Legislative Program Review and Investigations Committee

Regulation and Oversight of Managed Care
Chapter VI - Final Report

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Regulation and Oversight of Managed Care
Chapter VI  Provider Credential Review and Contracting

 

Two major concerns of providers are HMO physician selection methods and criteria and the language in the contracts they sign in order to be in the managed care networks.  

Credential Review and Profiling  

Initial selection.  Managed care organizations have the authority to select the providers for their networks.  Connecticut does not have Aany willing provider@ legislation (i.e., any provider who meets the educational and professional criteria must be included in the network).  Forty-six states states allow managed care plans to select their own physician networks.  

Interest in joining a network can come from the health maintenance organization or the physician or group of physicians.  Generally, an HMO might be looking to start or expand a provider network in a geographic area, or expanding the number of providers it has in a given medical specialty, as enrollment increases.   

All health maintenance organizations require that each physician who wishes to become part of the network submit an application. Typically, as part of that application the provider signs a consent form to have confidential information released from various regulatory agencies including the state=s licensing agency, as to disciplinary actions.     

Also, as part of the application process, the physician agrees to abide by the operating guidelines of the HMO or other managed care organization, including allowing a review of  office procedures and medical files maintained by the physician=s practice. Physicians must also agree to cooperate with the health plan=s quality management program including periodic review of the physician=s practice statistics compared with physician peers in the network.  

Credentials. There are some variations in what managed care organizations require but all mandate unrestricted licensure and admitting privileges with at least one participating hospital, an adequate level of malpractice insurance, and assurances of 24-hour coverage. Table VI-1 presents a typical example of selection criteria used, and how that is typically verified.

 

The verification of physician credentials can be done by the HMO itself, or can be contracted out to groups or companies who specialize in the business. Most managed care organizations review credentials of physicians in their network every two years.  Once the verification of credentials is complete and approved by the HMO, a contract is signed between the HMO and the doctor, or group of doctors.  Connecticut law requires that this contract be in writing, and the Insurance Department reviews a sample of the contract language prior to HMO licensure.  The statutes also require that the selection criteria be submitted to the Office of Health Care Access annually.  Thus, all providers wishing to know what the criteria are can readily obtain a copy.  

However, providers have concerns about selection criteria that go beyond information and access to them. Providers worry they are not being selected for panels because HMOs already have sufficient providers in a geographic area or in a medical specialty area. HMOs readily admit this type of selection occurs, and may close the panel to new providers when they believe they have an adequate number.  

The program review committee believes HMOs should be allowed to continue selecting their panels in this way, just as any other business may choose its independent contractors.  The credential review criteria, and whether a provider meets them or not is a contractual matter between the managed care organization and the individual or group of physicians.  

As indicated in Chapter II, most HMOs have continued to expand their panels significantly, and the Connecticut doctor-to-patient ratio surpassed any established ratio standards in the few other states that have them.   Selection criteria also provide consumers with some confidence the physicians in the network have met some additional screening beyond state licensure.  For example, selection criteria often require that physicians be board-certified, which means they have passed an examination by a specialty board and are certified as a specialist in that medical area.  

Since Connecticut does not have a law requiring that any willing provider be allowed to join a network, not all networks include all physicians.  On the other hand, a physician can be on more than one network. In Connecticut, there are no requirements that the plans have a certain number of physicians (either total number or ratio to members), and the plans are not reviewed for that criterion. However, each managed care organization is required to annually file its network listing by specialty, with the Office of Health Care Access, but the office has no approval authority.  Typically, an enrollee receives a list of the doctors= names in the network, although there is no statutory requirement that this be provided.    

HMO networks.  Table VI-2 provides a snapshot of the HMO networks in 1990 and again in 1994. As the table shows, all of the HMOS have added substantially to the number of physicians in their networks.  (The number includes primary care physicians as well as specialists.)  The table also shows the ratio of members to doctors -- the number of members to be treated by every one network physician.  Thus, the lower the number the more access the consumer should have to physicians in the network.  The results of these ratios are mixed, with five HMOs having improved access in 1994 from 1990.  Using this ratio, Oxford Health has the most access to physicians.  

