Law Feature -- April 2002
By Walt Borges
"See you in court!" used to be a phrase that promised trouble for a physician and sent the doctor running to his or her insurer. These days, it's a phrase that insurers are hearing more and more often from physicians and government regulators concerned over the lack of prompt payment of fees.
Texas moved to the forefront of the litigation queue on Feb. 11, when Attorney General (AG) John Cornyn sued PacifiCare of Texas, asking that the health care corporation be forced to pay proper restitution for prompt pay violations, assume financial responsibility for independent practice association (IPA) payments that went astray, and end deceptive trade practices involving payments due to physicians.
Texas Insurance Commissioner José Montemayor said the Texas Department of Insurance (TDI) is prepared for a court fight, but would continue to negotiate with PacifiCare in hopes of reaching a settlement.
Less than a week later, Texas Medical Association's Board of Trustees tentatively approved participating in a series of lawsuits by physicians seeking damages for unpaid fees from several bankrupt IPAs. The suits, which use innovative legal theories alleging criminal acts to reach around the usual roadblock of bankruptcy, seek payment not just from the IPAs but also from third-party administrators (TPAs) and the insurers that used the IPAs. The suits seek as much as $100 million for physicians with outstanding claims. TMA will evaluate the suits against each defendant, and, if it decides to participate, will seek judicial orders to end the misbehavior of IPAs and their contractors.
"Our case is much broader than the attorney general's," said Robert Provan, JD, the Austin attorney who, along with lawyers from Houston, is representing the doctors.
At press time, Mr. Provan said he would file suit in March against PacifiCare and related entities in state district court in North Texas on behalf of more than 200 physicians,mostly specialists who did not depend on capitation payments and had submitted large amounts of unpaid claims to MSM.The other defendants in the suit are affiliated individuals and companies.
Mr. Provan says the state's case against PacifiCare is limited in what can be alleged, what can be sought as penalties, and what can be sought as a remedy for the doctors who weren't paid promptly -- or at all.
"Physicians have no control over the AG's litigation, and he could decide to settle the case without the consent of the doctors," Mr. Provan pointed out. "The attorney general is looking at only one payer, but we are going to look at all the players, and that includes the IPAs and the third-party administrators and medical management companies that they use. We are suing all those who share the culpability and who engaged in misconduct, and we'll go after them whether the owners are in Texas or in other states such as California."
"The Board of Trustees in response to the wishes of the TMA House of Delegates is attempting to seek relief for our physician members through litigation," said Ladon W. Homer, MD, chair of the TMA Board of Trustees. "We consider this a course of last resort, but because there are millions of dollars owed our members and because the egregious actions continue on the part of the managed care organizations, we feel we have no recourse left but to go to the courts."
Attorney General Cornyn said he initiated the suit on behalf of the state and TDI after PacifiCare "arrogantly refused to cooperate" with his investigation of the company and filed a suit in October 2001 that challenged his authority to investigate HMOs.
PacifiCare was negotiating with TDI over restitution for prompt pay violations. It was the last holdout of the 23 insurers TDI targeted for not paying claims on time. The other 22 agreed last year to pay fines and make restitution to doctors and hospitals.
PacifiCare also was negotiating with TDI on a related issue: whether it would reimburse physicians for claims left unpaid when three of its delegated networks declared bankruptcy in 2001.
The attorney general's suit alleges PacifiCare violated the Texas HMO Act, the state Insurance Code, and the Deceptive Trade Practices Act (DTPA) by failing to oversee its delegated networks, including the three bankrupt IPAs, and denying its financial responsibility for claims the IPAs failed to process. Lawyers for the state charge that PacifiCare had acknowledged its responsibility for its IPAs as a condition for being released from five months of administrative oversight in April 2001.
The attorney general also charges DTPA violations, based partly on PacifiCare's claims in press releases, marketing campaigns, and advertisements that its regulatory problems in Texas had been resolved.
Besides seeking a judicial order to force PacifiCare to end its misconduct, the AG asks for damages for the physicians affected by the company's prompt pay violations and the IPA bankruptcies. The lawsuit suggests PacifiCare should pay full-billed charges or penalties set by contract to physicians who filed clean claims. The company also should pay the state $1,000 per claim for each day the claim was delayed, the state lawyers argue.
Officials of PacifiCare of Texas and of the California-based parent, PacifiCare Health Systems (PHS), did not return telephone calls about the case. But PHS President and Chief Executive Officer Howard Phanstiel told the Fort Worth Star-Telegram he was "shocked" by the AG's lawsuit because PacifiCare was close to a settlement with TDI.
