As the managed care train gains momentum, the set course has become increasingly treacherous. How so? The credentialing process has evoked many questions of liability for both managed care organizations (MCOs) and health care providers, thus creating a double-jeopardy situation.
MCOs have essentially experienced new forms of litigation exposure in areas they thought they were once protected. Their risk lies in the form of credentialing negligence from the members’ standpoint and from providers in the form of breech of good faith and fair dealing and anti-trust.
For the providers, the liability is that some may not gain a position on a managed care panel; in other cases, the MCO may deselect or “weed out” providers in cost-cutting attempts. Either way, it vastly limits the available population of patients and may result in great economic hardship.
Credentialing is typically known as the means by which a health care facility, e.g. a hospital, verifies a provider’s credentials and qualifies him/her for acquiring privileges to practice within a given facility. However, as managed health care evolves, credentialing is assuming a larger role as one of many mechanisms by which a managed care organization (MCO) provides quality care while controlling health care costs. In doing so, MCOs have left themselves vunerable to liability from both their members and their credentialed providers. However, in order to maintain accreditation and to comply with some state and federal laws, such types of peer review activity is required. In the absence of credentialing, the MCO may continue to be exposed to potential liability.
Prior to MCOs becoming prevalent, insurance companies largely used indemnity type methods of fee-for-service to reimburse providers for services performed. Credentialing had a minimal involvement in health care, beyond that of hospitals or other health service facilities as stated above. There were no restrictions placed on patients as to the providers they could use for their health care needs and the fee-for-service reimbursement model provided great financial incentives for providers as reimbursement increased in keeping with the greater number of tests and services provided. Reimbursement could be enhanced if the provider unbundled services; thus, there was little motivation for a provider to take proactive steps in the management of cost and services incurred by a patient.2 As a result, care became increasingly uncoordinated and uncontrolled.
As health care costs climbed, MCOs became popularized and, in 1973, the federal government laid the ground work for the development of controlling health care costs through what has become known as the “HMO Act of 1973” which provided for HMOs to become federally qualified, gain access to grants and loans and, most importantly, it required employers who offered indemnity type plans to also offer two federally qualified HMO plans, one with an open panel or IPA/network type of plan and the other with a closed panel or group or staff model.1
Although credentialing has its origins outside managed health care, it quickly evolved as managed care organizations became more sophisticated and as control was exerted with greater potential for liability. Additionally, MCOs inherited greater responsibilities for their credentialing activities. As such, credentialing began to take on a new meaning. As with the earliest forms of credentialing such as with health care facilities and open panels, the provider was largely responsible for maintaining the required credentials to practice health care such as:
- A professional license
- A drug enforcement number, and
- Malpractice insurance
It was simply the responsibility of the credentialing facility to verify that the provider maintained current credentials. In the closed provider panels, on the other hand, it is the plan’s responsibility to obtain the credentials for the provider so that s/he can practice within the group.1
As managed health care matured, credentialing activities by MCOs became more crucial. Plan liability became a major issue as litigation became more clearly defined within managed care. No longer can a plan accept the credentialing from a hospital or other health care facility in place of its own. Additionally, thinking that the MCOs contract with a provider would serve as protection from liability due to indemnification was found to be incorrect and failure to provide credentialing activities by a MCO could well create a litigation hot bed.3
Failure to screen and credential providers may result in accusations of allowing incompetent providers on the MCO’s panel to provide health care services. This is further supported if the plan advertises that its panel is comprised of highly “qualified specialists.” This type of statement may also lend itself to misrepresentation, exposing the MCO to punitive damages.3
Thus, although a plan may not be directly responsible for the malpractice of a provider, it may expose itself to litigation by allowing incompetent, unskilled providers to provide health care services. Furthermore, even by outsourcing credentialing activities to other agencies in an attempt to lower costs and provide standardized credentialing protocols, the MCO does not escape liability. The MCO generally is expected to and in fact does have the last word as to which providers will be credentialed for its panel, and liability cannot be avoided.