Employers indicated they and their employees look at provider networks when choosing a health plan. This is verified by a national survey of employers conducted in 1995, and discussed in Chapter IV.  To be competitive, HMOs must offer adequate networks with a substantial choice of providers; otherwise, purchasers will not choose those plans.  Further, some HMOs themselves require that the physician meet access guidelines, for example, waiting time for appointments.  

Regulations requiring Aany willing provider@ is antithetical to competition and would handicap managed care efforts to select qualified physicians and control costs. Setting standards for network panel numbers could be cumbersome, and in fact, does not guarantee access as long as providers may serve on multiple panels.  In light of the above, the program review committee finds that HMOs must balance the need to have broad enough networks to satisfy consumer and employer demand with the need to select high quality providers who will provide good health care at reasonable costs.  

Profiling Providers  

Once selected, providers must maintain some accountability for their practice standards established by an HMO.  HMOs collect and use utilization review data as well as claims information to assess physician performance compared with their peers.  This process, termed utilization management or Aprofiling@, uses the statistics gathered on costs incurred and services used by a particular physician contrasted with others.  The HMO may determine that a physician needs to take corrective action in a particular practice area, or, if a physician falls continuously outside the norms established by the health plan, the HMO may deselect the physician.  

Physicians express concerns that HMOs will use deselection as a way of terminating providers that question HMO decisions, ask for extensions on length of stay, or otherwise disagree with health plan reviewers.  The committee staff asked each Connecticut HMO to indicate the numbers of providers who were terminated or not selected again at the time of credential review. Table VI-3 shows the number of physicians and other providers Adeselected@ in 1994 and 1995.  

In the case of Cigna, the 65 physicians were dropped because of competitive contracting. The company did not renew contracts with 65 physicians associated with a particular hospital. Similarly, BlueCare noted in its response that approximately 65 physicians will not be renewed after 1996 because they are not board-certified, which is one of the new criteria the plan is implementing. However, in both cases, the percentage of physicians whose contracts were terminated or not renewed is less than 2 percent of the total number of physicians under contract with that HMO.  For the other HMOs, the table shows that for the period examined, few providers have been deselected or failed to have their credentials reapproved. Thus, the committee believes that physician concerns about being Adeselected@ by health plans are not borne out by the numbers.  

Profiling Factors.  The program review committee also requested each HMO submit materials it uses to profile physicians and to indicate how frequently they are reviewed. Most HMOs indicate they profile a physician at least once every two years as part of the credential review process. For those physicians with greater patient volume, the reviews are done quarterly or twice a year.  

Factors included in the profiling reports include patient demographics, physician activities, referrals, and other utilization measures.  Some HMOs that submitted their profiling material made allowances for the severity of illness of the patient population, while others did not.  Physicians expressed concerns in focus groups about this issue.  The program review committee agrees that not accounting for severity of illness in any peer evaluation instrument -- which may impact provider compensation and ultimately retention on the plan -- might deter physicians from taking sicker patients or those with chronic conditions such as asthma or diabetes.  It is predictable that a physician with a sicker patient mix would utilize more services and cost more than other physicians with a healthier caseload.  Ultimately the failure to recognize illness or conditions in the patient mix when evaluating physicians may lead to Acherry picking@, where only the healthy clients are selected for the entire health plan and sicker patients must go elsewhere.  

Therefore, the Legislative Program Review and Investigations Committee recommends that any evaluation tool used to profile or measure physician performance shall make allowances for the severity of illness or condition of the patient mix.  Written documentation of how this factor is accounted for must be available to the insurance department as part of any market conduct review of any licensed HMO or utilization review company that evaluates physicians on contract. Further, consumers, physicians, or other providers should be informed, upon request, regarding how a health plan considers patient mix when evaluating a provider.  

The program review committee believes HMOs should be able to profile physicians, and agrees it brings added physician accountability to the health care system that was lacking prior to managed care.  However, the committee concludes that any tool health plans use to profile or measure physicians must not build in a disincentive to caring for sicker patients or those who suffer with chronic conditions.  Otherwise, such profiles are not fair evaluation tools of physicians and lead to marketplace anomalies and harm to the consumer.  

