Calif. Supreme Court to Rule on Termination Without Cause

October 1, 1997
Volume 14, Issue 10

What started out as a solitary quest for justice by a veteran Orange County, Calif., obstetrician who was terminated without cause from two HMO networks operated by Metropolitan Life Insurance, has now blossomed into a major policy debate that has physician groups lining up to plead their global causes to the Supreme Court. And though Louis Edgar Potvin, M.D., a former president of the Orange County Medical Association, never expected to become the standard bearer for the medical profession, the case has grown beyond a mere effort by one physician to restore his practice and life savings; it has become symbolic of the increasingly heated debate that has enveloped the delivery of health care.

For a moment in June, the tide seemed to turn in favor of physicians in their efforts to infuse some fairness into the managed care deselection process. A California Court of Appeals had ruled that health maintenance organizations must provide a fair hearing to doctors before terminating them under the "without cause" provisions contained in most contracts (PT August).

Recognizing that the decision would significantly affect the delivery of health care and the economics of medical practice, however, the California Supreme Court in July agreed to hear the case of Louis E. Potvin, M.D., v. Metropolitan Life Insurance Company. The groundbreaking lower court ruling left the managed care industry apprehensive for a moment that a flood of hearings and litigation would hinder their ability to alter staffing levels based on the bottom line. Under California law, once the Supreme Court grants review, the lower court ruling loses any legal effect.

Physician Against Physician

With the high court ready to decide the issue, the battle over due process rights in connection with terminations is no longer just a controversy that divides physicians and managed care proponents, for it has now also become an internecine struggle that pits physicians against physicians. Based on documents obtained by Psychiatric Times, groups of physicians have taken opposite sides in the contest, based on the nature of the interests they have at stake in the growing managed care environment.

What started out as a solitary quest for justice by a veteran Orange County, Calif., obstetrician who was terminated without cause from two HMO networks operated by Metropolitan Life Insurance, has now blossomed into a major policy debate that has physician groups lining up to plead their global causes to the Supreme Court. And though Louis Edgar Potvin, M.D., a former president of the Orange County Medical Association, never expected to become the standard bearer for the medical profession, the case has grown beyond a mere effort by one physician to restore his practice and life savings; it has become symbolic of the increasingly heated debate that has enveloped the delivery of health care.

In an ironic twist, ultimately it will be the physician groups lining up to file their amicus curiae briefs with the Supreme Court who will be the only ones with anything to gain. Suffering from pancreatic cancer, Potvin died as this issue of Psychiatric Times went to press. In the memorial service, colleagues described him as a man "who ennobled our profession and ennobled us by association," "who was of the old school, and cared deeply about his patients," "who worked for justice in HMOs, but did not condemn the people in them." Potvin's legacy, then, will be the case that forever bears his name.

Other Rulings

This is not the first time a court has ruled on the "without cause" termination issue, but legal commentators acknowledge that the review by a bellwether court like California's Supreme Court could have greater influence on other jurisdictions. Last year, the New Hampshire Supreme Court in Paul J. Harper, M.D., v. Healthsource New Hampshire, Inc., 674 A.2d 962 (1996), decided that a physician could not be terminated without complying "with the covenant of good faith and fair dealing" and that the firing could not be for a "reason that is contrary to public policy." Ruling that the public has a substantial interest in the relationship between health maintenance organizations and their preferred providers, the court said that a physician is entitled to a review of a deselection decision whether made with or without cause.

Legislation passed in Oregon, Texas, Maine, Rhode Island, Indiana and New York during the past two years, furthermore, has essentially eliminated terminations without cause by requiring managed care organizations to at least provide reasons for deselection, with some even requiring due process and fair hearing. Even a California statute now requires that a plan "disclose the reasons for the termination of a contract with a provider to the provider only when the termination occurs during the contract year." (The statute was not in effect, however, when Potvin filed his lawsuit.)

But in an amicus curiae letter sent to the California Supreme Court justices on June 30, the American Medical Group Association, the IPA Association of America and the National IPA Coalition urged the court to accept review and to reverse the Potvin case. Combined, the organizations claim to represent approximately 50,000 physicians who care for millions of patients nationwide. They argued that a mandatory fair hearing requirement would confound their ability to do business.

Charging that the court of appeals in Potvin created "new and burdensome procedural requirements that substantially damage the interests of physicians and physician organizations," the associations also claimed, through their attorneys, that "the decision constitutes unsound public policy that serves to severely hinder the ability of physician organizations to effectively provide health care services to enrollees of health plans."

"In order for a physician organization to provide efficient, cost-effective care to health plan enrollees, the organization must have the flexibility to expand or contract its provider panel to meet the needs of the patient population it serves," the letter said. "By hindering the ability of physicians and physician organizations to freely contract with one another, Potvin does irreparable harm to the ability of physician organizations to succeed under managed care." Meanwhile, the 30,000-member California Medical Association and the 290,000-member American Medical Association had already weighed in with an amicus curiae brief filed in the court of appeals.

Arguing that terminations have a significant impact on the physician-patient relationship and the physician's ability to practice medicine, the organizations said that "basic fairness must be assured before decisions are made that adversely affect their participation status in managed care organizations.""Without this fairness," the organizations added, "both physicians and their patients suffer."

According to Carol O'Brien, senior counsel with the AMA, the termination-without-cause provision is coming under increasing attack nationwide and its days are justifiably numbered. She said that the provision has been used by the managed care industry and some provider groups as the "ultimate gag clause," eliminating physicians who are perceived as too aggressive in their advocacy for patients.

"Potvin will have a very strong impact nationwide, even though it will only have legal precedent in California," O'Brien said. "If the plans are becoming more and more profit-oriented, and we've already seen the abuses that have arisen from this...the only vanguard for patient interests will be the physician and other health care professionals. If the duty to advocate on behalf of patients is eroded because physicians are afraid of termination, then doctors will pick their battles too carefully."

She added that "without a hearing the doctors have no way to explain why they are economic outliers, or why there may be other issues that need to be considered."

Jeremy Lazarus, M.D., the speaker of the American Psychiatric Association's assembly and a private practice physician in Englewood, Colo., agreed that the importance of continuity of care in mental health meant that without-cause termination of psychiatrists could be particularly treacherous to patients' interests. The APA has begun a mediation program in which six managed care companies have agreed to participate in voluntary efforts to discuss grievances with member psychiatrists.

Nevertheless, "the APA has been advocating for the elimination of termination-without-cause provisions for several years," Lazarus said.