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health plan must disclose nonmedical information that might influence the
physician’s decisions about the patient’s care. The traditional view is that the
physician’s conduct is judged only on the basis of whether it meets acceptable
standards of medical practice. The courts generally have not allowed the plaintiff to
inquire into whether the physician’s decisions are motivated by financial
considerations.
a) Preemption of Claims
In the Lancaster case, [Lancaster by Lancaster v. Kaiser Found. Health Plan, 958
F. Supp. 1137 (E.D. Va. 1997).] the court reviewed the legality of hidden MCO
provisions in a Kaiser health plan that provided financial incentives for physicians
to deny patients care. In 1991, an 11- year-old child was taken to a physician
complaining of nausea and severe, daily headaches on the right side of her head.
She was examined, but no diagnostic tests were performed. The physician
prescribed adult-strength narcotic painkillers. Her condition did not resolve and she
continued to see the physician through 1995. During this time, the prescriptions
were continued but the primary care physician never consulted with a neurologist.
In 1996, the school psychologist, alarmed at the child’s “intense, localized
headaches, vomiting, and blood-shot eyes,” persuaded the parents to demand that
the child receive a proper neurologic workup and diagnostic testing. The child was
found to have a tumor that had displaced 40% of her brain. After extensive
surgeries, she still had substantial impairment and the prospect of more surgery in
the future.
It appeared, under the facts of this case, that this systematic malpractice might have
been financially motivated because there was evidence that throughout the nearly
five-year period defendant physicians treated Lancaster, Kaiser and the Permanente
Medical Group had in place a financial incentive program that paid physicians
bonuses for avoiding treatments and tests.
The first counts of the plaintiff’s complaint are simple malpractice allegations
against the patient’s treating physicians and a vicarious liability claim against the
plan. As the court ruled, the malpractice claims against the treating physicians pose
no ERISA questions because ERISA does not apply to medical care decisions
made by the treating physicians, even if they are employees of the MCO. More
interestingly, the court also found that ERISA did not preempt the vicarious
liability claim against the plan. The plaintiff also asserted a claim against the plan
“for negligently establishing the Incentive Program and for intentionally and
knowingly concealing its existence from plaintiffs.” This goes to the heart of the
gag rule controversy: may a plan and its physicians agree to contractual terms that
impact the patient’s care, and then agree to hide these from the patient?
The court characterized this claim as attacking an administrative decision of the
plan, not a medical decision by a plan physician. Because the court maintained that
this was a case of first impression, it sought precedent in related cases involving
utilization review decisions under ERISA. These cases involve claims that the
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