Rhode Island, in its 1996 legislation dealing with managed care, required consideration of severity of illness in a physician=s case mix when they are profiled.  Further, there are products on the market that can conduct such assessments for severity through an automated process.  Therefore, this recommendation should pose no great burden for health plans.  

Contracting  

Health maintenance organizations contract with physicians, physician groups, hospitals and other health care providers. Contracts are statutorily required to be in writing and the insurance department reviews the language before it approves licensure of an HMO.  Contracts cover such areas as accessibility of medical services, member medical records and confidentiality of those records, utilization management, compensation, and arbitration of disputes between the contracting parties.  

The committee concludes contracts are legal documents between the signing parties, and that regulation, in general, should not dictate language, nor unduly interfere with legitimate business practices.  However, committee members believe that concern over interference with contract language is outweighed by concern for protecting the consumer.  The consumer is the recipient of services, but is an outside, non-signing party to these contracts.  Where clauses may have negative consequences for the consumer, the program review committee determines certain regulation is appropriate.  Four contractual issues that have an impact on consumers are: gag clauses; disclosure of compensation to physicians; legal liability of health maintenance organizations; and notice of termination.  

Gag clauses.  These are clauses that contractually prohibit physicians from disclosing certain information to their patients.   Physicians repeatedly raised Agag clauses@ as an issue at focus group meetings and public hearings, interpreting these clauses to prohibit them from discussing with their patients treatment and procedures that are not covered in the plan. Program review staff asked the Connecticut State Medical Society to furnish examples of such Agag clauses@ that prevent discussion of treatments. The state medical society furnished a copy of the American Medical Association=s testimony before Congress objecting to Agag clauses@ in principle, and provided two examples of cited below:  

Example 1. A physician proposing to terminate a Member for any reason must consult with [XHMO] before communicating with a Member regarding a proposed termination.  Physician shall not at any time (I) disparage [XHMO] or the PPO network to any Member or any Health Plan or (ii) advise, solicit, influence, or induce any Health Plan to diminish or terminate its relationship with [XHMO].  

Example 2. [A] Physician shall not, directly or indirectly, counsel or advise any Member to disenroll from any Plan or to access a similar program or product through any person or entity other than [YHMO].  In no event shall Physician market or offer to members services beyond those which are Medically Necessary or which are prescribed by the referring Participating Physician.  

In addition to the samples provided by the Connecticut Medical Society, program review staff also located the following example:  

Example 3.  Independent Practice Association (IPA) and IPA providers shall not (I) disparage [ZHMO]  to any Member; (ii) advise, solicit, influence or induce or attempt to advise, solicit, influence, or induce any Member to disenroll from any [ZHMO] health care plan or enroll in any other health care plan that would require such Member to disenroll from a [ZHMO] plan.  Furthermore, IPA and IPA providers shall not take any action or make any statements that could tend to influence or induce employers or other entities with which [ZHMO] has entered into group membership agreements to cease doing business with [ZHMO] or diminish or otherwise adversely affect their business relationship with [ZHMO].  

The program review committee acknowledges that without a court decisions setting a precedent as to the interpretation of these clauses, stipulations like the ones above may be interpreted in different ways. Also, since these clauses appear in the contract, physicians know or should know what they are agreeing to, and if they find such clauses objectionable, they have the option of not signing the contract.  Health maintenance organizations may contractually disallow disparagement of the plans by their contracting providers. However, if the prohibition of the plan goes as far as to prevent physicians from discussing treatment options with their patients, as in Example 2, or if the possibility exists of interpreting the clause as such a prohibition, as with the other examples, then staff believes this is anti-consumer, and should not appear in the contract.  

Therefore, the program review committee recommends that any contract between an HMO and a provider or providers be prohibited from including any clause that prevents the provider from discussing treatment options with a patient.  The Department of Insurance shall require that all currently licensed plans submit for review by July 1, 1997, the contract language in force between the plans and their providers.  

The Department of Insurance already has responsibility to review contract language between HMOs and providers, so new statutory authority is not necessary.  However, that review authority is currently limited to pre-licensure, and thus the recommendation requires the submission of current contract language.  The insurance department will then examine the contracts for clauses that impose limits on physicians discussing treatment options, or clauses that could appear to impose such a prohibition, and disallow them from appearing in contract.  

