Risk management in an IPA setting.

The potential for financial loss from litigation using the principles discussed in the first part of this article has led to several risk management strategies. Most IPA- and network-model HMOs shift the liability related to medical care to providers of health care. This is classic risk transfer. Liability may not be transferrable for functions the HMO actually performs, such as benefit interpretation or utilization denials. Because the HMO does not directly provide medical care, however, actual malpractice liability may be transferrable through contracts.

Most HMO contracts include hold harmless and indemnification clauses. Physicians may contractually agree to retain responsibility for their own acts of negligence. Such indemnification agreements help fend off the physician's malpractice carrier's attempts to transfer its own risk.

The HMO may try to limit its exposure for the acts of contracting providers by carefully wording its marketing and enrollment materials. If they emphasize the HMO's role as facilitator but not provider of care, they cannot be used as evidence of a warranty. The goal is to avoid implicit contracts with patients that could be used in legal actions. Clear delineation of benefits in contracts with employers (for example, exclusion of transplants) may transfer the risk involved in the denial of care to the customer.

The HMO is a good target for plaintiffs because it is a deeper pocket than the individual physician. This is especially true if the physician has a low malpractice insurance ceiling. Ensuring that each participating provider has enough malpractice insurance will help transfer risk to other parties.

While not a true risk transfer, arbitration provisions limit risk. They allow the HMO to settle disputes out of court in lower-cost arbitration proceedings. Case law has upheld mandatory arbitration agreements in California and Maryland.(*)

Risk transfer applies to risks other than malpractice. Specific "removal for cause" and "termination without cause" provisions in physician contracts help avoid risks of breach of contract suits brought by physicians. Because the federal Health Care Quality Improvement Act provides immunity from damages incurred as a result of peer review activities, adopting procedures in conformance with that Act also provides such protection.(*) Credentialing documents should include indemnification clauses against damages caused by good faith investigations. Again, the basic principles of risk management apply to all areas of risk, not just malpractice.

Risk Prevention

The HMO has several means to reduce its malpractice liability in IPA settings:

* Having a documented credentialing

process. That process

should include, in addition to verification

of education and licensure,

queries about malpractice history

and proof of adequate amount of

malpractice insurance.

* Following its credentialing

process and credentialing

standards.

* Performing mandated quality

assurance activities. These

include activities mandated by

state regulatory agencies, the

HMO Act, and the Health Care

Financing Administration

(HCFA) for HMOs with Medicare

risk contracts.

* Taking disciplinary actions

against physicians when necessary,

and reporting those

actions. Hesitation to act for fear

of the impact on the size of the

delivery network, or for any other

reason, opens the HMO to liability.

* Improving physician documentation.

Inadequate documentation

is a common element in successful

malpractice suits.

Risk Mitigation Case-Finding

Hospitals and staff-model HMOs have employees who directly interface with patients. These employees can be case-finders for "potentially compensable events" (PCEs). They can detect such events, record them as incidents or occurrences, and report them.

IPA- and network-model HMOs have fewer opportunities for risk case-finding. Therefore, they have fewer opportunities to mitigate risk once a PCE has occurred. Some potential for case-finding will almost always be available. The HMO's quality reviewers may find significant quality issues that also are risk issues. Members may complain to patient representatives. If they are angry or threaten to sue, such complaints should be reported to risk management. Large claims denials have a high risk of litigation. IPA utilization, provider relations, marketing group retention personnel, and others may learn of potential risk issues. Quality assurance personnel, member representatives, and utilization and claims reviewers should know their role as risk case-finders.

Physicians may hesitate to report PCEs arising from their care to the HMO. Taking a helpful, nonjudgmental, and consultative role in handling potential risk occurrences encourages physician-generated case-finding. It may help to point out that the HMO will eventually discover filed legal claims when it performs its recredentialing functions. A cooperative relationship between the HMO and physicians in handling potential risk has mutual benefits. At times, however, conflicting interests, such as risk transfer, prevent such cooperation.

