Court rules against deselection, giving physicians hope

Judge cites need for fairness, protection from exclusion

There may come a day when the dreaded catch phrase of managed care contracting — "termination without cause" — no longer strikes fear into the hearts of physicians. For the first time, a physician has won a major lawsuit against an insurer that deselected him without explanation.

The California court’s opinion relies strongly on values physicians are battling for on many local fronts across the country amid the threat of unforeseen and devastating deselection: basic rights of fairness in professional relationships and protection against arbitrary exclusion.

The case, Louis E. Potvin v. Metropolitan Life Insurance Company, involves an OB/GYN physician who was deselected by an insurer without a hearing. A trial court ruled in favor of Metropolitan Life, but the appeal court reversed the lower court’s decision. Financial damages are not yet determined.

Physician proponents are citing Potvin as landmark and precedent-setting, while insurer advocates say it will have some impact but not a monumental one. (For more details on how experts view the impact on physicians and contracting, see related story, p. 79.)

"The physician won the case and it is an important precedent," says Henry R. Fenton, JD, a Los Angeles attorney who argued Potvin’s case. "It makes quite clear that physicians have a right to notice of reason for deselection, right to a hearing, and right not to be terminated in the absence of some sort of good cause."

Critics are less sure of the ruling’s value or potential impact. "Notice of opportunity to be heard is not all it’s cracked up to be," says Lowell Brown, JD, an attorney with the Los Angeles firm of Foley, Lardner, Weissburg, & Aaronson. Metropolitan Life’s attorney in the case, Catherine I. Hanson, declined to comment to Physician’s Managed Care Report, but Brown and colleagues actively represent managed care organizations. They are watching the case closely so they can advise insurers of its impact.

"I adamantly believe the case is wrong," says Brown. And pragmatically speaking, taking an insurer to task will get you nowhere in the long run, he says. "Doctors would be better off if they paid more attention to building a good relationship with their insurers," advises Brown.

Potvin feels differently. "All I ever asked for was a hearing," he tells PMCR. "I didn’t think I deserved what they did to me.

"I joined them [Metropolitan Life] in 1988. They used my name to promote to patients, schools, big companies, and they took 55% of my practice." Then they dropped him, along with 900 other physicians in the area, Potvin says.

Since Potvin was decided by the appeals court at the end of April, two other cases in California have gone in favor of deselected physicians, representing an incredible turnaround, some experts say.

The Potvin case first was decided in favor of Metropolitan Life, but was reversed upon appeal. The appeal was heard in the California Court of Appeal, Second Appellate District Division One.

Contract included standard provision

Here are the key facts, as described in the seven-page opinion written by Judge P.J. Spencer and summarized by Brown and colleagues:1,2

Potvin is an OB/GYN who had been participating in two health care networks managed by Metropolitan Life Insurance Company of Los Angeles since September 1990. He had signed an agreement with Metropolitan that included the standard "termination by either part at any time, with or without cause, by giving 30 days prior written notice to the other party by certified mail" provision you see in most of these contracts.

On July 22, 1992, the insurer terminated the agreement with Potvin and gave him the required 30 days notice. Shortly after that, Potvin asked Metropolitan the reason for his termination. In early 1993, the insurer replied that his termination was a business decision and did not reflect on his performance as a medical provider.

Potvin asked for more of an explanation, and in early March of 1993, the insurer responded that he was being terminated "without cause." In the same letter, Metropolitan also said that even though the insurer had no obligation to provide Potvin with reasons for termination, it "was related to the fact that [Potvin] did not meet Metropolitan’s current selection and retention standard for malpractice history."

Insurer refused request for hearing

Metropolitan had established criteria for "acceptable malpractice history." Those criteria limited allowable malpractice experience to two lawsuits and settlements or judgments of no more than $50,000 within a fixed time period. One of the insurer’s medical directors had reviewed Potvin’s documentation strictly in light of the malpractice criteria and recommended his deselection. Potvin had a history of four lawsuits, three of which had been dismissed and one of which had been settled for more than $50,000.

Several times Potvin wrote back and explained his malpractice history and the hardship his deselection had caused for him and his patients. He requested a hearing. The insurer did not respond to his request.

Potvin sued Metropolitan for violating the peer review procedures of California Business and Professions Code section 805, which refers to breach of written contract and violation of fair procedure. In the suit, he cited a litany of hardships, including the following:

• He lost a large portion of his patients covered by Metropolitan.

• He suffered deselection from other managed care organizations.

• He suffered rejection by other physician groups.

• He lost referrals from other physicians who were members of the insurer’s networks.

The trial court granted summary judgment in favor of the insurer. Potvin appealed. The Court of Appeal reviewed California’s long history of "a common law right to fair procedure protecting individuals from arbitrary exclusion or expulsion from private organizations which control important economic interests." And, the appeal court focused on the "practical power of the entity in question to affect substantially an important economic interest," also stated in the law (italics added by PMCR for emphasis).

The court also found relevant the general rule in California that procedural fairness, in the form of adequate notice and an opportunity to be heard, is a prerequisite for dismissal from a professional association, regardless of the association’s bylaws.

The Court made these determinations:

• Metropolitan could not deselect Potvin without first granting him the "common law right of fair procedure" despite the "without cause" termination provision in the managed care contract with Potvin.

• This fair hearing was necessary because Metropolitan controls "substantial economic interests" given the number of physicians involved in Metropolitan’s provider networks and the impact of the agreement’s termination on Potvin’s medical practice.

• While the court did not specify exactly what fair procedure rights are due Potvin, it suggests that at a minimum he has the right to "notice and an opportunity to be heard."

References

1. 97 Daily Journal D.A.R. 1997; May 2: 5552-5557.

2. Foley, Lardner, Weissburg & Aaronson. Law Watch. May 14, 1997.