Managed care medical directors under fire. (Managed Care on Trial).

In south Florida, an aggressively economizing regional medical director ordered his minions to 'weed out the peds" from the medical case management program offered to members of HMOs operated by Humana Health Insurance Company of Florida. Nine-year-old Caitlin Chipps was one of 100 children with "chronic static conditions--she has cerebral palsy--who were informed that the intensive treatments they'd been receiving would no longer be paid for except as provided under their regular plan benefits. Her subsequent claims for speech, occupational, and physical therapy however, were rejected. Chipps' father sued.

Early this year, the family won a $79 million judgment against Humana for "intentional infliction of emotional distress, breach of contract, fraud, unfair claims practices, and promissory estoppel." The jury's whopping punitive damage award was calculated to equal the savings Humana had reportedly realized from the medical director's cost-driven winnowing of the case management rolls.

So-called "managed care horror stories" like Chipps v. Humana are nothing new. (You can read a compilation under that rubric on the US. Senate website maintained by Democrats who support legislation of a Patients' Bill of Rights at senage.gov/~dpc/patients rights). Just the past two years have seen Humana hit with another $13 million verdict for refusing a hysterectomy to a Kentucky woman and Aetna slammed with a $116-million punitive damage award for haggling over treatments for a California man dying of stomach cancer. In each of these cases, medical directors--physicians employed by the third-party payers to determine the medical appropriateness of the procedures or services requested on behalf of those insured--played crucial roles. Yet none of these individual decision-makers suffered direct consequences.

Fighting back

That immunity seems to be wearing off. Ask John F. Murphy, MD, and David W. Ellis, MD.

In December 1992, Murphy, Medical Director of Insurance for Blue Cross Blue Shield of Arizona, turned down a request for pre-certification of a laparascopic cholecystectomy for a patient of Phoenix surgeon David Johnson, MD. Based on telephone conversations with Johnson and the patient's primary care physician, Richard Jonas, MD, and the records they supplied, Murphy ruled that the procedure was "not medically necessary." Johnson protested, and operated on the patient's gallbladder anyway. Blue Cross ultimately paid when the post-operative pathology report indicated that Johnson and Jonas had been right.

But the story didn't end happily there. The patient filed a complaint with the Arizona Department of Insurance, which found no cause for action against Blue Cross. Surgeon Johnson, however, took his grievance against Murphy to the Arizona Board of Medical Examiners. He argued that the refusal of pre-certification (Murphy had offered to submit the issue to a third-party specialist for resolution, but Johnson and the patient had declined) amounted to "unprofessional conduct" and "medical incompetence." The board agreed. It voted to enter a "letter of concern" into Murphy's file, chastising him for his "inappropriate medical decision, which could have caused harm to a patient."

In 1998, family practitioner David Ellis, a medical director for UnitedHealthcare of Texas in Dallas, received considerably harsher treatment from his state's board of medical examiners after he spurned a request for coverage of in-home skilled nursing care so that a paralyzed 13-year-old boy on a mechanical ventilator could be released from the hospital. Ellis, after a brief telephone exchange with the pulmonologist who'd prescribed the nursing care as medically necessary and a consultation with colleagues, ruled that its primary intent seemed rather to be to provide respite for the parents" and thus, as purely custodial, was not covered under the mother's HMO contract.

As it happened, the boy's father too had health insurance through his employer, managed by a sister UnitedHealthcare subsidiary in California. And the medical reviewer for that plan concurred with the pulmonologist that the boy, David Wiser, "requires close monitoring and supervision not only with specific equipment, but with skilled and knowledgeable nurses." The California plan agreed to pay for them.

David Wiser died a few weeks later from a brain aneurysm.

"I have no anger toward Dr. Ellis," the boy's father told a reporter. I do not hold him responsible for my son's death. I do hold him responsible for the fact that during the last two months of my son's life, I had to deal with insurance issues instead of spending quality time with him." And so he lodged a complaint against Ellis with the Texas Board of Medical Examiners.

Last February, the board took strong action. Citing testimony that Ellis lacked experience in home ventilator care and had consulted no medical literature in arriving at his decision, the regulatory body imposed a two-year "probated suspension" of Ellis' license. The probation was conditioned, among other things, on his acceptance of a public reprimand, payment of a $5,000 fine, and completion of 12 hours of continuing education in home ventilator therapy.

