Notes From the Front: An Update on Managed Care Lawsuits
Marti Kranzberg, PhD, FAGPA

The managed care industry has generated an array of legal challenges almost since its inception. The battle has often taken on the mantle of a holy war. From the provider viewpoint, the crusade pits the moral high ground of quality care for consumers against the evil, market-driven forces that seek only to maximize profits. From the other perspective, providers must deal with the changing market system and stop “whining” because they have lost income and must now justify treatment to third parties. 

While passions run high, lawsuits, themselves, are often rather dry and barely reflecting the intensity of the disputes. The implications of lawsuits, however, are wide-ranging and effect the direction of health care in this country. Early legal challenges were hampered by two significant factors that limited managed care organizations’ (MCOs) accountability for their business practices. First, the federal Employee Retirement and Income Security Act (ERISA) generally protected MCOs from liability under state law when they administered health plans by self-insured employers. This has meant that MCOs were able to avoid responsibility for injuries as a result of negligence in treatment decisions. Second, MCOs successfully argued that they were not actually providing health care services. They were simply managing a health benefit and, therefore, not responsible for delivering, or not delivering, healthcare services. 

Since the mid 1990s, however, MCOs have lost their luster in state legislatures, in Washington, and in the public eye. In addition, lawsuits have become more sophisticated, and specific objectionable practices have been targeted for legal challenges. The American Psychological Association’s (APA) Practice Directorate, for example, has been instrumental in creating legal strategies to orchestrate long-term shifts in the ways that courts view MCOs. Its goal has been to alter MCOs’ business practices by increasing their accountability and creating incentives to attend to the quality of care. As a result, six cases that challenge a range of MCO practices merit attention. Three settlements have addressed termination of providers from panels. Three others have challenged MCOs by strategically avoiding ERISA protections.

Termination Issues
New Jersey Psychological Association (NJPA) n v. MCC Behavioral Health Care—In 1996, seven psychologists and the NJPA filed suit against MCC, now known as CIGNA Behavioral Health. The suit challenged “no cause” terminations, a practice in which clinicians who advocated for their patients were labeled “not managed care compatible” and dropped from provider panels. In 1997, MCC eliminated the “no cause” termination policy despite the fact that such provisions were commonplace at the time. In a particularly advantageous ruling for NJPA, the court did not dismiss the suit at this point but instead ruled that the plaintiffs could pursue their claims based on public policy, fundamental fairness and interference with psychologist-patient relationships. 

In October 2000, the case was settled. It had five major components.

1. An undisclosed financial settlement.
2. Contracts with psychologists will automatically be renewed after expiration of the one-year term. If not renewed, a contract must be terminated for explicit business and/or professional reasons. “Not managed care compatible” will no longer be used. CIGNA will allow non-renewed psychologists to continue treating existing patients until treatment is completed or the patient is safely transferred to another psychologist. CIGNA will also provide access to clinical guidelines used in coverage determinations and to evaluations of clinician’s treatment.
3. CIGNA will give psychologists terminated “for cause” the opportunity to respond to charges. 
4. The seven psychologist plaintiffs will have the opportunity to rejoin the CIGNA provider panel.
5. A member of the NJPA will represent the association on CIGNA’s professional advisory panel that advises on quality of care and professional relations. This was particularly significant because it gives clinicians a voice in determining quality of care concerns.

Holstein v. Aetna U.S. Healthcare—In this suit, an individual psychologist charged that he was wrongfully terminated when he refused to violate the state’s Peer Review Act which stipulates that psychologists may only reveal certain types of patient information to third party payors. The parties have agreed that Holstein be reinstated as a provider, but the issue of the confidentiality of patient information has not been settled. 

Holstein et al v. Magellan, et al.—This case began as a wide-ranging anti-trust suit and was settled dealing only with termination issues. The original suit alleged that the five largest companies in the field conspired to, among other charges: fix fees; increase inappropriate use of short term therapy; impose gag orders on cost-cutting measures; refuse to disclose their policies; exchange credentialing information about providers to ensure that only “managed care friendly” providers were on panels; and influence accreditation standards for care. 

On April 26, 2000, the case was dismissed when a settlement was reached leaving most of the charges unaddressed. The settlement stated that providers could not be dismissed from provider panels for advocating on behalf of a patient, filing a complaint against an MCO, appealing a decision, requesting a review, or challenging a termination. 

Suits Avoiding ERISA Protections 
California Psychological Association (CPA) v. Aetna U.S. Healthcare of California—In July 2000, CPA settled their suit against Aetna. This case used a state law prohibiting false advertising to challenge the MCO for making mental health treatment decisions. Aetna had advertised 20-50 sessions for outpatient treatment while, in practice limiting treatment to three to four crisis intervention sessions. In the settlement, Aetna agreed to: increase the number of outpatient sessions initially authorized; improve its disclosures to consumers; and, perhaps most significant, form a joint study group involving APA and CPA on utilization reviews and other issues. Again, providers were awarded a voice in policy decisions. 

Virginia Academy of Clinical Psychologists (VACP) v. BlueCross/BlueShield (BCBS) of the National Capitol Area—This suit argued that BCBS marketed its plan to providers and consumers by touting a large, stable panel of providers. Plaintiffs alleged that BCBS then sent a letter offering mental health providers a “take or leave it” offer: Take a 35 percent reduction in reimbursement (in violation of their contract) or resign from the panel immediately, which meant the termination of patients they were currently treating. The defendants allegedly did not correct their marketing materials to reflect the smaller panel size nor did they provide a current list of providers. In addition, the plaintiffs argued that while consumers were guaranteed up to 52 sessions yearly, providers were routinely pressured to deliver services in 10 or fewer sessions. This case has not been settled as this article goes to press. 

Both the California case and this case are particularly significant because they were carefully crafted to circumvent problems of MCOs using ERISA to avoid responsibility for injuries as a result of negligence in treatment decisions. These complaints relate directly to state laws that are ??not?? preempted by ERISA such as those governing false advertising. According to Russ Newman of APA’s Practice Directorate, “The courts are increasingly skeptical of managed care’s strategy of hiding behind the ERISA shield as protection from negligent health care decision making.” 

Brown v. Magellan—In this Florida case, a single psychologist sued the largest behavioral health managed care company in the country for non-payment of authorized claims. In this case supported by both the Florida Psychological Association and the APA, an interesting development occurred after the suit was filed. Magellan was alleged to have retaliated against Brown though arbitrary blanket terminations of care and interference with patient relationships. Brown has amended his complaint to include the retaliation charge. In a positive move last June, the court denied Magellan’s case to dismiss, and the case has yet to be settled. 

Summary
These cases seem to demonstrate that the tide may be turning in the struggle between providers and MCOs. While legal change seems to move at a snail’s pace, it seems to be moving in the direction of increasing corporate responsibility and greater representation of providers in policy and treatment decisions. 

This article was published in the August/September 2001 issue of The Group Circle.