by Michael Jonathan Grinfeld

Psychiatric Times March 2000 Vol. XVII Issue 3

When the U.S. Congress next takes up health care reform in this election year, one of the more hotly contested battles will be over patients' right to sue their health care companies. While members of the House and Senate argue over the merits of allowing patients to enforce their rights with lawsuits, there is a more fundamental question: Will lawyers be able to achieve what others have thus far failed to accomplish? That is, will they create a national health care policy that guarantees access to medical care at a reasonable price?

While the answer to that question is not clear, it seems that-after a long and frustrating national debate-legislators, regulators, politicians and pundits are ready to give the lawyers their shot. Over the past year the growing number of lawsuits, which are often based on dramatic new legal theories, have already yielded surprising results. Nevertheless, the likelihood that courthouse ploys will ultimately assist those who suffer from mental illnesses is less than assured.

For instance, when UnitedHealthcare announced last November that it would end its pre-authorization program that had curtailed physician autonomy-some say as a pre-emptive defense against class action lawsuits-the company didn't include mental health treatment in its policy change. In this same manner, the spate of class actions brought by some of the nation's leading mass tort specialists will have no effect on mental health care if insurance company contracts do not include these benefits.

Richard C.W. Hall, M.D., is the chair of the American Psychiatric Association's litigation fund committee. He acknowledged that lawsuits won't affect fundamental mental health care policy issues such as parity. For those individuals who have some mental health care coverage, however, turning reform efforts over to the lawyers makes sense.

"It's going to be the only way to do it because the political forces are too strong in the other direction," Hall said. With $750,000 currently in its coffers, the APA's litigation fund has provided support to some of the national class action suits, although for legal reasons Hall was unable to specifically identify them.

"The managed care companies…have set criteria that reduce the availability of procedures, and they have applied economic incentives that are perverse…[in order] to get physicians to promote their own financial interests rather than the patients' medical interests," said Hall. He also noted that managed care organizations (MCOs) have tried to "gag physicians…[and they've disrupted] the continuity of provider care…by limiting access to certain classes of providers. All of these things are being attacked now in the litigation that the APA is supporting."

In the end, Hall is confident a favorable legal outcome will bring significant relief to beleaguered mental health care practitioners and patients.

"It'd make a huge difference," he said. "[Patients would be] treated using nationally recognized criteria both for diagnosis and treatment. Care would be provided in a system that was most efficacious for the patient, not cheapest for the insurance company. The outcome assessments would be done in a much more honest fashion. The availability of proper medications would be dramatically increased." He added that split therapy, where the insurance company does not allow patients to see a psychiatrist, requiring instead that they see counselors or social workers, would be less common.

The latter restriction particularly irks Hall, who said the practice inappropriately distances psychiatrists from patients and their families, while asking these highly trained physicians to become "pill pushers" who merely provide medication management. "It lowers the insurance companies' costs by referring [patients] to the least trained and least expensive providers," said Hall.

For years, the medical and legal professions barely coexisted, interacting only along the fault line produced by malpractice cases. Although forensic physicians willingly brought their expertise into the trial courts, the plethora of lawsuits charging negligent care angered and frustrated the targeted treating doctors. As a result of this friction, "tort reform" became the predominant battle cry for the medical professional associations as they struggled to reduce what they viewed as unwarranted legal exposure.

After years of operating under the thumb of MCO cost-cutters, however, the physicians have changed their position. When Texas became the first state to allow its citizens to sue HMOs, thereby expanding malpractice liability, the state's medical association was a key backer of the law. With doctors taking the brunt of criticism for poor treatment choices mandated by MCOs, the Texas Medical Association was eager to impose a share of the responsibility upon insurers.

Since then, a number of other states have opened the door to lawsuits against HMOs, most recently California. Enhanced access to the courts has also motivated other significant policy changes. Reluctant for years to embrace external review, MCOs finally gave in after seeing the handwriting on the wall. A host of appellate decisions undermining federal law that once shielded them from liability, the threat of legislative and regulatory reforms, and a dozen or more class action lawsuits filed across the nation spurred MCOs to agree to independent reviews of "medical necessity" decisions. Some companies have eliminated terminations of physicians without cause, and some now grant hearings before decredentialing providers.

Even the U.S. Supreme Court has finally jumped into the fray. This summer it will decide Pegram et al. v Herdrich (Docket No.98-1949), an Illinois case some experts say challenges the underlying business model of managed care. The high court will confront the issue of whether physicians breach a fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA) when they receive financial incentives based on the level of care they provide. Depending on the breadth of the ruling, this could upend what have become the customary managed care strategies for controlling costs.

When the case was originally heard by the 7th Circuit Court of Appeals (Docket No. 97-1070), the lower court decision revealed heightened judicial impatience with health care based on economics rather than therapeutic needs. "Because the physician/administrators' year-end bonuses were based on the difference between total plan costs (i.e., the costs of providing medical services) and revenues (i.e., payments by plan beneficiaries), an incentive existed for them to limit treatment and, in turn, HMO costs so as to ensure larger bonuses," the court wrote. "With a jaundiced eye focused firmly on year-end bonuses, it is not unrealistic to assume that the doctors rendering care under the Plan were swayed to be most frugal when exercising their discretionary authority to the detriment of their membership."