Simply making a benefit determination

Neither Murphy nor Ellis took the slaps lying down. Both immediately brought suit, through their respective employers, to enjoin their state medical boards from enacting the sanctions. The boards had no authority to second-guess them, the medical directors' lawyers argued, because Murphy and Ellis were not "practicing medicine" in their utilization management roles; they were simply "making a benefit determination."

In an amicus brief filed in support of Murphy, the American Association of Health Plans (AAHP) and the Health Insurance Association of America (HIAA) argued that the state medical board "should be limited to its proper role of ensuring that patients receive proper care from their treating physicians, and should not be in the business of deciding insurance coverage issues arising out of the contract between the insured and the insurance company.

"One employer purchased a certain set of benefits," United Healthcare's Chief Marketing Officer succinctly summed up the issue from his viewpoint, "and another employer didn't."

But the courts saw the matter differently. Drs. Jonas and Johnson "diagnosed a medical condition and proposed a non-experimental course of treatment," an Arizona appellate panel concluded. "Dr. Murphy substituted his medical judgment for theirs and determined that the surgery was not medically necessary.' There is no other way to characterize Dr .Murphy's decision: it was a 'medical' decision."

The Arizona board thus had a right to review the medical director's professional conduct and to censure him for a perceived lapse, the court concluded. A similar verdict in Ellis' case is still under appeal.

Are medical directors practicing medicine?

Are medical directors practicing medicine when they manage care? That's the key question underlying the emerging threat of personal liability, legal and regulatory, that medical directors now confront.

"Whenever physicians employ the professional knowledge and values they gained through medical training and practice, and in so doing affect individual or group patient care, they are functioning within the professional sphere of physicians and must uphold ethical obligations," the American Medical Association declared in a policy statement last year.

"Assuming a title or position that removes the physician from direct patient-physician relationships" does not relieve doctors of the professional burden of "placing the interests of patients above other considerations, such as personal interests (for example, financial incentives) or employer business interests (for example, profit)," the AMA asserted.

The HIAA, for its part, insists strenuously that medical directors are purely "agents of the companies that hire them, and their relationship with the beneficiaries during the pre-certification process is that of an insurer and an insured."

What they're engaged in when applying medical necessity criteria to requests for services is contract interpretation," insists HIM Assistant Vice President and General Counsel Rita Theisen. Physicians are employed in this capacity because "you need someone who can distinguish an oophorectomy from a hysterectomy and can read medical records and is familiar with the alternatives," she says. But, as the HIAA lawyers put it in the Murphy brief, "it is simply incorrect and nonsensical to say that the insured is 'the patient' of the medical director."

A day in the life of an HMO medical director

Medical directors, of course, come in many varieties. And approving or denying services is only one-though perhaps the most volatile-of a range of jobs they may perform. Others typically include promoting service quality, especially as gauged by Health Plan Employer Data and Information Set (HEDIS) measures to gain accreditation by the National Committee for Quality Assurance (NCQA); building and sustaining provider networks: evaluating physicians and negotiating their payment: setting and overseeing budgets; and jaw-boning with customers and regulators.

"The day-to-day activities of the chief medical officer of an HMO are quite different from those of a regional medical director for utilization management or a medical director of an IPA," point out Thomas Bodenheimer, MD, and Lawrence Casalino, MD, in a comprehensive two-part December 1999 overview in the New England Journal of Medicine entitled "Executives in White Coats--The Work and World View of ManagedCare Medical Directors." (1)

"It's like what they used to say about physician-hospital organizations," quips Elizabeth Gallup, MD, JD, MBA, Executive Director and Medical Director of New Century Health IPA in Mission, Kansas. "'If you've seen one PHO, you've seen one PHO.' It's the same with medical directors."

Still, reviewing individual cases is often a significant aspect of their responsibilities at all levels. "I make UR decisions daily," acknowledges Gallup. Her group, she notes, has "adopted the approach that we look at all referrals of primary care physicians and specialists" to assure that they meet InterQual guidelines for surgeries and procedures. "But it's rare that I deny anything here," she continues, "because we've educated our physicians. Our focus has shifted, necessarily, from utilization management to quality assurance. We're interested in getting in and managing each case and not relying on the HMO to do it. True, we don't make the rules, the HMO makes them and we apply them. But sometimes we'll say, 'There's a gray line here,' and then our recommendation is to approve rather than deny a service."

