-payment of claims for the insureds;
13. All materials including medical records relied upon by the company related to them denying coverage for medical care;
14. All policy and procedure manuals;
15. A complete copy of the Group Policy; and
16. All Requests for Proposals (RFPs) and responses by the HMO.

A medical malpractice lawsuit
as an alternative approach.

In the event that your client falls under the ERISA preemption doctrine, a medical malpractice lawsuit is a viable option. Many courts around the country have specifically held that managed care companies can be held liable in a medical malpractice context. As referred to above, the managed care companies have gotten out of the business of exclusively paying medical bills and into the business of practicing medicine. It is now the managed care company, not your treating doctor who decides what is and is not medically necessary. As a result, the managed care company can be held to the same standard of care as a treating physician. Thus when the managed care company acts in a fiduciary role to deny care and your client is injured as a result, a medical malpractice claim may be an alternative approach.

In looking at a denial of care issue in the context of a medical malpractice suit a clear distinction must be made to determine whether the claims are based on quality of care or quantity of benefits. If the insured is denied timely, adequate and appropriate medical treatment and suffers injuries and damages as a result because of the actions or inactions of the managed care company a medical malpractice claim should be completely investigated and seriously considered.

IV. The HMOs Defenses

The industry's four main arguments often used to defend the conduct of the HMOs are:

1. Health plans say "we don't practice medicine; we deny payment, not care. However, turn to any coverage book and look up the definition of "medical necessity" and you will find, that all plans claim the final word on medicine. For example, it will say the PLAN, not the treating physician, not the patient, but the PLAN, will determine what happens medically.

   This is even more evident in recent bad faith litigation against a health insurance company. A video was released to the public, whose existence would never have been known without a lawsuit. It is a training video made by company lawyers of a major insurer designed to teach reviewers how to make their decisions depending upon whether it is an ERISA case, i.e., when they cannot be sued, or a non-ERISA case the dangerous ones who can cost more money. Plans aren't just practicing medicine; they are doing it defensively.

2. Managed care plans claim they are already accountable because they are regulated and accredited. We know, of course, from hospital and physician performance that this has never prevented harm to patients. In addition, if you look at the standards by the major accreditation body, National Committee for Quality Assurance, NCQA for short, you'll find nothing that protects patients from the dangerous business practice of denial.
3. When all else fails, health plans scream about the cost of litigation. They say: "Lawsuits will cost us money; we will have to raise premiums to make it up; persons will lose their insurance." Lawsuits cost money only if they occur, and if plans perform in good faith and with quality performance, then there should be no reason for successful litigation against them. Maybe the amount of their concern for litigation tells us something about how much they fear public knowledge about what they do.

   Even so, this cost argument is the worst kind of insult to the public. We have an industry, which has financially benefited from its position of privilege and its own special protection for more than two decades. This has cumulated in great personal and corporate windfalls. A recent report on executive compensation showed that the top 25 health care executives totaled more than $128.5 Million Dollars last year ?that's without calculating unexercised stock options.

4. The best deflection is always to point elsewhere, so the ultimate argument against legal accountability is to claim that it is just a ploy by plaintiffs' attorneys to make more money. This kind of finger pointing threatens the positive contributions of law and its protection of consumers.

V. Conclusion

So let's be honest: the heart of managed care is the practice of medicine by corporations and their company doctors to the benefit of the corporations, not for the benefit of patients. Their rhetoric, slick rationales, and floods of money should not fool us. There distance from the patient does not mute the damage done when their medical decisions are negligent, dangerous or simply ignorant.

We know in medicine sunlight alone cannot rid an abscess. More is needed. Chief Justice Brandeis understood this as well, for he also said: "Power must always feel the check of power."