Risk Mitigation

In hospitals or staff-model HMOs, mitigation strategies often save money by preventing lawsuits. Many plaintiffs file lawsuits out of anger. A caring professional who meets the patient's or family's needs can defuse that anger. A mitigator can expedite needed care for risk cases still under treatment. The patient's damages may be prevented, reduced, or reversed and a cause for a lawsuit eliminated. When damages have occurred, rapid compensation in exchange for a waiver of further liability may be in the best interests of the HMO and the patient. The patient gets the money he needs when he needs it. The HMO avoids the cost of litigation defense and may pay a smaller settlement.

Many malpractice suits start with billing disputes. A bill in the face of a bad outcome can generate much anger. Preventing the bill from being sent, or voiding it, can defuse that anger and reduce the chances of a lawsuit.

When a patient perceives that he or she has received poor quality care within the HMO delivery system, he or she may obtain care elsewhere. Often such a patient will demand that the HMO or the group pay for outside claims. If a breach of medical standard is verified by review of the care, it behooves the HMO to encourage the group to pay the claim. At times, such payments may need to be split between the HMO, the group, and the hospital.

Efforts to mitigate risk are less often warranted for IPA and network HMOs, because the HMO's liability is more remote. The HMO may be named in a suit, however, so it is in its best interest for the IPA, group, or hospital to satisfy the member early. The fewer suits filed, the lower the risk. If the member files a suit despite mitigation efforts, however, this intermediary role between the patient and the medical provider can establish a relationship that increases risk for the HMO. Language suggesting the provider is acting as an independent agent can reduce risk. Personnel with patient contact should avoid creating excessively high expectations of the HMO.

Many HMOs have regular meetings with representatives of the contracted IPA or medical group and hospital. The attendees can make risk management decisions regarding handling bills and claims or expediting care. Protection under state quality assurance immunity laws may not apply to this meeting. Legal counsel may advise a way to convene the meeting and limit attendance so it is a protected quality assurance committee. Alternatively, legal representatives may wish to record such meetings as communication between themselves and their client, hence protected under attorney-client privilege laws. The attendees at risk management meetings should be limited to key fact-finders and decision-makers.

A group's malpractice carrier may not be as proactive as the HMO in managing risk. The carrier may assign legal counsel once a lawsuit has been served, but risk mitigation is most effective earlier in the case. It may be worthwhile for the HMO to work directly with the group or individual physician's malpractice carrier on certain cases. In this way, the carrier may avoid legal expenses. The HMO's liability can be identified, and often eliminated, early.

Organizing to Manage Risk

Providers of care are the most effective PCE case-finders. Because IPA HMO staff members do not provide care, case-finding sources are less effective in IPA and network HMOs. Where a staff-model HMO may have 10 to 50 reported occurrences per thousand member-years, an IPA may have fewer than one.

Once the HMO's risk manager identifies a PCE, the main focus will be investigation of quality by the involved group or physician. In the interest of good will, prevention of adverse publicity, and prevention of involvement of regulatory agencies, the HMO may wish to ensure member satisfaction. It may be wise to advise the group to use its internal resources to resolve any financial disputes. HMO managers may even instruct the claims department to expedite payment of bills or to pay for an uncovered benefit. A case manager can undertake more extensive mitigation strategies, such as advocating for the patient in arranging specialty care. The case manager's role is to ensure elimination of hassle for the member. Often this function can be handled by the member relations staff. Unlike in staff-model HMOs, in contracted care models direct interface between members and a mitigation specialist experienced in satisfying members without admitting fault and in negotiating settlements is rarely needed.

Thus, the staffing needs for risk management are much smaller in an IPA- or network-hmo than in a staff model. If the HMO wishes to lend its expertise to participating groups or physicians, however, staffing needs can increase significantly. An HMO can provide expertise in:

* Instituting credentialing procedures.