"Some managed care organizations have more stringent requirements for approving tests and procedures than InterQual has," Gallup adds. "Then I'd argue assiduously that though something isn't covered, it's indicated."

These "dicey" calls, where quality of life rather than life itself is the health indicator to be considered (reduction mammoplasty and electric wheelchairs are two common sources of such controversies, she notes), are "very troubling when they occur," she admits.

Nevertheless, she suggests, "You're far less likely to have patients and physicians objecting to things like lower lengths of stay, and you're far less likely to be sued, if you're working on improving quality rather than doing traditional utilization management. And it's a much better expenditure of your resources.

Assuring that guidelines are being followed

Indeed, maintains Gallup, "managed care done appropriately is the best care a patient can get. Because someone is assuring that guidelines are being followed."

That's certainly the consensus among her counterparts, note Bodenheimer and Casalino. Insisting they wear white hats even if, at times, they doff their white coats, medical directors share a belief in the overall social utility of their efforts on behalf of managed care organizations: They're benefiting patients by curbing unnecessary treatments and reducing substandard variations in physician practice patterns, they point out. They're encouraging delivery of preventive care and better management of chronic diseases. They're helping doctors by showing them hard data on how their individual practices compare in quality and utilization with those of their peers. And they're reducing excessive health care costs by assuring that patients get only the services they truly need, not whatever they or their doctors demand.

At base, say Bodenheimer and Casalino, medical directors are convinced that quality medicine is economical medicine, because shoddy care costs more in the long run. From that perspective, goes the argument, "there is no fundamental conflict between the needs of patients in managed care organizations and the financial concerns of the organizations." In fact, the authors add, many medical directors consider themselves advocates for patients, arguing that as much of the budget as possible should benefit patients rather than stockholders, executives, pharmaceutical companies, highly paid specialists, or other recipients of managed-care dollars."

Needless to say, that benign portrait is not widely recognized by the mass media, by health plan members denied authorization for services or procedures they feel entitled to, nor by physicians who resent what they regard as the usurpation of their autonomy by insurance company micromeddlers.

"I think that historically managed care tried really to be managed care," says Gallup. But it has ended up being more managed reimbursement. And that has alienated the general public. The people who are dissatisfied are loudly dissatisfied."

And like Chipps, Johnson, and Wilmer, they're fighting back. Armed with precedents such as the Murphy case--the first solid wedge in the door--and new state laws subjecting medical directors to oversight by local licensing boards, doctors who deny care have become individual targets.

It's brewing out there

"HMO medical directors have not in the past been sued with any regularity," observes Todd Sagin, MD, JD, himself a former senior medical director for a risk-bearing PHO in Doylestown, Pennsylvania. "But it's brewing out there. The legal grounds for suing them have gelled."

"For years," he goes on, "they've talked the party line: 'We're just administering benefits here, we're not practicing medicine.' But now, when they're clearly in partnership with physicians, and clearly influencing quality and outcomes, it's hard to cling to that argument. The environment has changed. For medical directors who're making utilization and physician profiling decisions day in and day out, there's a lot of liability. I think it may be getting very scary for them."

Which is precisely the effect intended by those who hail medical directors before their state regulatory tribunals, grumble Theisen and HIAA Legislative Director and Counsel Jeff Gabardi. In fact, they argue, coercion and the threat of retribution are the real motives behind a burgeoning movement to require medical directors to be licensed in the state where they act in the interests of a health plan.

As it stands, according to James R. Winn, MD, Executive Vice President of the Federation of State Medical Boards, in Euless, Texas, 17 states now do have such a requirement. Most were enacted within the past year. And they make sense, he maintains.

"Our position is that patients look to the medical board as the institution or agency that protects them from underqualified or incompetent doctors. If a patient who resides in Texas is to be afforded protection," he reasons, "the medical board in Texas should be in a position to monitor what medical directors for insurance companies do that affect patients in the state. There should be a mechanism to hold doctors accountable for their decisions-- and it's very hard to do that when the patient's in Texas and the doctor's licensed in New Jersey."

