Professional Point

The recent settlement of the New Jersey Psychological Association (NJPA) v. MCC Behavioral Care lawsuit marks the second settlement agreement in the Practice Directorate's test cases. In July 2000, a settlement was reached in the case of California Psychological Association v. AETNA U.S. Healthcare of California.

Typically, settlements achieve a result that both plaintiff and defendant find beneficial and preferable to a court battle. For plaintiffs, this usually means the defendant has agreed to change behavior that the plaintiff considers problematic. While a settlement may deter others who are not parties to the case from engaging in the same problematic behavior for fear of being sued, legal precedent or "new law" is not usually made when a case is settled.

In the New Jersey case, however, in addition to the parties agreeing to settlement terms (see article, December Monitor), a federal court opinion issued during an earlier phase of the case has precedential value. In response to MCC's attempts to dismiss the lawsuit, the U.S. District Court for New Jersey rendered an opinion about the use of "no-cause" termination procedures (a very common practice in the managed-care industry when this lawsuit was filed in 1996) that goes far beyond this individual case. Before looking more closely at what the federal court said, it may be useful to recall how the NJPA v. MCC case placed the "no-cause" termination issue before the court.

Background on the case

The primary allegation in the lawsuit was that MCC had terminated a number of psychologists from its provider panel by using the "no-cause" provision in their contracts and that the company did so having determined that the psychologists were "not managed-care compatible." In other words, the company allegedly had eliminated psychologists who in MCC's opinion were overutilizing or attempting to overutilize treatment. Relatedly, the plaintiffs argued that by using the "no-cause" provision to terminate them, MCC could avoid having to provide the psychologists with any type of due process or fundamental fairness prior to dropping them from the panel.

In rejecting MCC's motion to dismiss, U.S. District Court Judge John Bissell took square aim at the no-cause termination issue. He analogized using a no-cause termination provision to terminate providers who are attempting to do what is in their patients' best interest to an employer's tortious firing of a "whistle-blowing" employee. According to the judge, "The New Jersey Supreme Court has yet to address the availability of such a tort remedy in the context of medical service providers and HMOs or MCOs. However, there is sufficient suggestion that under the facts alleged by plaintiffs which must be accepted for purposes of this motion, the Court would countenance such a cause of action in this case." In other words, if the facts are as the plaintiffs allege, the MCO's behavior would be an impermissible violation of public policy, for which a legal remedy could be pursued.

The importance of this case

In addition to refusing to dismiss the case, the court's decision was significant for two reasons. First, at the time of the 1997 court opinion, many managed-care industry practices were objectionable to health-care professionals but were not legally actionable. That is, there were no legal grounds upon which to base objections to these practices. MCOs frequently hid behind the immunity of the Employee Retirement Income Security Act (ERISA) preemption shield and couldn't be sued. (ERISA generally protects MCOs from liability under state law when they administer health plans that are self-insured by employers.) If that immunity was unavailable, companies typically argued they were not delivering health care but only managing the business arrangements and, therefore, could not be sued for bad patient care. In this case, a federal court was now saying that MCOs could be held legally accountable for behaving at odds with a state's public policy concern that its citizens receive good health care.

The court's decision also was significant because it indicated that a common business practice--the no-cause termination contract provision--was not necessarily appropriate where health-care delivery was involved. As market-driven health care developed over the last decade, many business practices from other market-driven industries were reflexively applied to health care, without regard for problems that this might cause since health care is not like most businesses. As a result of NJPA v. MCC, we now have a court recognizing and articulating the problems that can arise from applying common business practices in health care.

The combination of the New Jersey settlement agreement and the federal court opinion in this case has brought about a result for which the NJPA and the seven individual psychologist plaintiffs should be highly commended.