Should doctors earn more for cost-cutting?

Should physicians who treat patients in a health maintenance organization owned by those same doctors receive a financial bonus from the HMO as a reward for keeping treatment costs as low as possible?

To some, the arrangement smacks of conflict of interest. Others see it as a practical means to control the exploding cost of healthcare in America.

Today, the Supreme Court will consider the question and decide whether such cost containment measures violate federal law.

The case is significant because its outcome will impact more than a dozen pending class-action lawsuits filed against managed-care providers. At the least, it will help clarify for the industry which cost-efficiency measures violate legal and ethical standards.

"It could unravel the employer-based healthcare system as we know it," says Louis Saccoccio of the American Association of Health Plans in Washington.

Both health-industry officials and reform advocates are closely watching the case.

"This is a developing area of law and a subject of great concern to millions of people," says Wendy Parmet, a law professor at Northeastern University in Boston who filed a friend-of-the-court brief on behalf of a coalition of health-care reform and advocacy groups. "The case may tell us the extent to which health plans may be accountable for the effects of their financial incentives."

At issue is a decision by the Seventh US Circuit Court of Appeals in Chicago that such cost-trimming incentives can violate a federally mandated "fiduciary trust" between participants and the health-care provider when doctors delay or withhold treatment to increase their bonuses.

The decision involves the case of an Illinois woman, Cynthia Herdrich, who sought treatment from her HMO for a painful stomach condition. Rather than scheduling her immediately for a diagnostic procedure, the HMO forced her to wait eight days so that the procedure could be performed more cheaply at one of its own facilities.

During the delay, Ms. Herdrich's condition became extremely serious, requiring emergency surgery. She sued the HMO for medical negligence, and a jury awarded $35,000 in compensatory damages. Her suit also claimed the HMO breached its fiduciary duty under the Employee Retirement Income Security Act (ERISA), which governs company-provided health plans like Herdrich's.

Specifically, she alleged that doctors in her plan received a year-end distribution paid out of money saved by minimizing the use of diagnostic tests performed at outside facilities. It amounted to an undisclosed physician incentive to withhold treatment, her lawyers argued.

That part of the suit was thrown out by a federal judge. But a divided panel of the Seventh Circuit reinstated it.

Lawyers for the HMO say the appeals court misinterpreted federal law. "ERISA expressly permits the same person or entity to act as a fiduciary in one context and in service of self-interest in another," says the legal brief for the HMO, Health Alliance.

Mr. Saccoccio of the Health Plans Association says that money-saving efforts are not enacted by HMOs without other safeguards. In addition, he says, at least 30 states have adopted some form of independent review panel or mechanism for dissatisfied patients to seek resolution. "There are a lot of balancing factors that go into it," Saccoccio says.

Ms. Parmet says the case offers the high court an opportunity to more clearly define the extent that HMOs are governed by federal and state regulations, and how those regulations relate to the structure and operations of HMOs.

"The question here is whether the managed-care organization violated its trust by setting up the scheme in which the principals of the managed-care organization simultaneously benefited in their capacity as doctors to undertreat their patients," Parmet says. "This isn't about the liability of individual physicians, this is really about the structure of the managed-care organizations."

(c) Copyright 2000. The Christian Science Publishing Society