Since the HMO class action lawsuits have just begun, it is still too early to tell whether trial judges and juries will be agitated to the point of lashing out with the sort of huge dollar verdicts that often become catalysts for policy change. The seriousness of the allegations made in the complaints against some of the nation's largest HMOs, if proven, could lead to devastating losses.

Plaintiffs' attorneys, many of them mass tort specialists who have honed their skills by taking on the pharmaceutical, medical devices, tobacco, asbestos and handgun industries, are using state and federal laws to claim the financial models used by MCOs constitute public fraud. By failing to disclose incentive arrangements and other cost-cutting measures, these cases argue, the MCOs violate provisions of ERISA, the Racketeer Influenced Corrupt Organizations law and various state consumer protection statutes. For mental health care advocates who have waged battles against pre-authorization and utilization review policies, which parceled out miserly numbers of hospital days or outpatient visits, these charges ring true even before any evidence has been offered.

Joseph R. Sahid, a New York City attorney, has been litigating against the managed behavioral care industry for years and understands that making allegations is much simpler than proving them. Last year, he narrowly escaped a procedural move to dismiss an antitrust case he brought on behalf of the nation's psychiatrists, psychologists and social workers against nine of the nation's largest managed behavioral health care companies. If Holstein et al. v Green Spring Health Services, Inc. et al.(U.S.D.C. S.D. New York Case No. 98 Civ. 9201) goes to trial, Sahid said, he hopes to be representing a class of 200,000 mental health care practitioners who are responsible for treating an estimated 115 million Americans.

It is the scale of these class action lawsuits, however, that will generate change. "We targeted the mental health care industry as a whole as opposed to any one company," Sahid said. "As a result, we are hoping that the relief that may come will apply to the whole industry as opposed to one company."

The major difference between Sahid's suit and the HMO class actions filed last year, he said, is that those cases take on individual companies. "One of the things that we were concerned about is that when you go after one company at a time, it's a much harder fight," he added. "It takes longer and it's more tedious, compared to obtaining relief from the whole industry."

According to attorneys Stephen Herman and Steven Lane of New Orleans' Herman, Herman, Katz & Cotler, the 11 HMO class actions in which they are involved will motivate fundamental changes in health care policy over the next five to 10 years. Some of these changes could expand care to individuals who require mental health interventions. One of their cases, for instance, charges that an insurer manipulates its interpretation of "medical necessity" to deny mental health treatment as well as other forms of care. The lawyers say they are filling the void left by political inaction.

"The federal government has done nothing. The individual state governments, for the most part, have not done anything. The doctors are not going to do anything because they're concerned that if they take some type of action, they're going to lose the entirety of their patient base when an HMO cancels them from the provider network," Lane said. "Who does that leave? It's a similar situation that existed on the tobacco issue…The attorneys had to step in to hold tobacco companies accountable and, to the same extent, attorneys are stepping in to hold these HMOs accountable."

"While it is true to some extent that litigation can't do what legislation or regulation can do, on the other hand, litigation can do things that Congress would not be empowered to do," said Herman. For instance, advertising restrictions agreed to by the tobacco industry couldn't have been legislated because of First Amendment considerations but, in the context of litigation, they became part of the compromises reached. "I don't know how all of that is going to play out in the global scheme of HMO litigation, but I think there's a chance, at least, when you have a litigation context, that you can reach a compromise that strikes a balance for the two sides," Herman said.

Russ Newman, Ph.D., J.D., executive director for professional practice of the American Psychological Association, agreed that the test cases can be an important tool to motivate important reforms, but by themselves they can't yield the overall solutions to mental health care's ills. "We need to use the state legislatures and Congress for statutory changes. We need to use the regulatory enforcement agencies for regulatory purposes. We need to use public education to inform consumers…about the problems so they then have an effect [as voters]. And we need to use the courts in order to change the law to define the contours of how the health care marketplace works," he said.

Newman added that the lawsuits bring accountability to a health care marketplace that rewards cheap but inadequate care. "The marketplace is not forcing competition for both cost and quality so that those providing poor services go away and those providing too high-priced services go away," he said. "[Managed care companies aren't punished by] the marketplace for cutting corners in order to provide lower cost services. To make matters even worse, they can't get sued, by and large, either because they're hiding behind ERISA pre-emption defense, or taking the position that, as a managed care company, they don't provide health care, they simply manage or administer the benefits. Therefore, they have no responsibility…when people who get bad care are injured."

David M. Studdert, LL.B., Sc.D., has been co-author for a number of articles warning that litigation won't resolve the health care system's ills. A policy analyst at the Santa Monica, Calif.-based think tank RAND, Studdert argues that opening the doors to large punitive damage awards could make the situation a lot worse.

"I don't believe the courts will be able to provide a systematic response. Nor do I believe that it will be possible for the courts to provide a systematic health policy approach," Studdert said. "It's simply too haphazard a process [and] some of the questions are too important to entrust to a whole different set of [court] jurisdictions. It's clearly a question the legislatures ought to answer."

Meanwhile, for patient advocates who struggle to find resources for their constituents, the lawsuits offer some prospect of early relief. "It's an additional avenue," said Mary Graham, vice president of health care reform for the National Mental Health Association. "It could only help. I'm not confident that it's going to change behavior as much as some of the other advocacy activities, but I think it's going to add to the cumulative effect."