In the past, MCOs were protected from liability and any attempts at filing law suits were met with great difficulty because of the federal law known as ERISAthe Employee Retirement Income Security Act, which was originally developed to protect employee retirement funds and has become instrumental in protecting MCOs from the liability of negligence. ERISA preempts state law and affects all those whose health care benefits are provided by their employer, which accounts for approximately 50% of all Americans. However, as managed care penetrates our country more deeply, protection from the ERISA law may lessen. In April of 1997 Senator Alphonse M. D’Amato (R), New York introduced a bill that would enable consumers covered by ERISA to sue managed care plans for malpractice.4 (Refer to Items Two, Three and Four.) Furthermore, it has been noted, as in cases involving managed care organizations such as US Health and Total Health Care, that the ERISA law does not protect against general liability in which it is felt that the MCO was liable for negligence in credentialing activities.
As managed care penetration grows, so does the need for the development of standards and quality assurance for the consumer. As a result, the National Committee for Quality Assurance (NCQA) was developed. The NCQA is an independent, not-for-profit organization dedicated to assessing and reporting on the quality of managed care plans, including health maintenance organizations (HMOs). The NCQA is governed by a Board of Directors consisting of representatives from employers, consumers, labor groups, health plans, quality experts, regulators and organized medicine with activities that focus on accreditation and HMO performance measurements.5
The NCQA accredited its first managed care organization in 1991. In order for an MCO to obtain and maintain NCQA accreditation, it must display comprehensive management of all aspects of the health delivery service with policy that demonstrates an interest in continued improvement of care and service to its members.
Among the NCQA’s accreditation requirements are strict and rigorous standards for the credentialing of panel providers. The standards for credentialing and recredentialing consist of 13 separate standards. As noted previously, the MCO can delegate credentialing and recredentialing responsibilities; however, the MCO will always retain ultimate accountability for the credentialing standards and the providers who are credentialed. In cases of delegation of MCO credentialing activities, the delegated agency must meet the first 12 requirements (CR1-CR12) with the MCO meeting the thirteenth (CR13). Please refer to Item One.
In addition to developing accreditation criteria, NCQA has developed certification programs to address components of its accreditation standards and to address continuity among organizations accepting delegated activities from managed care organizations. In 1996, NCQA developed one such program for the certification of Credentialing Verification Organizations (CVO).6 Managed care organizations have begun to delegate credentialing to assist with the cost management of such activities since credentialing and recredentialing can become both employee and time intensive.
A CVO is an independent organization that provides credentialing services. Through NCQA certification, MCOs that contract with NCQA-certified CVOs are exempt from the due-diligence oversight requirements for credentialing.7 Using a CVO may result in a decreased administration burden.
To gain certification, a CVO must meet two major components of a certification survey:
- Address the policies and procedures for credential verification, mechanisms for maintaining credentials data integrity and confidentiality, capabilities for ongoing data collection, internal QA, established physician application components, and methods of reporting physician disciplinary actions.
- Complete an audit of credential files to establish compliance with NCQA’s MCO Credentialing Standards.7
Additional steps have recently been taken to simplify and centralize credentialing activities for managed care organizations. On March 3, 1997, the National Practitioner Data bank (NPDB) established a data link with the United States Department of Health and Human Services for the purpose of data collection of Medicare/Medicaid sanctions placed against health care providers. Additionally, NCQA has accepted the data link as a reliable source for the query of provider Medicare/ Medicaid sanctions, thus eliminating the need for specific queries with the Department of Health and Human Services.8
Further attempts are being made to credential providers and disclose such credentials for purposes of protecting the consumer and making health care provider’s credentials readily available. Recently, the Florida State Legislature approved a measure that would allow consumers to access a provider’s professional history via the internet. As approved, by 1999, all providers including medical doctors, osteopathic doctors, chiropractors and podiatrists would have their professional profiles available on the internet for consumer review. As noted in a May 8, 1997 St. Petersburg Times article, this measure was modeled after a similar measure recently approved in Massachusetts.9
In all its attempts at protecting itself from the consumer and the consumer from the provider, the MCO may find itself in litigation with the very providers they may or may not have credentialed. With a growing penetration of managed care, more providers are realizing the importance of becoming members of managed care panels. For some providers, not gaining a position on a managed care panel may result in great economic hardship and vastly limits the population of patients s/he may have available to them. However, credentialing activities for some MCOs may vary dramatically depending on the needs of the MCO at any given time. When an MCO is new to a geographic area, heavy provider credentialing may occur only to result in an ultimate cut of primary care providers and/or specialists in order to address the needs of the member population.