Nonsense, exclaim Theisen and Gabardi. "We oppose in-state licensing. It's an administrative and cost concern as much as anything else. Ultimately it would mean that the medical director of a company that does business in 50 states would have to be licensed in 50 states. That doesn't add any value. And to put a medical director who's evaluating coverage decisions in the same camp with doctors who commit really serious violations of professional ethics is ridiculous! You know it's not a matter of medical training and competence; it's purely a political issue."

If a board of medical examiners is "going to be able to intimidate or put somebody out of business because it doesn't like their coverage decisions," they fume, "you're talking about a group of doctors who're determining on their own what their reimbursement is going to be under managed care. Relations between insurance companies and doctors have probably never been worse, and if doctors want to take out their frustrations and anger on medical directors on a daily basis, it would in fact put an end to managed care. This environment is poisonous!"

Holding medical directors accountable

The Federation of State Medical Boards' Winn, naturally, has a different take: "What happens is, these medical directors are given the job of making these decisions, but they don't want to be held accountable. Well, if we did away with medical malpractice, if we made it not worth the time for patients to sue when they've been harmed by a doctor, we could really reduce the cost of health care in this country. But it's knowing you're going to be held accountable that brings a sense of responsibility to the table. When medical directors know they're going to be held accountable for their decisions, they're going to be very helpful."

Not that there isn't something to the HIAA's trepidations, however, he acknowledges. Murphy and Ellis "are just the tip of the iceberg. There are going to be more cases coming up, he warns. "And the insurance companies can't let this go unchallenged. 'Managed care' means 'the doctor is no longer the manager of the patient's care, the insurance company is.' But if medical directors are found to be subject to the same rules as other physicians, it levels the playing field. And that makes it very difficult for insurance companies and managed care organizations to find an advantage in their operations."

"I actually think health plans ought not pussy-foot around the issue that they're practicing medicine," declares Stephen Schoenbaum, MD, MPH. He now works for the Commonwealth Fund in New York, but last year he presided sorrowfully over the abrupt liquidation of Harvard-Pilgrim Health Care of New England, as its Rhode Island-based Medical Director and President.

To be sure, he says, many utilization decisions are truly based on parsing contracts and figuring out whether a service is covered and in conformity with plan guidelines. He recalls observing one of his plan's "medical advisors" in negotiation with a physician over the site at which a biopsy would be performed--in a hospital or, as the guidebook specified, in an outpatient facility.

"He was trying to figure out where to do it," Schoenbaum says. "But in the background a colleague and I were questioning whether the procedure was really necessary at all. There were a couple of ways of managing the patient's situation, and we didn't think the doc was making the right decision."

They refrained from interfering. "The fact is--and maybe it was part of our financial problems--we were in a generous managed care organization," Schoenbaum says. "We tended to tilt, if we tilted, on the side of our plan members." Still, he says, that member might have been better served by a more forceful practice of managed care medicine.

"You can look at it non-malevolently," he explains. "Someone's got to be the guardian of the patient's best interest. The downside of physician autonomy is stupid decision-making."

More vulnerable as a medical director

Sheila R. Sawyer, MD, MMM, CPE, FACPE, Medical Director of Integra Health in Cedar Rapids, Iowa, deals with health plans that contract with her 225-physician primary care group, part of the Iowa Health System. "Do I think I'm practicing medicine when I'm called on by a health plan to decide, for example, whether a patient should go outside the network?" she asks rhetorically. "Yes!

"There's always an appeals process," she rationalizes. "And if I really feel strongly that something needs to be done, I'll fight for it. But as a medical director, I'm probably more vulnerable than I am when I'm practicing as an individual physician."

That's not altogether to be deplored, observes Linda Peeno, MD, a former Humana medical reviewer, HMO medical director, and Blue Cross Blue Shield of Kentucky executive. Now chair of the ethics committee at the University of Louisville Hospital and an auditor of Medicaid contracts for the state of Indiana, Peeno has become a managed care scourge. Eager to testify as an expert witness for plaintiffs like Caitlin Chipps and her family, "in virtually every case I've worked on, Peeno says, "once you open the black box you find that everything is cost- and number-driven. It's going to be hard to reverse that. We're still working out of a model of managed care based on limitation and denial. But if medical directors were more conscious of their legal accountability, they'd act more responsibly."

