Critical Issues for Administrators

The Evolution of Physician Credentialing into Managed Care Selective Contracting

John D. Blumt

I. INTRODUCTION

In a field littered with analogies, health care in the mid-nineties is best characterized as an enterprise caught in the violent cross winds of a tropical storm known as managed care. Like a series of hurricanes, managed care has reshaped the landscape of health care delivery in drastic and unpredictable ways. While the forces of managed care have increasingly al- tered more health care markets, others are only beginning to feel the winds of change. As managed care overtakes fee-for-service (FFS) medicine, profound alterations in health de- livery are occurring which affect every aspect of American health care.'

Particularly noteworthy is the use of capitation as a primary method of reimbursement. The ramifications of capitated health care are broad and warrant exploration from several vantage points. One basic concern in capitated health plans and managed care is the effect of new payment incentives on physician evaluation for purposes of credentialing. This Ar- ticle focuses on managed care credentialing—the process of appointing, reappointing, and delineating clinical privileges—from a legal perspective. While the Article centers on the link between capitation and credentialing, it has broader applicability in that the same phy- sician evaluation mechanisms in capitated settings are found in discounted FFS arrange- ments as well. The piece provides a brief overview of capitation and credentialing, and a discussion of trends that have altered hospital medical staff credentialing processes. Later sections analyze the regulation of managed care credentialing, organizational liability for inappropriate credentialing, including a consideration of the impacts of the Employee Re- tirement Income Security Act (ERISA), and physician rights in the new environment of capitated plan credentialing.

IL BACKGROUND

A. CAPITATION

Capitation is more than a buzzword, it is a cornerstone of the health care industry oc- topus of the nineties, for its presence cannot be easily ignored and its expanse is broad. Simply put, capitation is a system of reimbursement based on a flat payment, generally cal-

t Professor of Law and Associate Dean for Health Law Programs, Loyola University Chicago School of Law.

' Jerry F, Pogue, Capitation Strategies, INTEGRATED HEALTHCARE REP, (Integrated Healthcare Rep,, Lake Arrowhead, CA), Dec, 1994, at I.

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culated on a monthly basis.2 It has been argued that capitation best lends itself to integrated health systems, with a broad base to distribute risk and a high patient volume; nonetheless capitation is being applied to providers at all levels ofthe health care delivery system. As yet, capitation has not surpassed FFS reimbursement, but it is likely to become the domi- nant form of payment. Public and private payers alike see capitation as the primary vehicle to control costs by setting limits on payment, and shifting the financial risk to the health providers.3

Like any complex development, capitation can be viewed in various ways. A thor- ough analysis is difficult because capitation is a payment system whose use on a large scale is relatively new and like managed care, is a work in progress. It is unlikely that capitation will ever totally replace FFS medicine, and it seems reasonable to expect that different capitation payment schemes will evolve from those currently in use.4 In some health care markets, practitioners and institutions are heavily capitated, but nationally capitation is not yet the dominant form of reimbursement. Even though most providers are not totally capi- tated, as clinicians and institutions obtain a larger percentage of payments through capitated health plans, significant changes in medical practice will occur.

A logical and primary vantage point from which to assess capitation is a financial one. When exploring capitation as a payment system one quickly realizes that it is more than a process of providing a set payment per patient on a monthly basis. Establishing payment rates and negotiating capitated agreements involve detailed and complex financial assess- ments.^ Appreciation of how capitated rates are set by payers requires a thorough under- standing of health care costs and patient utilization patterns at a specific provider and mar- ket level.6 In negotiating capitated contracts providers need to know their average fees, utilization rates, and income on a per capita basis, factors which physicians, until recently, have not routinely collected.''' There is a growing body of literature and an expanding num- ber of consultants dealing with the fmancial nuances of capitation at all stages ofthe reim- bursement process. Both payer and practitioner strategies will vary with the maturation of capitated systems.

