'Showdown in cow town': Texas MDs balk at contract

Court victories may bode well for nation's doctors

Fed up with capitation plans that feature bonuses and withholds based on physician financial performance, a group of Texas physicians complained to state insurance officials about the largest health plan in North Texas, and even took the plan to court. Those physicians are winning their arguments.

A regulatory decision, one court decision, and one out-of-court settlement all agree on one principle: Giving physicians incentives to remain within financial targets can lead to patient dumping, making them unlawful provisions for capitated arrangements in Texas. Because most states have patient anti-dumping laws, these particular decisions are likely to be highly influential in other states as well, legal experts predict. Officials with several Dallas-Fort Worth physician groups contacted by Physician's Managed Care Report, however, declined to comment about the situation on the record.

Here is a brief chronological history, starting with the most recent developments:

· In mid-August, the Texas Department of Insurance settled with Harris Methodist Health Plan, a Fort Worth-based HMO with 336,556 beneficiaries, 7,000 physicians, and 14 hospitals in a 40-county area.

According the settlement, Harris Methodist is to pay a projected $3.4 million to primary care physicians in their plan, $2.6 million of which is related to pharmacy risk-sharing, and $725,000 for reimbursements related to bonuses based on payment tiers into which physicians were placed.

In a prepared statement, Harris Methodist Health Plan officials said they were not admitting any wrongdoing by agreeing to a settlement. Payments are due to physicians by early October.

· The plan also was ordered by the insurance department to pay the state a $100,000 administrative penalty and up to $50,000 in future consulting costs.

· In May 1998, 352nd District Court Judge Bonnie Sudderth in Fort Worth granted physicians' request to suspend provisions in Harris capitated contracts that increased or reduced a doctor's payments depending on whether they met financial targets. In the suit, physicians at The Fort Worth Clinic, an 18-member group practice of internists, accused the plan of violating a 1997 state law that prohibits financial arrangements that lead to limitation of medically necessary care. Harris officials disputed the charge.

Two main provisions of the plan were under legal challenge:

- withholds, whereby up to 25% of a physician's capitation payment can be withheld depending on the physician's financial performance. Earlier in the year, the withhold amount was set at 50%;

- bonus/penalty provisions, in which per member per month (PMPM) payments were adjusted depending on how a physician's financial performance affected targets for prescription drug costs, specialist care, and hospitalization. Physicians would incur a penalty only for exceeding the drug budget, but they would miss out on bonuses if they missed the other two targets.

· In April 1998, Texas Insurance Department attorneys said the contracts violate state law and recommended that Harris officials drop the provisions and pay an $800,000 fine.

At this point, bonuses aren't disappearing completely from Harris HMO's plans. Instead, they will be based on quality indicators and larger population cohorts. As part of the settlement, officials agreed to re-offer participation to all physicians who had been in their contested plans. The new capitated arrangements will have these features:

- Primary care physicians in capitated arrangements will have bonus opportunities based on quality measures such as member satisfaction and timely access, as well as preventive health measures, such as childhood immunizations, mammography rates, and diabetic retinal exams.

- Cost-efficiency bonuses will be awarded only if the participating physician has at least 500 patients in the Harris plan and the physician group as a whole has at least 1,000 enrollees.

- Specialists will be contracted on a discounted fee-for-service basis.

While not involved in the suit, the Austin-based Texas Medical Association refers to it in a recent member magazine article titled "Showdown in cow town."1 In the article, physicians urge their colleagues to let their patients know what payment arrangement insurers require of them.


1. Moran T. Showdown in cow town: First test of new law ends in a confidential settlement. Texas Medicine 1998; 94:39-43. n

Rick Ellingsen, Partner, Davis Wright Tremaine, 1000 Wilshire Blvd., Suite 600, Los Angeles, CA 90017. Telephone: (213) 633-6800. Fax: (213) 633-6899. E-mail: rickellingsen@dwt.com. Web site: http://www.dwt.com.

LaVerne Woods, Partner, Tax and Health Law Attorney, Davis Wright Tremaine, 2600 Century Square Bldg., 1501 Fourth Ave., Suite 2600, Seattle, WA 98101. Telephone: (206) 622-3150. Fax: (206) 628-7699. E-mail: lavernewoods@dwt.com.

James L. Walker, MD, Medical Director, Seton Medical Management, Mobile, AL. Telephone: (334) 633-8880.

Robert Goldstein, FACMPE, Chief Executive Officer, Browne-McHardy Clinic, Metairie, LA. Telephone: (504) 889-5218.n