Managed Care, Insurance Companies, and Bad Faith Claims

Modified on 2009/10/14 21:33 by admin
Participation in managed care organizations (such as the HMO or PPO) is becoming increasingly more widespread. In fact, the tried and true fee-for-services model is rapidly fading away in favor of prepaid medical service plans provided by managed care organizations. These managed care organizations attempt to take advantage of economies of scale by consolidating two traditionally disparate segments of the health care industry, the physician groups and the insurance companies. While cutting costs may be good for managed care companies, it is not always in the best interest of the managed care participant / patient.

The managed care company typically requires its member patients to see a "primary provider" or "primary care physician" for any and all medical treatment. The primary provider is usually a general practitioner whom the patient selects from a list of approved general practitioners. If the patient suffers from a condition that might best be handled by a specialist rather than a general practitioner, the patient must nevertheless see the primary provider first and seek his permission to see the specialist. In other words, the primary provider is the "gate keeper" through which the patient must go in order to see the specialist.

While at first glance this system seems to be an efficient one, there are often conflicts of interest between the primary provider and the member patient that may compromise treatment. For instance, many managed care organizations place cash in a reserve fund to cover the cost of any referrals the primary provider approves. The primary provider is then permitted to keep a portion of the amount remaining in the pool at the end of the year. Therefore, the fewer referrals the primary provider approves, the less money is taken from the referral reserve fund and the more money the primary provider puts in his pocket. This system provides a powerful incentive for the primary provider to refuse borderline and even necessary referrals of his patients to specialists.

Increasingly, managed care organizations are being held legally liable for the negative medical outcomes that result from such conflicts of interest. Additionally, these organizations may be legally responsible for the negligent acts of their primary providers. Like doctors employed by hospitals, doctors employed by managed care organizations are the legal responsibility of the organizations. That is, the legal doctrine of respondeat superior may apply. This doctrine says that the employer, i.e. the managed care organization, is legally responsible for the negligent acts of its employee, i.e. the doctor. So, if a doctor is an employee of a managed care organization and that doctor is negligent in his treatment of your condition, you may be successful in a lawsuit against the managed care organization.

In a June 2002 judgment aimed at protecting the estimated 70 million Americans who are insured by health maintenance organizations, the Supreme Court ruled that patients denied coverage by their managed care provider can seek second opinions and enlist independent review boards to assess HMO decisions.

A 2003 study conducted by the National Council on Quality Assurance found that thousands of Americans die every year due to errors with the nation's health care system. According to the annual State of Health Care Quality report, the lack of effective, "best practice" care leads to more than 57,000 avoidable deaths each year.

Insurance bad faith claims are also becoming increasingly popular. Bad faith occurs when an insurance company unfairly rejects a legitimate claim filed by an insured consumer. UnumProvident Corporation, the nation's largest group disability insurer, recently made headlines after being accused of fraudulent claims-handling practices. According to former employee and company physician interviews, UnumProvident, which reportedly issues one out of four disability policies in the United States, acted in bad faith by intentionally withholding benefit information, destroying critical medical reports and using biased doctors to deny claims in an effort to increase profits.

On June 21, 2004, managed care companies won a major battle in the war over malpractice claims when the Supreme Court ruled that patients may not seek damage awards in state courts if their HMOs refuse to cover medical care. According to the High Court, the 1974 Employee Retirement Income Security Act (ERISA) trumps state patient laws.

Under ERISA, the harmed patient must sue in Federal court and can seek no more than the cost of the service that the HMO denied. Insurance companies argued that juries in state courts were more likely to side with victims and order massive damage awards that would increase the cost of health care nationwide. The ruling affects the 72 million Americans currently covered by HMOs.

See Also

  1. Hurricane Damage & Denial of Coverage - Citizens Property Insurance Corporation
  2. Jefferson-Pilot Life Insurance Company
  3. Medical Malpractice & Negligent Care
  4. Triple S Management Corporation (SSS)
  5. UnumProvident Corporation
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