The committee believes that after the recent negative publicity surrounding gag clauses most health plans will now revise their contracts and remove these type of clauses on their own.  U.S. Health Care recently sent a notice to all its physicians revising its previous position on what physicians might discuss with their patients.  The program review committee is confident that other HMOs having the restrictive clauses will remove them, before the Department of Insurance tells them they must.  

Disclosure of Compensation.  There are a limited number of ways that a physician can be paid -- fees for each service provided (either at full price or at some discount); a set amount for each patient under the provider=s care (capitation); or a salary if the physician works for a staff model HMO.  Some HMOs withhold a certain percentage of compensation due a provider until an accounting period has ended to examine how well the HMO and the providers are doing at holding down costs.  

At committee public hearings and other forums, physicians and others expressed concern that consumers may be unaware that HMOs compensate physicians in a way that may provide a disincentive to providing medical care.  The program review committee believes managed care plans should not be prevented from compensating physicians and other providers any way they like, as long as those parties agree in contract. Capitation as a method of compensating providers is one of the basic principles of managed care. It places some of the financial risk with the physician to hold down costs. To ban capitation would force managed care organizations to return to a fee-for-service method that inherently offers incentives for additional services and treatments, and was unsuccessful in containing costs.   Also, a recent court ruling in New York dismissed a lawsuit by physicians and nurses against Aetna challenging the capitation method of paying providers.  

Even though capitation may be a legitimate method of compensation, the committee also concludes that methods of provider compensation should be disclosed to patients if they wish to know.  In fact, the committee proposes that the method of payment be reported to the insurance department so that it be included as part of its consumer information report on HMOs.  

Therefore, the program review committee recommends that the Department of Insurance shall review contract language between HMOs and providers to ensure that no clauses prohibit a provider from discussing the method of compensation with a patient, if the patient asks.  Further, each HMO as part of its annual filing with the insurance department shall disclose its method of payment to physicians and other providers. The insurance department shall report this information as part of its consumer report on health care plans.  

The HMOs and other insurers would not be required to divulge individual payment amounts, only method of payment (fee-for-service or capitated), and whether there is a withhold or not. In this way, consumers -- employers and individuals -- would have access to the method of payment information, but HMOs would not be forced to release information on actual payments or discounts to competitors.  In fact, method of payment information would reveal less about payment than actual rate information that HMOs must currently file.

Financial Hold Harmless Clauses  

When Congress passed the Federal Health Maintenance Organization Act in the early 1970s, one of its goal was to promote an alternative to traditional health insurance.  One of the major differences between HMOs and traditional health insurance that was crafted by Congress in the legislation is the Ahold harmless@ feature of the HMO.  The federal legislation requires that each HMO Aprotect its enrollees from incurring liability for payment of any fees that are the legal obligation of the HMO.@ (42 CFR Ch IV S 417.122).  

Connecticut statutes also require that written contracts between providers and HMOs include a clause that guarantees the subscriber will not be held financially responsible for an HMO=s unpaid bill.  Staff of the insurance department review the written contract language to ensure this clause is included.  

Providers indicate this poses a problem where there is a disagreement between the health plan and the physician about what is medically necessary, and the provider is left with the financial responsibility for the treatment if it is provided.  For example, a physician may determine a hospitalized patient needs additional days, and the plan may disagree.  Unless the hospitals inform the patient the health plan is denying the authorization of a particular service or extension, and the patient wishes the service or extension despite the denial of the health plan, hospitals must absorb the costs.  Committee staff interviews with three hospital financial administrators indicated hospitals are required both by law and by contract to follow these Ahold harmless@ clauses.  

Further, according to staff at the Office of Health Care Access, which receives budgetary data on all hospitals, losses incurred because of the Ahold harmless@ requirements must be borne by the hospital as part of the overall discounts they agree to as part of their contracts with HMOs.  Hospitals are prohibited from including this type of debt in the uncompensated care pool, which is supported by a hospital tax that is then redistributed among them depending on each hospital=s portion of care to the uninsured.  Audits of hospital accounts would disallow Ahold harmless@ debt in uncompensated care, if detected.  