But PacifiCare and TDI may not have been that close to settlement, and PacifiCare may not have been that shocked by the attorney general's action. In addition to the October 2001 suit that angered the attorney general, PacifiCare sued TDI in November 2001. That lawsuit, filed in a Travis County district court, attempts to block TDI's efforts to hold PacifiCare responsible for the unpaid claims of its bankrupt IPAs. The insurer argues that because it already had paid capitation to the IPA, it cannot be asked to pay a second time for the IPAs' failures to pay claims.
TDI did not learn of the suit until late January, TDI spokesperson Jim Davis says. The suit was ignored until it was served on TDI on Feb. 13, he says.
TDI and the attorney general argue in pleadings that state law does not allow insurers to slough off financial responsibility for IPAs, as insurers are required to ensure that the IPAs they use comply with state laws and rules. PacifiCare explicitly acknowledged its responsibility in written pledges it made to regulators before it was released from five months of TDI supervision in 2001.
Mr. Phanstiel also attacked the "extremely onerous" regulatory environment of Texas and blamed TMA for creating a political agenda "that is focused more on payment than it is on quality of health care."
TMA President Tom B. Hancher, MD, in a statement lauding the AG's suit, said, "When physicians and other health care providers don't get paid in a timely manner, they cannot keep operating. We already have doctors dipping into personal savings to keep their doors open."
TMA surveys show that more than 60 percent of Texas medical practices are financially stressed and that 20 percent of the state's doctors tap personal resources to help those practices.
A Second Front
Some 225 Texas physicians are represented in the lawsuit filed by Mr. Provan, the first of three that he anticipates. Fort Worth-based MSM, its contractors, and insurers PacifiCare and Aetna are targets in the first suit. Mr. Provan says he anticipates similar suits being filed against networks, claims processors, and insurers for two other bankruptcies involving Quantum Southwest Medical Associates, an IPA owned by two Texas physicians, and Heritage Southwest Medical Group, owned by Richard Merken, MD, of California. (See "Delegated Networks," July 2001 TexasMedicine , pages 46-49, and "Medical Bankruptcies," October 2001 Texas Medicine .) Those cases could involve another 375 doctors.
The physicians will be represented by Mr. Provan and attorneys from the Houston firm of George Fleming, JD, who specializes in complex litigation.
"His expertise is not in class actions, but in mass actions," Mr. Provan said, explaining that Mr. Fleming specializes in handling numerous clients with individually distinct injuries. Most recent high-profile suits involving doctors are class actions, a legal format where a few plaintiffs represent a larger group that shares any damages awarded through settlements or after trial.
TMA General Counsel Donald P. Wilcox, JD, estimated in a presentation to TMA's Board of Trustees that between $30 million and $40 million was owed physicians when MSM filed for bankruptcy in July 2001. Mr. Wilcox asked that TMA support the physicians who sued. Should TMA enter any case as a plaintiff, the executive committee of the TMA Board of Trustees would have to give prior approval, the board decided.
Mr. Wilcox said TMA's role in the suits against the IPAs would be to win judgments that prevent continued misconduct by the delegated networks, claims processors, and insurers. The association would not seek damages, but might ask the judge to make the defendants pay its legal fees and litigation costs.
Boiled down to its essence, the first lawsuit alleges fraud by insurers PacifiCare and Aetna and the IPA MSM in creating a system of contractors that consumed money that was supposed to go to doctors. As Mr. Provan describes it, insurers paid capitation to the IPAs, which gambled that the capitation would cover both the payments due physicians and the claims-processing costs, and still generate a profit. The IPAs contracted with other companies to do claims processing and paid them first, leaving too little to pay physicians' claims, Mr. Provan alleges.
Physicians in anesthesiology, orthopedics, and other specialties that file claims for expensive single-shot services rather than operating on capitation contracts took the biggest hit and are owed the most by the bankrupt entities, Mr. Provan says. But bankruptcy often results in creditors -- in this case, the doctors -- being paid a few cents on the dollar.
Mr. Provan says he believes that much of the money due physicians was siphoned off to the claims-processing companies, leaving the IPA with few assets. He also believes the insurers were aware that their capitated payments to the IPAs were insufficient to cover costs of treatments being billed. That, he alleges, is theft of service.
Mr. Provan developed his case on fraud allegations and on the Texas Theft Liability Act. The act allows victims of theft to sue to recover the fair market value of their losses, plus $1,000 for each incidence of theft. Attorneys' fees and litigation costs also can be recovered.
The doctors will seek to recover every cent they are owed and the $1,000 per claim, Mr. Provan vows. "This is not about a promise broken, it is about a promise betrayed," he said.
Many physicians believe TDI may be more concerned with preserving the financial health of insurers than in making sure doctors are paid promptly. Mr. Provan says his clients are standing up for their interests in seeking to recover fees that were never paid.
"Our concern is not whether PacifiCare is endangered," said Mr. Provan. "We are going to recover the money that never reached the physicians' offices."
April 2002 Texas Medicine Contents
Texas Medicine Main Page