Furthermore, “deselection” of specific providers may occur as a result of cost cutting activities and/or economic credentialing resulting in a “weeding out” process.11 Recently, MetLife cut 1,100 physicians in southern Florida, Blue Cross and Blue Shield dropped 3,000 physicians, including the providers deselected from these and other MCOs, over 5,000 physicians have experienced deselection, potentially resulting in an over-abundance of providers seeking membership to managed care panels. As with any over-abundance, this allows for greater selection choice among the managed care organizations.11
The MCOs credentialing standards and deselection of health care providers has started to raise many legal questions involving issues such as federal and state anti-discrimination laws, “any willing provider” acts, tortuous interference with contract and antitrust, and breach of implied covenant of good faith and fair dealing.10 Upon deselection the MCO may or may not provide cause depending on the reason for the de-selection.
If deselection involves issues of administrative policies involving peer review activities, the cause of such action is generally disclosed to the provider and the provider may or may not be offered due process. However under the 1986 Health Care Quality Improvement Act (HCQIA), due process procedures have been mandated in order for the MCO to enjoy immunity from antitrust and other for peer review activities.
In cases of a medical disciplinary action, the health care provider must be provided with the reason for the actions and due process must be provided prior to a final decision being made by a MCO. Under the California Business and Professional Codes, section 809.1, the MCO is required to provide and the provider is entitled to receive a written notice of the MCO’s “final proposed action” with a right to request a hearing on the final proposed action. Furthermore, Section 805 of the California Business and Professional Codes requires that cases in which a provider is denied membership, terminated from membership or have imposed privilege restrictions as a result of a medical disciplinary cause or reason, the MCO is required to report such final actions to the relevant agencies such as the State Board of Examiners and/or the National Practitioner Data Bank.12
However, termination/deselection liability in cases that do not involve clinical competency issues may still arise if the MCO terminates a contracted provider for reasons that violate public policy or involves a breach of the duty of good faith and fair dealings. In such cases, the MCO is not required to disclose the cause of the action; however, the MCO generally chooses to exercise the contractual right to terminate the provider without cause. Without cause termination usually requires a 30 to 90 day notice prior to such a termination. Due to potential liability, the MCO may choose not to disclose the reason for the provider’s termination. With the provider not knowing the reason for termination, it makes it difficult to challenge and the provider may risk that if the cause turns out to be based upon clinical competency, the termination would then have to be reported to the appropriate agencies, a risk many providers would rather avoid.
The Provider’s Defense
With the MCOs feeling that its their basic right, in the name of cost containment, to pick and choose which providers would be best for their health care panels, legal disputes begin to arise. Health care providers feel that credentialing and deselection interferes with the patient-doctor relationship and that the provider’s position as patient advocate may be hampered if a provider is unable to gain access to or is terminated from an MCO provider panel. A provider may experience economic hardship from being deselected if greater than 10% of his/her practice population is comprised of the MCO’s membership.
In an April 1996 case, Paul J. Harper, MD v. Healthsource New Hampshire, Inc., Supreme Court of New Hampshire, Dr. Harper sued Healthsource on the basis of violation of public policy resulting from a termination without cause. It was stated that Dr. Harper was a provider with Healthsource and that over the course of ten years, 30-40% of his patients were now “Healthsource-related.” It was further stated that in 1989, Dr. Harper was re-enrolled as a primary care physician versus his original enrollment as a surgeon.
Dr. Harper felt that Healthsource was “manipulating and skewing” the records of several patients and when he confronted Healthsource with his concern he was informed that the credentialing committee found “no evidence of quality of care problems;” however, his contract was being terminated due to “not satisfying recredentialing criteria.” Furthermore, Healthsource refused to provide material requested by Dr. Harper that might have assisted him in refuting Healthsource’s claims.
It was felt that in this case, termination without cause violated public policy such that termination would jeopardize patient/public safety and societal relationships since 30-40 percent of Dr. Harper’s practice was composed of Healthsource-related patients. Furthermore, it was felt that the termination of Dr. Harper’s contract was a violation of implied covenant of good faith and fair dealings.13
A June 1995 case involving John Ambrosino, DPM v. Metropolitan Life Insurance Company, United States District Court, N.D. California, involved a suit brought by Dr. Ambrosino after he was terminated without cause. The provider’s agreement had a termination clause stating a provision for termination without cause and automatic termination in the event the contracting provider was “placed on probation, or reprimanded, or fined” by federal or state disciplinary agencies.
