Lawsuits take aim at MCO abuses

By Russ Newman, PhD, JD
APA Executive Director for Practice

When it comes to challenging managed-care practices in court, once is not nearly enough. For the past several years, APA?s Practice Directorate has collaborated with state psychological associations to develop a set of strategic lawsuits collectively designed to help dismantle harmful managed-care strategies and procedures. We reached a milestone in 1996 when the New Jersey Psychological Association (NJPA) and several individual plaintiffs filed the first litigation of its kind. In late September, the California Psychological Association (CPA) bolstered psychology?s legal agenda significantly by filing yet another lawsuit designed to stop managed-care companies from usurping treatment decision-making by the patient?s doctor. By year?s end, we are likely to have at least three and possibly four such lawsuits in progress.

MCOs? controlling of health service delivery

The directorate?s overall legal strategy seeks to instill badly needed checks and balances in a system where health-care decision-making increasingly is dominated by large, profit-oriented managed-care organizations (MCOs). The focus of our legal test- case agenda is on two major components of 'business as usual' by the managed-care monolith. One target involves the use of managed-care policies, procedures and contractual provisions to control the delivery of health services. The other entails the use of financial arrangements by managed care in ways that create disincentives for delivering quality patient care. The CPA and NJPA cases offer good examples of the first thrust.

The California suit charges that the principal MCO in question significantly altered the mental health benefit to suit the company?s own financial purposes. In essence, the MCO changed the mental health benefit from 'treatment' to 'crisis intervention.' While advertising to employers, employees and others a treatment benefit ranging from 20 to 50 outpatient visits per year depending on the plan selected, in reality, the MCO typically provided only three or four outpatient sessions. This blatant false advertising created the legal 'hook' to get at the underlying problem?the MCO?s inappropriate treatment decision-making.

In the New Jersey case, the plaintiffs allege that psychologists were terminated from the provider panel once they advocated for necessary patient services in a manner labeled 'managed-care incompatible.' While the New Jersey MCO claimed to drop the psychologists under the 'no-cause' termination provision of the provider contract, in reality, they were terminated 'for cause,' that is, because their practice patterns did not comport with the MCO?s financially determined standards. This termination procedure worked to exert control over treatment decision-making since panel providers faced the threat of termination for not delivering services in line with the MCO?s financially motivated treatment parameters. As in California, the opportunity for legal action in New Jersey arose in large measure because the MCO took substantial control of patient decision-making away from providers.

Costs v. quality care

The second major target of our legal advocacy agenda involves capitation and other financing mechanisms that fuel profits at the expense of quality care. Patterns in Tennessee and Virginia offer opportunities to take aim at this particular target.

While capitation overall provides a disincentive for delivering services, the courts generally have not been willing to find the practice per se as legally impermissible. But when the amount of money used to cover services under a capitated arrangement clearly is insufficient, it raises the question of whether there was ever any real intent to provide services promised to health-plan subscribers.

Tennessee psychologists experienced the fallout when a financially troubled MCO declared bankruptcy in that state, leaving about $300,000 in unpaid reimbursement for behavioral health services. The MCO was a subcontractor for HealthNet, Inc., a behavioral health-care contractor for the Medicaid waiver program known as TennCare. Contracted services, along with the progressively smaller pot of money available to fund these services, filtered down the line?from principal contractor to subcontractors to panel providers.

The Practice Directorate is aiding the Tennessee Psychological Association with determining, among other issues, whether the MCOs in this case were intentionally underfunded and lacked the financial ability to deliver covered services. Beyond Tennessee, the directorate is working closely with the Virginia Academy of Clinical Psychologists to explore potential legal issues in a case involving how a managed-care company determines compensation rates for provider services.

With ongoing and potential legal cases such as these, organized psychology?s goal is to have the courts recognize managed-care entities for the role they clearly play in patient treatment.

We believe that the test cases we pursue will demonstrate MCOs? direct influence on treatment decision-making and enable the courts to begin to hold managed-care companies accountable for the services they deliver?or fail to provide.