The program review committee believes that Ahold harmless@ clauses were incorporated in the federal HMO Act as a method of containing health care costs, by prohibiting physicians, hospitals, and other providers from billing patients for the balance of bills that HMOs won=t pay. If providers were allowed to pursue the patient for the portion of costs beyond the HMO discounts, the pre-arranged co-pays and reduction in fees would become meaningless, and costs to the consumer would soon rise.  Thus, the committee concludes that the Ahold harmless@ requirement has become one of the cornerstones of managed care, and should be continued.  

Legal Liability of HMOs  

Physicians also indicated that HMOs are immune from legal liability.  Legal liability concerning medical issues is murky. Beneficiaries may sue a health plan for medical liability, but courts have also limited their remedies.  

Impact of ERISA.  Health plans may sometimes attempt to dismiss the suit on the grounds the health plan is an ERISA one, but the courts have been indecisive about when such ERISA preemption is allowed.  Some courts have said if the suit arises out of the obligations of a benefits contract, then it Arelates to@ an ERISA plan, and the plan is preempted, and no suit in state court is allowed. [11]

Other state courts have found that if the claim involves a medical treatment question, then no ERISA preemption is allowed and the lawsuit may proceed.  Then, the legal issue becomes whether the doctor or the health plan made the medical decision.  In these cases, too, courts have not been uniform in their decisions. Court decisions holding health plans responsible have usually found some defect in the design or implementation of the health plan=s managed care process (e.g., poor credential review, using medical protocols inconsistent with local practices).  

If the case is heard in federal court, remedies under ERISA are limited.  ERISA was designed to ensure that health plan assets are used for health benefits and not damage awards, which would drive up premiums. Therefore, under ERISA plans, enrollees may sue for the benefit but not for damages, although plaintiffs, at the court=s discretion, can recover legal fees if they prevail. Hence, doctors typically provide a more successful target for suits involving medical issues.  

Individual claimants not covered by ERISA may sue under state causes of action and may claim damages. Under state malpractice laws, these plaintiffs are allowed to factor in loss of income, emotional injury and physical injury in calculating compensatory damages and to ask for punitive damages. As a result, these awards can run into millions of dollars.  Thus, one of the criticisms of the ERISA act is that it does not provide the extent of procedures and damages available under state law, and therefore disadvantages participants in ERISA plans relative to individuals covered outside of ERISA.   However, while ERISA preemption may deny certain plaintiffs a corporate Adeep pocket@, it does not leave them totally without remedy. ERISA plaintiffs still retain the traditional medical malpractice, wrongful death, and related tort actions against the independent health care provider.  

Physicians are required by health plans to carry malpractice insurance, and suits may affect the professional reputation of the physician through reports of those payments to the national practitioner databank. The databank is available to insurers and health plans who use the data to select physicians to serve on a plan=s panels.  

Indemnification clauses.  Contracts between health plans and providers also deal with legal liability issues. These contractual clauses generally state that the relationship between the health plan and the providers is that of independent entities contracting with each other solely for the purpose of effecting the provisions of the agreement. As such, neither party shall be liable to any other party for any act or failure to act of the other party to the agreement. Providers claim these clauses allow health plans to be held harmless from any claims, damages, or other liabilities arising from services rendered by the provider.  The program review committee finds that these indemnification provisions are clauses restrictive to only the signing parties, and thus does not believe they prevent or prohibit consumers from seeking legal remedies from the parties independently. Nevertheless, the Legislative Program Review and Investigations Committee recommends a statutory provision stating that contractual provisions between an HMO and a provider shall not prohibit any other remedy, cause or causes of action that the member, beneficiary, or insured may otherwise have by reasons of statute, common law, or contract.  

The program review committee believes nothing currently prohibits any enrollee from filing a suit, and this position is strengthened by the recommendation. However, as the discussion above illuminates, legal accountability of health plans is complicated by ERISA and a number of judicial decisions. The committee concludes there is no state legislative remedy that will clarify the ERISA clouding of legal liability. This issue requires a federal remedy.  