Dr. Ambrosino had a history of being placed on probation by the California State Board of Podiatric Medicine for six years as a result of Demerol dependency. In a response to Dr. Ambrosino’s probation, Metro-politan Life Insurance terminated his provider agreement on a 30 day notice without cause and refused Dr. Ambrosino’s request for a hearing.
After trial, it was found that the MCO, Metropolitan Life, did not terminate without cause as the termination was in response to Dr. Ambrosino’s six year probation with the California State Board of Podiatric Medicine, thus providing cause. Furthermore, because the probation was in response to Dr. Ambrosino’s short dependency on Demerol, Metropolitan Life’s termination of his contract was in violation of California Civil Code Section 51.5.
California Civil Code Section 51.5 prevents any established business from discriminating against an individual with a handicap. Under the American Disability Act (ADA), drug dependency is considered a disability. Dr. Ambrosino had been considered a rehabilitated drug abuser and, thus was being considered handicapped.14
An April 1997, yet another case, Louis Potvin, MD v. Metropoli-tan Life Insurance Company, California Court of Appeal, was filed on behalf of the plaintiff, Dr. Potvin as a result of termination/delistment without cause.
On July 22, 1992, Metropolitan Life Insurance Company informed Dr. Potvin that he was being terminated with a 30 day notice without cause. After several attempts by Dr. Potvin to obtain an explanation as to the reason for termination, Metropolitan Life responded by informing him that he did not meet the “current selection and retention standards for malpractice history.” Despite his attempts, Dr. Potvin was not provided a trial as requested. Furthermore, Dr. Potvin went on to explain his malpractice history involving a single settled case without admitting liability in 1987 and two additional malpractice cases that were dropped.
Dr. Potvin attempted to explain the hardship that he and his patients would experience in the event of his delisting. Additionally, as a result of his delisting, Dr. Potvin lost a percentage of his patients, was terminated by other managed care organizations, lost referral from other physicians who were members of Metropolitan Life’s provider panel, and was rejected by other physician groups that required membership to Metropolitan Life’s provider panel.
As a result, the court found that Metropolitan Life Insurance Company was required to provide “fair procedures before excluding or expelling members” and that the “revocation of the privileges at issue would effectively impair an individual’s right to fully practice his profession.” Additionally, it was felt that “membership in an association, with its associated privileges, once attained, is a valuable interest which cannot be arbitrarily withdrawn.”15
The above cases demonstrate the variety of issues that may arise with the deselection of a panel provider. Awaiting the end of the contract year prior to agreement termination may also result in litigation, especially if a significant portion of the provider’s practice is from the deselecting MCO, as noted in the case Ambrosino v. Metropolitan Life Insurance Company. In such cases, due process may still be the direction of choice.
Essentially, deselection is a serious matter that may result in serious consequences for both the MCO, the deselected provider and his/her colleagues. In many cases, deselection of a health care provider is grounds for the associated practice group to terminate as noted in the case Potvin v. Metropolitan Life.
In keeping with the managed care principle of providing quality care while decreasing health care costs, MCOs have taken great strides in becoming standardized and to provide their members with qualified health care providers. In doing so, health care law is currently undergoing new challenges in addressing the issues which arise out of such attempts. In the process of developing and managing quality care, MCOs have essentially experienced new forms of litigation exposure in areas they thought they were once protected. As previously stated, in attempts to provide quality care to its members through credentialing activities, MCOs have become exposed from both the members’ standpoint in the form of credentialing negligence and from the standpoint of the provider, in the form of breach of good faith and fair dealing, public policy and anti-trust. Thus, credentialing can very well become a “double edged sword” if not handled and managed correctly by the MCO.s
David Lagala, DC, received his Doctor of Chiropractic degree from Western States Chiropractic College in Portland, Oregon and an undergraduate degree in physiology/cell biology from the University of California, Santa Barbara. He holds a license to practice in both California and Oregon, is certified as an Industrial Disability Examiner and is appointed as a Qualified Medical Examiner. He is currently the Associated Director of Chiropractic Services for Landmark Healthcare, Inc. where he is responsible for conducting and analyzing utilization review studies, unusual claims submissions, as well as monitoring patient care treatment patterns in group health and workers’ compensation. Dr. Lagala is in private practice in Folsom, California, and may be contacted by calling 916-569-3383 or writing PO Box 1786, Folsom, CA 95763-1786.
