APA pursues ?test cases? to set legal precedents

APA and state associations are legally challenging managed-care companies over patient treatment.

By Lisa Rabasca
Monitor staff

With support from APA, psychological associations in New Jersey, California and Virginia are working to set court precedent by legally challenging managed-care companies that are, they charge, interfering with patient treatment.

APA?s work with the state associations is part of its overall agenda to protect patient care and improve conditions for psychologists, says Russ Newman, PhD, JD, APA?s executive director for practice. The cases?one filed in California and another in New Jersey, as well as another case that may be filed in Virginia?show how managed-care companies are usurping practitioners? authority to provide care and are interfering with, even inhibiting, patient care by placing too much emphasis on cost-cutting measures and profits. APA is also working with the Tennessee Psychological Association (TPA) on a possible legal case.

Managed-care companies control the way health care is provided with their policies, procedures and contract provisions as well as the financial arrangements they use to set compensation rates and pay providers, Newman says. 'Ultimately, we believe we will be able to attack all the ways in which managed-care companies work to control how care is given,' he says.

Precedent-setting cases

Historically, U.S. courts have viewed managed-care companies as business arrangements set up under contractual agreements governed by contract law, says Newman?rather than providers of care that should be regulated by laws of accountability and liability. In 1992, through its office of managed care, APA?s Practice Directorate began tracking members? complaints to find a potential lawsuit that would illustrate that managed-care companies are, in effect, delivering health care and persuade the courts to treat them accordingly.

'The things managed-care companies were doing were professionally objectionable, but not necessarily legally actionable,' says Newman. The goal, he says, was to find a case that showed patient care interests were at stake and present a fact pattern that could be litigated.

With guidance from APA, the California Psychological Association (CPA) recently filed a lawsuit against Aetna U.S. Healthcare Inc., of California; Human Affairs International (HAI) of California, a former subsidiary of Aetna; and Adventist Health Behavioral Care, a subcontractor for HAI, charging that they have misled the public by not providing accurate information about benefits and putting too much emphasis on cost-cutting measures and profits?often sacrificing patient treatment in the process. (See article on page 1.)

That central concept?the control managed-care companies exert over patient care?is also the focal point of the first lawsuit filed against a managed-care company by psychologists: In 1996, a number of New Jersey psychologists were told they were terminated under the 'no cause' provision of their provider contract.

Seven of these psychologists, along with the New Jersey Psychological Association (NJPA), filed a suit claiming that the practitioners were secretly declared 'managed-care incompatible' for advocating for more sessions for their patients than were deemed appropriate by the managed-care company and illegally dismissed as providers from MCC Behavioral Care, Inc. (MCC).

Once declared managed-care incompatible, they were terminated from MCC with no explanation.

APA hopes court rulings in the California and New Jersey cases will set legal precedents by holding managed-care companies accountable for delivering health care just as providers traditionally have been held accountable, Newman says. In the New Jersey case, MCC?s contract obligated the psychologists to use their clinical judgment when treating patients, Newman says. But when a psychologist?s judgment was in conflict with MCC?s utilization review board, the practitioner was labeled managed-care incompatible and terminated.

'The managed-care company is actually controlling and directing the way treatment is being provided,' he says, 'because, if you know you will get terminated, the incentive is to abide by the policies and procedures of the managed-care company.'

Even if managed-care companies have the right to terminate their providers, certain procedures must be followed, much as hospitals use fair-hearing procedures for terminating providers from the medical staff, Newman says.

Last year the U.S. District Court in Newark, N.J., rejected MCC?s request to dismiss the suit. Judge John Bissell compared the allegations against MCC discharging its providers to an employer firing a worker for pointing out safety hazards or other problems in the workplace.

The judge also noted that managed-care companies are more than just private businesses, but a public service much like hospitals. The case is likely to be heard this year.

Reduced compensation rates

APA is also working closely with the Virginia Academy of Clinical Psychology (VACP) to remedy serious problems with a managed-care company that breached its contractual obligation to psychologists in the Washington, D.C., metropolitan area. VACP says that the managed-care company reduced its compensation rates to practitioners by 35 percent without first giving them appropriate notice.

As a result, the managed-care company misrepresented the services it is able to provide, says Shirley Higuchi, APA?s assistant executive director of legal and regulatory affairs. When employers originally purchased insurance from the company, they expected a certain number and level of practitioners to provide care. But once provider compensation rates were reduced, many practitioners did not renew their contracts with the company, leaving enrollees with fewer providers to choose from and possibly compromising care, she says.

APA and VACP officials are working to determine whether they can file a suit against this managed-care company, Higuchi says. This case would be very important to psychologists because in the past three years the APA Practice Directorate has received numerous complaints about managed-care companies reducing reimbursement rates. However, Higuchi says, the principles of a free market have made it difficult to legally challenge fee reductions. Instead, VACP will challenge the faulty way that the managed-care company reduced rates by not first notifying practitioners, she says.

Underfunded care

The Practice Directorate is also watching a Tennessee managed-care company that appears to be undermining patient care and failing to reimburse psychologists. This possible case involving Tennessee?s Medicaid program would illustrate how companies set up to provide public health care avoid financial and patient-care responsibility by subcontracting services, says Higuchi.

The case revolves around Tennessee?s Medicaid program, which in 1994 contracted with a large managed-care organization (MCO) to provide behavioral health-care services to its Medicaid enrollees. The MCO, which was paid on a capitated, per-member, per-month basis, then subcontracted with another MCO to deliver all of its mental health care responsibilities on behalf of Tennessee?s Medicaid program. The primary MCO paid the subcontractor on a capitated basis. The subcontractor in turn contracted with various providers in the state to furnish behavioral health services to Medicaid enrollees and paid the providers on a fee-for-service basis.

The subcontractor subsequently was named in a Chapter 11 proceeding in 1997. The primary MCO has denied any liability for unpaid mental health provider fees, stating that it satisfied its responsibilities by making the capitated payments to the subcontractor. Tennessee?s Medicaid program has also refused liability, saying the situation merely involves a contractual dispute between the primary MCO and its subcontractor.

APA is now working with the TPA to determine what action could be taken to prevent other managed-care companies from being undercapitalized.

APA suspects many of managed-care companies are undercapitalized, which prevents contractors and subcontractors from paying for necessary services, Higuchi says.

'Through our research, we hope to reveal that the subcontractor and the general contractor in this case were underfunded from the beginning, and they never had the ability to deliver services,' she says.

Often, when services are paid for before they are delivered, she explained, the managed-care company has an incentive to provide insufficient funds to subcontractors and dole out less and less money as care is provided down the hierarchy from the primary contractor to subcontractors and eventually to the practitioners, she says. The subcontractor often goes bankrupt because the contractor has not provided enough money to pay for necessary services.