On the acute care level, capitation works in some respects like prospective payment in that hospitals know in advance what set amount they will receive per capitated life. Unlike prospective payment, the hospital must view capitation collectively to determine if its total capitated payments can support inpatient operations. A clear impact of capitated payment schemes is that hospitals experience dramatic decreases in inpatient lengths of stay.^ In situations where institutions are fully capitated, their interests extend beyond the acute care setting, and it becomes a hospital's responsibility to place patients in the most appropriate, cost-effective treatment settings, even if that means placement outside the acute care facil- ity.^ In theory, the fully capitated hospital can act as a vehicle to ensure patients a contin-

2 Lauren M, Walker, Turn Capitation into a Moneymaker, MED, ECON,, Mar. 13, 1995, at 58, 58 (providing a general overview on the details of capitation from a physician perspective),

3 Stephanie B, Byrne, Getting Real About Capitation, HOSP. & HEALTH NETWORKS, Sept. 5, 1995, at 66, 66; see also Mark E, Toso & Anne Farmer, Using Cost Accounting Data to Develop Capitation Rates, TOPICS HEALTH CARE FINANCING, Fall 1994, at 1, 2,

'^ Toso & Farmer, supra note 3, at I. Capitation has already fallen out of favor in some markets and is being replaced by risk/reward models built on FFS payment. See Twin Cities Market Seen Moving Away

from Capitation of Health Providers, 1 Managed Care Rep, (BNA) No. 21, at 509 (Dec. 6, 1995). 5 See Toso & Farmer, supra note 3, at 6, 9 (calculating capitation rates and discussing the negotiation

of capitation contracts), (>Id. '^ Id. 8 Leigh Page, Trailblazing, AM. MED, NEWS, Aug. 8, 1994, at 3. 9 Frank Cerne, Dollars & Sense: Creating Incentives to Effectively Manage Change, HosP. «& HEALTH

NETWORKS, Apr, 5, 1994, at 28, 30.

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uum of appropriate care, but in reality it is more a matter of deciphering the least costly alternatives.'0

While capitated physicians do not necessarily have a lock on judicious medical prac- tice, capitation clearly shifts the incentives doctors have to a more conservative manage- ment of patient care." Capitated physicians need to approach medical care from an expan- sive point of view by striving for quality of care in an environment where clinical decisions must be weighed against questions of appropriate resource utilization. In a capitated prac- tice environment, clinical practice guidelines become essential practice aids, and quantifi- able outcome measures serve as a check on the efficacy of individual and group practices.'^ The capitated physician is rewarded for preventing illness, so in theory, prevention, patient education, and screening should be far more important than in FFS settings.'3

Perhaps the most interesting aspect of capitation for physicians is that it shifts the bal- ance of power between primary care and specialist physicians. Under capitated medicine, the primary care physician, the so-called gatekeeper, generally bears financial risk, and de- cides what, if any, specialty services should be provided.''^ Payment to specialists comes from a referral pool, and is usually made on a FFS basis. In such an arrangement, the spe- cialist physician is dependent on primary care doctors who do not want to be labeled as tri- age artists and be penalized for excessive referrals.'^ Capitated systems have dramatically cut the need for medical specialists at a time when there is a recognized surplus of special- ists, yet a dramatic shortage of primary care physicians. Managed care organizations (MCOs) project significant reductions in the use of specialists.'^

In certain areas, specialists and subspecialists are becoming capitated—requiring these doctors to follow much more conservative approaches to treatment.'"' Some MCOs are re- versing the capitation trend—capitating specialists and subspecialists, but reimbursing pri- mary care on a FFS basis, with the goal of cutting specialty costs and avoiding inappropri- ate services at the primary care level.'^ Specialist capitation is difficult to implement be- cause it requires assigning more covered lives than in primary care, and the nature of care at this level entails more costly procedures and tests.'^ In some plans, specialists and subspe- cialists are paid on a modified FFS basis with a portion ofthe payment placed in a risk pool; and if utilization goals are realized, the payments are returned to the physicians.-^