In the absence of any amendment to ERISA, the federal courts will decide the degree to which ERISA plans are subject to liability for quality of care decisions.  Increasingly, courts are looking at the actions of managed care plans with respect to credentialing and selection of health care providers, coordination of care, preauthorization of treatment, and review of claims. The courts= growing willingness to judge managed care entities by the same standards as they do other health care providers appears to be heading toward additional avenues of redress for the consumer.  

The committee=s conclusion that HMOS can be sued is supported by the fact many of them were named in lawsuits at least once during 1995, and most of them protect against that exposure by purchasing professional liability insurance.  Table VI-4 provides the amount of liability insurance carried by HMOs and the number of litigation/lawsuits reported to the insurance department in the HMOs= annual financial reports.  

Legal commentators have suggested the limitations of judicial remedies appear to have a dampening affect on the number of lawsuits brought against ERISA plans. It is speculated that some employees do not file grievances out of fear of retaliation such as job loss, while other employees willing to pursue an appeal may have a difficult time finding lawyers to litigate because of ERISA=s limited damages and attorney=s fees. This in turn has resulted in few lawyers having expertise in ERISA health plan litigation.  

Termination of Providers  

Finally, another area at issue involving contracts between health plans and physicians is the right to appeal when a provider=s contract is not renewed.  Currently, contracts allow providers appeal rights to the health plan, including arbitration, if the physician is terminated Afor cause@.  Guarantees of due process resulting from termination from a hospital or health plan for reasons of incompetence or professional conduct grounds are guaranteed pursuant to the federal Health Care Quality Improvement Act of 1986.  Similar appeal rights have not been granted for Awithout cause@ termination, which include economic or business reasons or because a health plan does not believe a provider is practicing good utilization management.  

Courts had traditionally rejected any claims brought by physicians regarding Awithout cause@ terminations, since physicians and health plans had entered a contractual relationship with those clauses clearly spelled out.  A recent New Hampshire Supreme Court decision, however, found in favor of a physician in that state who was terminated Awithout cause@.  The ruling did not indicate all economic or business terminations are invalid, but such terminations that can be demonstrated to have been done in bad faith or are contrary to public policy could be a cause for legal action.  

The program review committee believes the courts present the best course of action for physicians who believe they have been wrongfully terminated Awithout cause@ by an HMO or a managed care organization.  Legislative action spelling out how and when a health plan may terminate its physicians would be misplaced government intervention in the marketplace as well interfering with contracts themselves.  

Just as a health maintenance organization should be able to initially select their providers, they should be able to terminate, or not renew, a contract with them as well.  As long as both parties follow the contractual obligations to which both parties have agreed, HMOs are conducting their operations as any other business does with independent contractors.  

Notice of termination.  Connecticut statutes require that agreements between providers and health plans be in writing.  Further, the statute mandates that the provider give Aat least 60 days advance notice to the health care center to terminate the agreement@ (C.G.S. Sec. 38a-193 (3)(e).  No such requirement exists for health plans to provide minimum notice requirements to providers in order to terminate the agreement.  

Providers should be given the same statutorily guaranteed notice requirements as health plans, except in cases where keeping a physician on contract poses a threat to the safety or health of patients or enrollees.  Further, the program review committee believes that consumers, as well as physicians, need prior notice when a physician=s contract is being terminated or not being renewed.  

Prior notification of a non-renewal or termination will provide consumers with a medical transition period.  For example, consumers might find a replacement physician within the network prior to actually needing a medical appointment rather than finding out their physician is no longer part of the network when they need medical attention.  Prior notification to consumers could also help with a transition of medical care, where final medical procedures could be conducted prior to termination, or the patient=s medical records could be transferred to the newly selected physician before the termination date.  

Thus, both to provide equal notification guarantees, and to introduce a consumer notification requirement the Legislative Program Review and Investigations Committee recommends: that Section 38a-193(3)(e) be modified to include a 60-day notification to providers by a health care center prior to terminating an agreement, except in cases where that provider poses a danger to the health or safety of plan enrollees.   Further, plan enrollees shall be notified at least 30 days prior to the contract termination of a provider.