Peeno, an internist who'd embarked eagerly on her career as a managed care medical director after attending an ACPE course for aspiring physician executives in the late 1980s, was increasingly troubled by the demands of utilization management. The nadir was her refusal, based on a contract loophole, to authorize a heart transplant for a Humana subscriber who died as a result. "I'm not denying care," she had consoled herself. "I am only denying payment." (That, insists the HIAA's Gabardi, is "a distinction that can't be glossed over.")

Yet Peeno remains a cautious optimist. "Medical directors play an important, valuable role in our medical system," she says. "There's still a part of me that'd love to be in a position where I could bring to bear everything we've learned about disease management and population health and best practices and apply them with consistency to patients. That's very exciting."

Walking a fine line

In fact, one's own and one's plan's legal jeopardy can actually be a weapon for good in the hands of an altruistic medical director, Todd Sagin suggests. "It cuts both ways. At one level, if you're getting too much pressure to cut costs, the liability threat is valuable," he says. "When you point out to your bosses all the bad publicity and the chilled environment that'd be the fallout from a lawsuit if you ratchet things down too far, that gets their attention. But to the degree that everyone gets paralyzed by an overdeveloped sense of liability, it's a hindrance. You've got to walk a fine line."

The balancing act is difficult, though. "If what's going on at Health Alliance is any indication, medical directors are pulling in their horns," says Richard Berlin, Jr., MD, MBA, who recently ended six years as medical director of that physician-owned HMO in Urbana, Illinois. "Many are quite frightened."

Health Alliance's leadership at the Carle Clinic has decided to "go back to the gas station, back toward what's essentially the old style of indemnity insurance," Berlin scoffs, "thinking this'll keep them free of exposure. What they don't realize is that it puts them at more risk, because they're violating the HMO contract. Why should an employer pay higher monthly premiums to get managed care if the care isn't being managed? If employers wanted indemnity insurance, that's what they'd buy."

(Health Alliance might be excused for being gun-shy, though. The HMO enjoyed the dubious honor of winning a landmark case last June in the U.S. Supreme Court brought by a patient, Cynthia Herdrich, whose appendix had burst while her Health Alliance doctor delayed ultrasound testing until it could be done within the Cane network. Herdrich had already won a comparatively small malpractice verdict in state court against the physician, but the high court disallowed her suit against the HMO under federal law. "No HMO organization could survive without some incentive connecting physician reward with treatment rationing," Justice David Souter opined. The portrayal of the case in the courtroom, claims Berlin, "was not the truth.")

Denial medical directors are dinosaurs

Still, Berlin concedes, "you can't deny care any more. Any medical director who gets sued has gone about the job in the wrong way. You've mismanaged your PR."

There is an alternative to the denial model, he suggests. It lies in nurturing a provider network in which "decision makers" act responsibly to assure that care is appropriate and of the highest quality.

"You have to get away from adversarial relationships and be collaborative and friendly," he says. Unfortunately, he adds, "you can't write that down because then you're accused of collusion." Worse, no training program can equip a medical director with the skills needed to forge such relationships, he frets, because what's really required is clout Which only a few large players--the Aetnas and Humanas--possess.

"Managed care is dead," proclaims Berlin, "It's reached the limits of its mandate, for whatever reason, and a new model will have to evolve. I don't know what it will look like. But I do know that local and regional denial medical directors are dinosaurs. They're not viable any more.

Meanwhile, recommends Sagin, before they sink into the tar sands for good, managed care medical directors would be well advised to make sure they're paid up on their malpractice, directors and officers, and errors and omissions insurance. It just could come in handy.

Reference

(1.) Bodenheimer, T., and casalino. L. Executives with White coats--The Work and World View of Managed care Medical Directors (First and Second Parts). New England Journal of Medicine. 1999; 341:1945-1948. 2029-2031.

David O. Weber is a health care journalist living in Mendocino County, California. He can be reached by calling 707/937-2158 or via email at [e-mail].