Not only does capitation motivate more conservative patient management, but it also expands primary care medical practice. Primary care physicians are being pushed to per- form medical procedures that routinely fall within the purview of medical specialists.2' In some instances, capitation arrangements require primary care physicians to perform proce- dures and tests which they may have never done before.22 The scope of primary care prac- tice has been expanded by the need of capitated plans to limit utilization of high cost pro-

' ' Ken Terry, Look Who 's Guarding the Gate to Specialty Care, MED. EcON., Aug, 22, 1994, at 124, ^'^ See, e.g.. Clinical Roadmap Program Targets Practice Variations, PHYSICIAN MANAGER, Oct, 13,

1995, at 6. '3 If the Cap Fits . , , Wear It, AM, MED, NEWS, Oct, 9, 1995, at 10. ''̂ Paul R, DeMuro, Paying Specialists and Subspecialists on a Capitated Basis, HEALTHCARE FiN.

MGMT., July 1995, at 33. '5 Terry, supra note 11, at 124. '^ John E, Billi et al,. Potential Effects of Managed Care on Specialty Practice at a University Medical

Center, 333 NEW ENG. J. MED, 979, 982-83 (1995). '^ Terry, supra note 11, at 124. ' 8 M

'^ DeMuro, supra note 14, at 33. 20 Jd. 2' Terry, supra note 11, at 131.

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viders, and this utilization may in fact result in more appropriate uses of primary care phy- sicians. The obvious downside of expanding primary care is the potential harm to patients, and the increased risk of individual and plan liability. From the physician standpoint, a refusal to expand his or her scope of practice to accommodate an MCO can result in a re- duced capitation payment, or in the loss of a contract.23

An important variable in capitated health care is patient referrals. The goal of a capi- tated health plan is to carefully match patient needs with the right level of service in a man- ner reflecting the treatment guidelines and philosophy of a particular plan.24 It is overly simplistic to assume that clinicians should avoid referrals, but referrals do need to be justifi- able both medically and economically.25 Inappropriate referrals may not be covered by capitation or separate billing, and thus will be paid for out of an individual or group referral pool.26 In addition, capitated plans often place limits on the type of tests that will be paid for, and require that certain laboratories be used.27 Failure to adhere to testing guidelines may result in a financial penalty to plan physicians.28

In viewing the capitation octopus in the waters of physician credentialing, several pre- liminary observations can be made. Quality will continue to be a pivotal issue in physician evaluation in capitated settings, but the notion of quality will be closely linked to practice efficiency. In turn, efficiency will require that clinicians practice in ways that plans deem cost effective.29 Capitated plans have the necessary practice infrastructure to guide practi- tioners by means of detailed clinical protocols, which are constructed to reflect a course of conduct that is medically and economically appropriate. Physicians will be judged based on their adherence to clinical guidelines, and the results of their patient care will be reflected in quantifiable outcome measures. Physician evaluation in capitated settings will rely on the use of statistical portraits of key clinical and financial performance data referred to as phy- sician profiles.^o Profiles can combine whatever performance data plans feel are most ap- propriate in assessing physician behavior, including not only cost and quality factors, but patient satisfaction measures as well.3' Unlike traditional physician credentialing, creden- tialing in the world of capitation can occur at both a hospital and plan level; and while the overall goal of physician assessment in any setting is to assure quality, the plan emphasis will be strongly economic as well.

B. CREDENTIALING: A QUICK LOOK

Credentialing, the appointment, reappointment, and delineation of clinical privileges, is a long-standing hospital process that has been the subject of extensive analyses and commentary.32 From a physician point of view, credentialing is the process which grants membership to a medical staff, and as such, is fundamental to the practice of medicine. From the hospital's perspective, credentialing is a necessary quality control that is central to the institutional mission and to the welfare of patients. As a legal process, credentialing

23 M at 129. 24/^. at 130. 25 W, 26 M at 129, 27 M . at 124, 28 M . at 130. 29 If the Cap Fits . , , Wear It, supra note 13, at 12, 14, 30 Donald C, Bal four. Physician Profiling: Linking Performance to Compensation in a Capitated Envi-

ronment, G R O U P PRAC, J,, July-Aug, 1995, at 18; H. Gilbert Welch et al,. Physician Profiling - An Analysis of Inpatient Practice Patterns in Florida and Oregon, 330 NEW ENG, J. MED. 607 (1994).