1. Kongstvedt, Peter R.; Essentials of Managed Health Care, 2nd ed., pgs. 4-6, 543; Aspen Publishers, Inc., Gaithersburg, Maryland, 1997.
2. Jones, Rhys W.; HMO 101, Introduction to HMOs, 2nd ed., pgs. 1-7; TTM Health Publishing, Colorado Springs, CO, 1997.
3. Folio, Mike; Three Kinds of Liability Stalk Managed Care, pgs. 1-4; Health Care Magazine, November 1996.
4. Who Determines Medical Necessity?; Washington Post, Tuesday, May 6, 1997; pg. Z15.
5. Standards for the Accreditation of Managed Care Organization, pgs. 39-55; Draft 1997 NCQA Accreditation Standards, effective April 1, 1997.
6. NCQA Releases Standards for Certification of Credentialing Verification Organizations (CVOs); October 25, 1995; NCQA’s Home Page; Reprint from the www. May 31, 1997
7. NCQA Announces First Group of Certification Decisions for Creden-tials Verification Organizations; October 24, 1996; NCQA’s Home Page; Reprint from the www. May 31, 1997.
8. Policy Update #2, 1997 NCQA Standards for the Accreditation of MCOs, Credentialing Standards Interpretation Update, 3/18/97; NCQA’s Home Page; Reprint from the www. May, 31, 1997.
9. Wallsten, Peter; Bill Opens Access to Doctor’s Profiles; St. Petersburg Times, May 8, 1997; Reprint from the pages of the St. Petersburg Times, www. May 20, 1997.
10.Folio, Mike; Three Kinds of Liability Stalk Managed Care, pgs. 5-7; Health Care magazine, November 1996.
11.Coleman, David L.; Four Ways to Avoid Being Deselected; Managed Care magazine, November 1996.
12.California Business and Professional Code Section 805 and 809; 1989 ch. 336 urgency eff. September 11, 1989 oper. January 1, 1990.
13.Harper v. Healthsource New Hampshire, Inc.; No. 95-535, Supreme Court of New Hampshire, April 9, 1996; (674 A.2d 962).
14.Ambrosino v. Metropolitan Life Insurance Co., et al., United States District Court, N.D. California, June 14, 1995; C 94-00990 CW.
15.Potvin v. Metropolitan Life Insurance Co., California Court of Appeal, April 30, 1997; B100170; (97 Daily Journal D.A.R. 5552).
A recent study by CNA HealthPro provides a unique view of the liability picture for managed care organizations by providing a look at claims severity and frequency. The study, “Understanding the Impact of Managed Care Liability (Phase 2)” is based on a sample of CNA HealthPro errors and omissions claims that were closed between January 1993 and April, 1997. To avoid double-counting dollar amounts, Phase Two included only primary claims allegations. CNA HealthPro, ranked among the top ten insurance groups, is one of the first companies to publish results of such a study.
Results of the CNA Study
The largest liability expenses facing managed care organizations today are:
- Wrongful denial of benefits/utilization review
- Negligent credentialing
Highest single indemnity payments for managed care errors and omissions claims, by allegation were:
- Wrongful denial of benefits/utilization review
- Negligent credentialing
- Bad faith/breach of contract
- Vicarious liability
The highest average indemnity payments, in descending order, were for allegations of:
- Negligent credentialing
- Wrongful denial of benefits/utilization review
- Bad faith/breach of contract
- Vicarious liability
Highest claim distribution by allegation was:
- Vicarious liability
- Bad faith/breach of contract
- Wrongful denial of benefits/utilization review
Defining the Allegations
Benefits Denial/Utilization Review claims involve the process of controlling access to health care, a central function of managed care organizations. Claim causes include failure to approve non-emergeny or other inpatient stay and failure to order diagnostic tests. Credentialing negligence is a quality control and risk management issue involving an organization’s duty to properly examine the credentials of its participating providers. Claim causes include negligent selection and retention of providers. Bad Faith/Breach of Contract claims involve alleged failure on the part of the MCO to perform a contractually required function or honor an implied agreement. Potential claim causes include approved service not paid, improper provider deselection and wrongful termination of enrollees. Vicarious Liability may be alleged against an MCO as a result of negligence on the part of an employed or contracted provider. Major claim causes include medical negligence, failure to diagnose and failure to coordinate care.
