Breach of Fiduciary Duty—New Legal Approach for Plaintiffs

SANTA MONICA, Calif—The managed care system of delivering medical benefits has not only altered the way physicians provide care but also drastically changed the landscape in health care law, said Mark O. Hiepler, Esq, a plaintiff attorney and partner in the firm of Hiepler & Hiepler, Oxnard, California.

Plaintiff attorneys are asking whether the large profits being made by managed care organizations are coming at the expense of patient care, he said at a seminar sponsored by the Defense Research Institute, Inc., Chicago.

Mr. Hiepler’s firm is developing the theory of breach of fiduciary duty as a legal cause of action against physicians and managed care organizations. The doctor-patient relationship epitomizes a fiduciary relationship, he said, because patients must rely on their doctor’s fidelity and integrity to put their medical needs ahead of the doctor’s financial interests.

Shift From Denying Payment to Denying Treatment

The most significant shift in the health care litigation environment stems from the change from retrospective to prospective claim review, Mark Hiepler said.

With retrospective review, the doctor and the patient made a treatment decision, the patient got the treatment, and if there was a lawsuit, it was usually over who would cover the treatment costs.

These cases were, in essence, business litigation cases over paying for the referral to a specialist or university hospital, or for a high-tech procedure. Mr. Hiepler noted that usually the insurer would end up paying for the treatment.

Now, with prospective review, “gatekeeper” physicians and utilization review coordinators may keep a patient from receiving more specialized care and treatments. “You now have two components to damages: the cost of the care, and the human costs due to delay or denial of treatment,” he said.

Typically, medical malpractice cases only examine whether the physician provided medical treatment that was within the standard of care for the local community. The physician’s motivation in deciding on a particular course of treatment is considered irrelevant. However, in a breach of fiduciary duty case, the physician’s motivation, especially with regard to financial concerns, takes center stage.

“In every one of these fiduciary duty trials, we’re going to cite the Hippocratic oath: You’re to do no harm, and you’re to put the patient’s interest first and foremost,” Mr. Hiepler said.

The physician/managed care organization contract is an important driving force in such trials, he said. Even though defense attorneys have used many legal maneuvers to prevent him from obtaining contracts, he said that he had succeeded in having the contract admitted into evidence in all cases where he felt it was necessary.

“We’ve had it admitted in cases tried in six counties throughout California,” he said. Once a plaintiff attorney has the applicable contract, it is often not difficult to find clauses that, when presented to the jury, tend to cast an unfavorable light on the defendant physician.

“You look at how the compensation is fixed. Are there incentives not to treat, not to refer, not to hospitalize, or not to continue to hospitalize, not to prescribe, not to diagnose?” he asked.

How it Looks to the Jury

Mr. Hiepler pointed out that when such financial incentives in a contract are brought before a jury, the effect on them is pronounced. “It looks as if the doctor is in a conspiracy with the plan to keep these incentives as their dirty little secret. Physicians know how it works. These incentives make the difference in whether their practice survives or goes under,” he said.

Breach of fiduciary duty can be argued when “you can expose the contract and the pattern of conduct that shows an incentive not to treat,” Mr. Hiepler said. He noted that in a medical malpractice case, the plaintiff attorney must prove malpractice and show causation of significant damages. But, theoretically, that would not be necessary with breach of fiduciary duty as a cause of action.

Mr. Hiepler has also noticed a change in jurors’ perceptions of the doctor-patient relationship. Even though he has tried such cases in the most conservative courthouses in California, he has found that when the financial incentives in a physician’s contract with a managed care organization are exposed, jurors are alarmed to see how the compensation system is set up.

Especially in denial of medical treatment cases, the jury expects that doctors should act as a patient advocate with the managed care plan, fighting to get the necessary medical treatment. “Yet we’re getting into the category where the doctor is seen as an adversary of the patient,” he said.

An Unlikely Alliance

In what he deemed an unlikely alliance, Mr. Hiepler noted that some physicians are interested in joining with plaintiff attorneys to try to change the managed care system. When he speaks at medical conventions, he said, physicians often approach him to ask if they can help with the lawsuits he brings against managed care organizations, and many of these physicians are considered top experts in their fields.

“They want to be part of the reform process,” he said. “We ask them to look at potential cases long before we ever file a complaint.” He explained that his firm receives about 125 to 150 telephone calls a month regarding potential cases against managed care organizations, and since the litigation process is long and costly, cases need to be analyzed for their appropriateness and probability of success.

Pitfalls of Capitation

Mr. Hiepler expressed concerns about the pressures of capitation on physicians. “Doctors have had to become insurance companies. They have to assume the risk, hoping that the patient population is actuarially sound, usually with little evidence. We’re seeing contracts with primary care physicians at $5 or less per patient per month,” he said.

Some physicians sign these contracts without realistically evaluating the terms because they’re afraid of losing the managed care organization’s patients. Many, however, may want an incentive contract that gives them the discretion to treat or to deny, he said. But he warned the audience that such contracts can come back to haunt physicians, especially when they are involved in a jury trial.

He said that in a trial the plaintiff attorneys will scrutinize any financial incentives in the contract, such as risk pools. For example, a small percentage of each payment premium may be accumulated into a pool used to pay for referrals to specialists outside the medical group. At the end of the year, if any funds are left, they are split between the managed care company and the physician. “This can be seen by juries as an incentive not to refer,” he said.

Also problematic for physicians, he said, are overutilization and termination clauses. Such a clause might read: “Overutilization of the system by physicians shall be grounds for termination of the contract. Overutilization determinations are at the sole discretion of the managed care organization.”

He warns that these clauses are setting physicians up for a failure to refer. “This type of clause has the tragic potential to hang a doctor, even one who may not have intended to do anything unethical,” Mr. Hiepler said. He noted that such agreements seem to go against our basic American principles, since “you get paid for doing nothing, and you lose money when you do more.”