Court Mandates Due Process Before HMO Termination

August 1, 1997

As a result of the decision in Potvin v. Metropolitan Life Insurance Company, physicians will have due process rights to a notice and a hearing before being terminated from health plan panels. As a result, termination without cause provisions in provider contracts will no longer be enforceable, something doctors nationwide have wanted for a long time.

"More and more doctors are prescribing themselves a new treatment for the headache of managed care," announced a June 18, 1997 front-page Wall Street Journal article: "[S]elling Amway products on the side and recruiting colleagues, friends and patients to join as well." According to the story, Lewis Brodsky, a 54-year-old Florida psychiatrist who spends 20 hours a week on his Amway business, would rather travel to an uplifting Amway meeting than go to a medical convention where it's all "gloom and doom."

But after a groundbreaking California court of appeals ruling in June, physicians may again find greater job security in the medical profession. A unanimous decision by a three-judge panel in the state's second appellate district in Los Angeles found that Metropolitan Life Insurance Co. violated the law when it terminated obstetrician Louis Potvin from its panel of physicians in 1991. Unless the California Supreme Court agrees to consider the case, the stage is now set for what Potvin's attorney claims will be a multimillion dollar damage case against Met Life, which is alleged to have destroyed Potvin's practice by terminating him without cause.

As a result of the decision in Potvin v. Metropolitan Life Insurance Company, 97 Daily Journal D.A.R. 5552; Sup. Ct. No. BC108588 (1997), physicians will have due process rights to a notice and a hearing before being terminated from health plan panels. As a result, termination without cause provisions in provider contracts will no longer be enforceable, something doctors nationwide have wanted for a long time.

"...[W]e hold plaintiff [Potvin] did have a common law right to fair procedure before defendant could terminate his membership in its health care provider networks," the court said. "There is a triable issue of fact as to whether plaintiff received fair procedures before defendant decided to terminate the Agreement and his participation in its health care provider networks."

According to Potvin, he signed on to Met Life's health care plans in 1990 at a time when it was eager to expand its panel of physicians. But when it decided to consolidate its network in 1992, the HMO gave him a 30-day written notice of termination without any explanation. Later, however, Potvin learned that the decision was based on a "malpractice history"-his insurance company settled a 10-year-old malpractice case in 1987-information, Potvin claims, the insurance company had when it agreed to place him on the panel.

Following his termination, Potvin lost a large percentage of his practice, and was unable to recover because of lost referrals and his inability to get on other panels. Now retired, he survives on his Social Security income-all of his savings and retirement accounts dissipated by legal fees, the loss of his medical practice, and living expenses. Was it worth it?

"I spent enough time building a reputation that I deserved to be treated better than some yo-yo jerk who has no rights at all," Potvin told Psychiatric Times in a telephone interview from his home in Orange County, Calif. Over the span of a 40-year medical career, Potvin served a two-decade stint in the Navy, served as the president of a local medical association, was on various boards, and was both a chief of staff and chief of obstetrics at a local hospital. "Personally, [what Met Life did] was like someone coming up and slapping you in the face. They challenged me...It's either worth fighting for or it's not worth fighting for."

Henry E. Fenton, the Los Angeles-based lawyer who represents Potvin, views the case as a milestone for physicians in their battles with managed care. Similar to cases involving hospital staff privileges, Fenton said that the court's decision extended due process rights to physicians whether they are terminated from plans or excluded at the outset.

"[The case] follows a long line of California authorities which say that when you interfere with a fundamental right of a physician or health care professional to practice that you have to first give a fair procedure," Fenton said.

In its ruling, the court focused on whether a private association or organization is required to provide fair procedures before excluding or expelling members when its actions can cause a substantial affect on an important economic interest. "[P]rocedural fairness in the form of adequate notice of charges brought against the individual and an opportunity to respond to those charges is an indispensable prerequisite for one's expulsion from membership..."the court said.Fenton said that requiring due process is not only important for physicians, but for their patients as well. "This case is critical to the medical profession, but it's also critical to the general public," Fenton said. "It's going to prevent the disruption of the physician/patient relationship that often accompanies arbitrary terminations. It's going to provide the sort of protection that concerns everyone and [keep] insurance companies [from] accomplishing their goal of saving money, but perhaps endangering patients. Doctors will be more willing to do what they need to do medically, because they'll feel that they have some legal protections if they do so."

Attorneys for Metropolitan Life declined to comment on the case, but Michael Dowell, a Los-Angeles-based health care attorney who represents HMOs and providers, says that Potvin is causing a great deal of concern in the managed care industry. Some of the concern is related to the costs of building an infrastructure that can handle due process hearing. He estimates that each effort to terminate a physicians could have a price tag as high as $25,000.

In addition there are still a number of unanswered questions. "The court didn't say how much due process is due," Dowell said. "It's still not clear how far the HMOs have to go in giving due process. Is it just giving a reason? Or is it giving a hearing? Are business reasons alone enough to terminate the right, or is just saying that we would like to pare our network down too vague?"

Maureen O'Haren, executive vice president for legislative affairs for the California Association of Health Plans, a trade group with 38 plan members, said that if Potvin is not overturned, physicians would have what amounts to contracts "in perpetuity," since HMOs won't be able to nonrenew physicians unless they "have just cause." She said that the no-cause termination provision in contracts is a way of removing physicians from a panel without incurring the time and cost drains of adversarial procedures.

But Catherine Hanson, general counsel and vice president of the California Medical Association, called the decision "fabulous."

"Termination without cause is very, very problematic for physicians in a managed care environment," Hanson said. "There is just no way for doctors to have any certainty as to their ongoing ability to see their patients if they can be terminated without cause at any time by health plans that may control as much as 20% or even 30% of their patient base." She predicted that the trend started by Potvin could spread throughout the country, particularly in those states that already impose due process requirements in connection with hospital staffing matters.