13 Standards the NCQA Requires of MCOs
For the purpose of accreditation, NCQA requires that MCOs meet the following standards:*
- The managed care organization must document the mechanism for the credentialing of its providers including the scope of practitioners, the criteria and the primary source verification of information used to meet these credentialing criteria, the process used to make decisions and the extent of any delegated credentialing and recredentialing arrangements.
- The managed care organization must provide a process by which participating providers can offer advice, recommendations or decisions regarding credentialing and recredentialing of practitioners.
- At the time of credentialing, must verify the provider’s current license, clinical privileges at other facilities, valid DEA or CDS certificate, education and training, board certification, work history, current malpractice insurance, and history of professional liability claims that resulted in settlement or judgment.
- A completed application for membership, which includes questioning as to the provider’s ability to perform the functions of his/her profession, lack of present illegal drug use, and the history of any loss of license, felony convictions, limited privileges or disciplinary activity.
- The MCO must show evidence of receiving information, prior to making decisions, from the following organizations: the National Practitioner Data Bank, the State Board and Medicare and Medicaid.
- The MCO must perform an initial site visit to the provider’s office for a “structured review” of the provider’s facility against the “organization’s standards” with further documented evaluation of medical record keeping practices.
- Recredentialing must occur at least every two years involving a review of the documents as stated above.
- Recredentialing activities must document evidence that information was received from the credentialing agencies as stated above.
- During re-credentialing, the following data must be incorporated: member complaints, quality improvement activity, utilization management, member satisfaction, medical records review and a current site visit.
- During recredentialing, documentation must be made that a current site visit was conducted addressing the items as stated above.
- The managed care organization must have policies and procedures for altering the conditions of the practitioner’s participation with the managed care organization based on issues of quality of care and service.
- The managed care organization has documented policies and procedures for the initial and ongoing assessment of organizational providers with which it intends to contract.
- If the managed care organization delegates any credentialing and recredentialing activities, there must be evidence of oversight of the delegated activity.
*Please note that the above stated criteria has been taken, and in some cases abbreviated, from the “Draft 1997 NCQA Accreditation Standards, effective April 1, 1997.” They are not intended to provide a complete listing of the NCQA standards for accreditation and only serve to demonstrate the basic credentialing criteria required for MCO accreditation.
New study shows PARCA’s benefits outweigh minimal cost increase
The Patient Access to Responsible Care Act (PARCA), a managed care standards bill would increase health care costs by a fraction of what the managed care industry and other opponents of the bill have claimed it would cost the country, according to a new study. The study, released early in 1998 by Muse and Associates, a health policy and consulting firm in Washington, DC, found that PARCA would increase health care costs by a mere .7% to 2.6%a far cry from the 23% increase PARCA opponents contended it would cost. For example, a patient currently paying $160 per month for health care coverage would experience premium increases of only $1.12 to $4.16 under PARCA (H.R. 1415/S. 644) the study found.
The Muse study is the first to accurately review all 23 provisions of the PARCA legislation introduced by Rep. Charlie Norwood (R-GA) and Sen. Alphonse D’Amato (D-NY). Previous studiesused by the managed care industry to discredit PARCAwere based on cursory reviews of only a few sections of the bill, according to the PARCA coalition. And, unlike the Muse study, the previous studies were based on misrepresentations of the PARCA provisions, resulting in skewed findings that favored the managed care industry.
The PARCA bill is endorsed by the American Chiropractic Association. Edward L. Maurer, DC, ACA Chairman of the Board stated, “In reality $1 to $4 is a very small price to pay for the expanded choice and increased quality health care consumers will receive through these long-needed patient protection provisions.”
Cost of fee-for-service
Managed Care Plans $160
Fee-for-Service Plan $200
Managed care plans save 20% over fee-for-service for the same coverage.