* Organizing training sessions on

informed consent and avoidance of

excessive patient expectations from

medical care.

* Providing educational programs on

effective communication of adverse

or unexpected outcomes.

* Providing educational programs on

documentation of care and of quality

problems.

* Expediting care for patients who

suffer PCEs.

* Formalizing complaint handling.

* Organizing training sessions on

risk mitigation techniques.

* Deciding whether to settle early on

potentially compensable events.

* Setting up good risk case-finding

programs.

* Quantifying potential risk.

* Analyzing risk trends.

Such efforts will add value for groups to associate with the HMO. By reducing the number of lawsuits, they will also serve to limit the HMO's liability. On the other hand, a court might construe such interventions as the HMO's controlling the work of the providers. Thus, acting to reduce the liability of service partners may reduce the number of filed claims. Alternatively, it may increase the HMO's liability for any given claim by supporting the contention that the provider is an agent of the HMO. Ultimately, senior management must decide which is the greater risk.

Litigation Management

Litigation management is beyond the scope of this paper. Most likely, the HMO will contract out legal defense on filed claims. It is worthwhile to emphasize to retained legal counsel the relationship the HMO has with the patient and with the provider of health care. Some plaintiff's attorneys are not aware of this relationship. They may dismiss the HMO from the case once that relationship is clarified. If the HMO hires its own attorneys to manage risk, good communication between legal professionals, quality/risk personnel, and management is important. Ideally, explicit communication channels and processes should be developed to ensure maintenance of attorney-client privilege and to maximize effectiveness.

There have been few cases in which IPA HMOs have had to pay awards on malpractice cases. Given the current case law, therefore, an ultimate judgment against the HMO is unlikely. Protracted legal arguments can be costly, however. Settlement for a relatively small amount may be a sound business practice. Such settlements may encourage more plaintiff attorneys to include IPA HMOs in lawsuits. For that reason, the HMO should consider the long-term implications of an early settlement policy.

Future Trends

It appears that plaintiff attorneys are increasingly suing HMOs for damages to their members. ERISA protects the HMO from high dollar awards for a subset of membership but not from actual malpractice. Further, ERISA has not protected some HMOs from alleged flaws in the benefit interpretation process.

Case law aside, legislation could address HMO liability. As part of the debate over health care reform, enterprise liability was introduced. If adopted, enterprise liability would hold the insurer or HMO liable for compensable acts of its employed or contracted physicians. HMOs would retain the risk and therefore keep a higher percentage of revenue to finance risk. Physicians would get less revenue but would save on malpractice premiums. HMOs would compete, in part, on their ability to manage risk. They would have a greater incentive to advocate for high-quality health care. As of now, this proposal has little support.

In California, legislation limits awards for pain and suffering. Extending such limitations nationally would reduce liability costs and insurance costs. The final health care reform package may yet include a California-like proposal. A no-fault malpractice system (as adopted in New Zealand) has also been discussed, but without much support. It seems unlikely that health care reform will significantly alter HMO liability.

Summary

IPA HMOs can be held liable for the negligence of participating providers under several legal principles. Risk must be managed in IPA HMOs as in any health care organization. Reduced case-finding and less direct liability result in a much lower volume of work, so fewer resources need to be applied to risk management in IPAs. The same basic principles apply, however, especially as regards senior management. Contracts play a key role in reducing liability. The financial and organizational relationships between the HMO and the IPA or group also affect liability. The managers of an IPA HMO should address each aspect of an overall risk management program. (*) Mulholland, D. "Managing Care and the Risk for Managing Quality." Quality Assurance and Utilization Review 7(1):12-22, Spring 1992.

Jonathan Harding, MD, FACPE, is Medical Director, FHP, Inc., Cerritos, Calif. He is a member of the College's Societies on Managed Health and Hospitals, and its Forums on Bioethics and Quality Health Care.