The case the Virginia Academy of Clinical Psychologists (VACP) filed against CareFirst and its mental health subcontractor (Value Options) was settled in March. But the suit--which seeks to hold the companies accountable for putting profits ahead of patients--isn't over yet. After a favorable settlement agreement, the plaintiffs are filing an appeal on fraud charges. And appeals court is where public policy is shaped--which could mean an important ruling from the high court of the District of Columbia on harmful business practices among some managed-care companies.

Back in 1998, VACP filed the suit against CareFirst (formerly Blue Cross/Blue Shield of the National Capital Area) and Value Options for various alleged wrongful acts, starting with initiating a 30-percent cut of psychologists' payment rates. Just before trial was scheduled in April, CareFirst settled the case, giving the plaintiffs everything they could have won at trial, as well as preserving the plaintiffs' rights to appeal all claims that had been previously dismissed by the courts. (See April Monitor for a case timeline.)

Now the plaintiffs--VACP, two consumers and six psychologists--with the support of APA, are doing just that: appealing previously dismissed fraud and punitive damage claims. Before settlement, the judge dismissed the plaintiffs' claims that CareFirst and Value Options had deliberately misled consumers and providers, leaving the case focused only on contractual claims.

The appeal, filed April 16 with briefings expected this summer, will cover a few key issues:

  • Did CareFirst defraud consumers by marketing a large provider panel, knowing that an impending rate cut would create a phantom panel?

  • Did CareFirst defraud consumers by keeping them from receiving the promised number of HMO sessions?

  • Was CareFirst's treatment of vulnerable mental health patients outrageous enough to justify punitive damages?

"Getting these claims back into play is really important," says Russ Newman, PhD, JD, APA's executive director for professional practice. The VACP case is part of the APA Practice Directorate's continued test-case initiative, which has included cases against managed-care practices--such as arbitrarily limiting or denying care--in New Jersey, California and Florida. "These cases are an effort to highlight the harmful behavior of managed care and have the legal system hold companies accountable for such behavior," says Newman. In effect, these cases are intended to question the legitimacy of typical industry practices and create new public policy on issues related to managed care.

In this case, the plaintiffs allege that the rate cut that drove more than 80 providers off the panel and left more than 350 patients without their original provider and in need of transitional care created a "phantom panel"--the large, stable panel that CareFirst had advertised and promised to consumers was no longer available. But CareFirst's advertising didn't change.

Courts have typically viewed managed care in a purely business light--directed by contracts and driven by profits, says Newman. But issues like phantom panels, for example, should illustrate that the delivery of health-care services is more than just a business arrangement and can't simply be governed by profit motive.

If the appeal is successful, the plaintiffs--especially the consumers involved--would be entitled to go to trial to seek damages for emotional distress, punitive damages and a portion of their attorneys' fees, as well as injunctions or declarations from the court to prevent future wrongdoing by managed-care companies.

And, says Newman, "We want the system to recognize that this is bad behavior [on the part of managed care]."

Alan Nessman, JD, special counsel for legal and regulatory affairs in APA's Practice Directorate, agrees. "The public policy aspects of this case--whether or not managed-care companies are putting profits ahead of patients and causing harm to the public--are more easily brought out in the fraud claims," he says. And, Newman notes, a good result in the Court of Appeals would set national precedent against unjust practices by managed care.

Oral arguments in the case may not take place for more than a year.