3' Bal four, supra note 30, at 22-24. 32 CLARK C, HAVIGHURST, HEALTH CARE LAW AND POLICY 620-86 (1989).

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encompasses a rich body of common and statutory law.33 Even prior to the landmark deci- sion of Darling v. Charleston Community Memorial Hospital., hospitals had a long-standing corporate duty to appoint and reappoint competent staff 34 Darling was the first case to fmd a corporate obligation for a hospital to monitor the quality of medical care provided within its four walls.35 Of Darling's progeny, Johnson v. Misericordia Community Hospital best articulates a hospital's credentialing duties.36 In Johnson, the Wisconsin court concluded that hospitals have a direct and independent duty to patients to ensure that physicians are qualified for the privileges granted, and that clinical services the medical staff provides are evaluated.37

While not every state court has found the existence of a corporate credentialing re- sponsibility, the laws and regulations of every state require that some type of staff evalua- tion process be in place.38 Statutory credentialing requirements range from general direc- tives to detailed sets of requirements, specifying not only procedures, but also specific is- sues to be addressed.39 in addition to state law, the credentialing requirements ofthe Joint Commission on Accreditation of Health Organizations (JCAHO) have had a profound im- pact on the growth, development, and structure of the credentialing process.40 The vast majority of American hospitals are accredited by JCAHO, and thus required to follow its credentialing guidelines. JCAHO mandates that hospital medical staffs have detailed by- laws which delineate processes for appointment, reappointment, and determination of clini- cal privileges.4' While the standards of JCAHO do not have the force of law, courts have held hospitals to the criteria to which they voluntarily subscribe, and as JCAHO standards are incorporated into bylaws, they become contractually binding in some jurisdictions.^2

Between 1965 and the late 1980s, the dynamics of credentialing did not change sig- nificantly. While the law surrounding the credentialing function has continually evolved, the process itself remained fairly constant until the 1990s. Generally, a hospital board dele- gates the credentialing function to its medical staff, as delineated in staff bylaws.^3 While the corporate responsibility for credentialing decisions rests with hospital trustees, it is only the rare situation when boards do more than acquiesce in the medical staff recommenda- tions. As a medical staff function, credentialing is affected by staff development plans, which are attempts by a hospital's physicians to plan for their needs over a given period of time. While many aspects of credentialing entail routine background inquiries, the process, particularly as it concerns delineation of clinical privileges, focuses on quality of care con- siderations.'̂ '̂ xhe emphasis of credentialing has been on the initial appointment stage, while reappointment was often treated as a routine matter. The hospital credentialing proc-

33 For an extensive review of cases in the credentialing area, see Daniel H, White, Annotation, Exclu- sion of or Discrimination Against Physician or Surgeon by Hospital, 37 A . L , R . 3 D 645 (1971); see also ARTHUR F . SOUTHWICK, T H E LAW OF HOSPITAL AND HEALTH CARE ADMINISTRATION 583-621 (2d ed. 1988).

34 211 N,E.2d 253 (III, 1965), cert, denied, 383 U.S. 946 (1966); see EMANUEL H A Y T ET AL,. LAW OF

HOSPITAL, PHYSICIAN AND PATIENT 133 (1972), 35 211 N,E,2d 253; HAYT ET AL,, supra note 34, at 133. 36 301 N.W.2d 156, 174 (Wis. 1981). 37 M.

