QUARTERLY NEWSLETTER - SPRING EDITION 2013 - #7
PASSING THE BUCK
Who’s Responsible If The Capitated Payor Can’t Or Won’t Pay? By Richard Lovich, Esq. Let’s say you have a contract with a large commercial health plan. You feel confident that at the very least, the plan will be around and viable for many years to come, (or at least as long as the contract is effective), and you make your fiscal decisions at least in part on the expected revenue from the contract. Now let’s say the plan unilaterally delegates its payment obligations to a medical group. It didn’t discuss this with you. It didn’t obtain your permission to do so; yet now the payment obligation rests with the medical group, an entity that may not be as financially sound as the party with whom you contracted. Can they do that? Can you contract with one party and then be stuck looking to another for performance? The answer is yes, and this can lead to significant problems. California law not only permits health plans to delegate payment obligations for medical services, including emergency and non-emergency services, to medical groups through capitation arrangements, it encourages the practice. In addition, absent an agreement to the contrary, California law generally absolves a health plan of its financial responsibility to a provider when the plan enters into a capitation agreement with a medical group. That means not only can the plan delegate its obligation, it can walk away with no financial responsibility if the capitated entity refuses or cannot pay for the services provided. The only way to hold a plan financially responsible after they have delegated the duty to pay is to rely on that “in the absence of an agreement to the contrary” language. Some older HSA’s included language stating that no party to the contract could delegate its obligations without the written consent of the other party. That is consistent with general contract law and the California Civil Code. It also makes sense. Why should a party be allowed to enter into an agreement and then walk away from its responsibilities? The courts have found that
within the context of healthcare contracts, the public interest is served by capitation agreements and holding the plans financially responsible would discourage them from using them. Most newer contracts are either silent on the ability to delegate obligations, or they expressly permit delegation. Thus if you have a contract with a large commercial payor and they delegate their obligation to a medical group that goes bankrupt, you cannot seek payment from the health plan unless your contract allows you to do so. Although the court in Ochs v. PacifiCare of California, 115 Cal. App. 4th 782 (2nd Dist. 2004) suggested there might exist a potential claim for “negligent delegation”, the court did not address what specific facts would give rise to a duty owed by a health plan to a provider. Under a negligent delegation theory, a provider is essentially arguing the health plan breached its duty to the provider by continuing to delegate its financial obligations to the medical group when it knew or should have known the medical group was in financial trouble. Thus while the possibility exsts this will be expanded, the current state of the law remains in favor of allowing plans to avoid responsibility when their capitated payors fail to pay.
Medical Necessity From A Legal Perspective By George Colman, Esq. Medically necessary services or supplies are those that we determine to be appropriate and necessary for the symptoms, diagnosis, or treatment of the medical condition, and within the standards of good medical practice within an organized medical community.
In addition, there are other elements that are sometimes written into contracts which are subject to interpretation (what the courts look at) all depending upon the facts, the laws in the particular states, and the decision of the treating physician. The reason we earmark the decision of the treating physician is that most decisions by carriers to deny based on medical necessity is a retroactive denial, what we might call “Monday morning quarterbacking.” They review the file after the fact, wherein the treating physician had to make a decision that was immediate, and weighs many factors, but not the expense. Whereas the insurance company has the ability, retroactively, to look at the cost factor, and from time to time weighs the costs as a determination of medical necessity. Sometimes carriers have written in their policies (subject to question by the courts) where they say the procedure is not medically necessary if it is primarily for the convenience of the member, the member’s physician, or another provider. They then look at the situation where the physician makes a decision to hold off treatments, or let the patient remain in a facility longer than might be appropriate. The other issue related to medically necessity is whether the procedure is experimental or is it just a study. In the execution of an informed consent document, the insurance company may spot terminology that the procedures being done are cataloged as part of a study. They look at this as experimental when in fact it is not; it is a validated procedure, but it has just come under a research study grant or FDA oversight. This does not mean that it is experimental; sometimes a wrongful denial can be questioned under that circumstance. A further element of medical necessity is that it is the most appropriate supply or level of service which can be safely provided. For hospital stays, this means that acute care as an inpatient is necessary due to the kind of services the members are receiving or the severity of the member’s condition, and that safe and adequate care cannot be received as an outpatient or in a less intensified setting. Again, this last qualification is subject to interpretation, both by the treating physician who must make that immediate decision and, of course, can certainly be looked at and overturned in a retroactive review. It is always important to remember that courts give greater weight to the diagnosis and decision of a treating physician.