38 For a detailed listing of related statutes and regulations focusing on credentialing, see Jack W, Shaw, Jr., Annotation, Hospital's Liability for Negligence in Selection or Appointment of Staff Physician or Sur- geon, 51 A . L , R . 3 D 9 8 1 (1973),

^^ See. e.g., MD. CODE ANN. , HEALTH-GEN, § 19-319 (Supp. 1995), '^0 Timothy S. Jost, The Joint Commission on Accreditation of Hospitals: Private Regulation of Health

Care and the Public Interest, 24 B,C. L, REV. 835, 873 (1983), ^^ JOINT C O M M ' N ON ACCREDITATION OF HEALTHCARE ORGS, , COMPREHENSIVE ACCREDITATION

MANUAL FOR HOSPITALS 101-24 (1989). '̂ 2 Jost, supra note 40, at 842-45. 43 SOUTHWICK, supra note 33, at 586-87, 44 JACK ZUSMAN, CREDENTIALING AND PRIVILEGING SYSTEMS 47-69 (1990).

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ess has been the subject of frequent legal challenges, as aggrieved physicians have sought judicial redress in the face of adverse determinations. However, prior to suit, most hospital physician credentialing disputes pass through a series of administrative stages contained in corporate and staff bylaw provisions.45 These legal challenges have created a body of law encompassing a wide range of legal theories on the state and federal level.

While the theoretical bases of physician credentialing challenges have expanded, these challenges can historically be divided into three primary areas. The first line of challenge in credentialing cases is contractual. Physician-plaintiffs typically mount arguments alleg- ing that institutions in taking actions to deny, remove, or curtail staff privileges have breached hospital bylaw requirements.46 The second approach used in credentialing chal- lenges attacks the disciplinary action as a denial of due process, or as fundamentally un- fair.47 Due process challenges, while frequent, have proven difficult as state action re- quirements are not easily met. In New Jersey, where hospitals are viewed as quasi-public entities, state action barriers have been more easily overcome.48 In Califomia, courts have adopted the common law fairness doctrine, which allows easier access to court, in an at- tempt to protect individuals whose economic interests are threatened.49

Finally, medical staff credentialing challenges have been brought on statutory grounds. There is a body of case law in this area resting on a violation of federal civil rights laws. Physician-plaintiffs have argued that adverse hospital decisions constitute discrimination in employment on the basis of race, religion, or national origin.5o While the majority of phy- sician civil rights claims are brought under Title VII, actions are also waged under § 1981, alleging contractual interference based on race, and under § 1983 where violations ofthe Fourteenth Amendment are argued.5i Under the 1967 Age Discrimination in Employment Act, physicians can argue that they were denied medical staff membership or privileges because of age.52 Physicians with disabilities, including alcoholism and drug addiction, have used both the Americans with Disabilities Act (ADA) and the Rehabilitation Act to challenge hospital actions, advocating that hospitals provide them with reasonable employ- ment accommodations prior to adverse staff determinations.53 Additionally, there have been a few medical staff actions filed under the federal criminal Racketeer Influenced and Corrupt Organizations Act (RICO) in which plaintiffs argued that hospital conduct consti- tutes a form of racketeering.54

45 M , at 1-22, 46 ^ee, e.g.. Barrows v. Northwestern Memorial Hosp,, 525 N.E,2d 50, 51 (HI. 1988); Rao v. St. Eliza-

beth's Hosp,, 488 N.E,2d 685, 687 (III, App, Ct, 1986). 47 See Kathleen M, Dorr, Annotation, Exclusion of or Discrimination Against, Physician or Surgeon by

Hospital, 28 A , L . R , 5 T H 107, §§ 3[c] & 5 (1995). ^^ See id ^ 3[c]. 49 See id 50 Cf McDonnell Douglas Corp. v. Green, 411 U,S, 792 (1973), 5' Michael R. Callahan, Credentialling Solutions in an Era of Health Care Reform 30-31 (Oct, 1995)

(materials from the annual meeting of the Illinois Association of Health Care Attorneys) (on file with author),

52 Age Discrimination in Employment Act of 1967, 29 U,S,C. § 626(b) (1994); Older Workers Benefit Protection Act of 1990, 29 U,S,C, § 621 (1994),

53 For example, see Altman v. New York City Health & Hosps, Corp., No. 93 Civ. 882, 1993 U,S, Dist. LEXIS 4228 (S,D,N.Y, Apr. 2, 1993), aff'd, 999 F,2d 537 (2d Cir, 1993).

^'^ See. e.g.. Urn v. Central DuPage Hosp., No, 89C7753, 1991 U.S. Dist. LEXIS 10291 (N.D, III. July 23, 1991); 18 U,S.C. § 1962 (1994), In a RICO argument, an adverse credentialing decision is seen as result- ing from a pattern of racketeering activity. It must be shown that there was an enterprise that affects inter- state commerce and the defendant 's participation in the enterprise fostered a pattern of racketeering activity. See id.

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Antitrust laws were first applied to hospital medical staff disputes in the 1970s.55 In these antitrust disputes, physician-plaintiffs have argued that their exclusion from medical staffs constitutes a restraint of trade in violation of § 1 of the Sherman Act or its state law counterpart.56 Other antitrust actions have alleged that a hospital or medical staff decision resulted in a monopoly or an attempt to monopolize a market.57 Despite the greater number of antitrust challenges to hospital medical staff decisions, these cases require difflcult-to- prove elements, such as proof of a concerted action or a demonstration of market power. In addition, the majority of antitrust violations are assessed under a rule of reason analysis. Therefore, hospitals are able to argue that their adverse medical staff decisions were moti- vated by legitimate operational considerations.58

The capstone antitrust case, Patrick v, Burget, led to the passage of the Health Care Quality Improvement Act (HCQIA) which created a limited immunity from state and fed- eral antitrust law for peer review processes that further quality of care.59 In addition to HCQIA immunity, there are a wide range of state statutory immunities protecting individu- als who serve on peer review committees, such as credentialing committees, from liability. For example, in Illinois the Medical Practice Act provides members of credentialing committees immunity from civil liability for their activities provided they do not engage in wanton or willful misconduct.60 There are also a series of state laws, subject to frequent litigation, which protect information used and developed by peer review committees from discovery or use in civil/administrative procedures.6'

While the law surrounding medical staff credentialing evolved into a complex blend of common and statutory principles, the processes of credentialing in the hospital remained relatively constant until the introduction of diagnostic-related groups (DRGs) in the 1980s, which refocused physician evaluation into a more quantitative assessment of practice. But even with DRGs, medical staffs continue to see credentialing as a quality oriented evalua- tion fundamentally within the collective discretion of physicians. That is not to say creden- tialing is a process devoid of politics or acrimony, but even at its very worst, it is still seen primarily as a medical staff function.62

C. THE CHANGING MEDICAL STAFF

In the last five years, dramatic changes in the economics and environment ofthe health care industry have begun to affect the credentialing process.63 As hospitals intemally re-

55 See James F. Blumstein & Frank A. Sloan, Antitrust and Hospital Peer Review, 51 LAW & C O N T E M P .

PROBS. 7, 8, 31 (1988) (discussing the court's reluctance to grant learned professions broad exemption from antitrust liability),

56 See generally id. (outlining the application of antitrust law to hospital peer review decisions). 57 M. 58 Husain v. Helene Fuld Medical Ctr,, 1990-2 Trade Cas. (CCH) H 68,905 (D,N,J. Dec. 8, 1989). 59 486 U.S, 94 (1986) (holding that the state-action doctrine does not protect physicians from federal

antitrust liability for their activities on hospital peer review committees); 42 U.S.C, § 11101 (1994), As credentialing is a peer review type function, it is covered under HCQIA.

60 I I I . ANN, STAT. ch. 225, para, 60/5 (Smith-Hurd 1993). 6' McDonnell Douglas Corp, v. Green, 411 U,S. 792 (1973); see, e.g., FLA. STAT, A N N , § 768,40(4)

(West 1981). 62 ZUSMAN, supra note 44, at 15, 63 Deborah S, Kolb et al.. Economic Credentialing, TOPICS HEALTH CARE FINANCING, Spring 1993, at

58; J. Bruce Ryan et al,. Financial Analysis of Medical Staff Development Plans, TOPICS HEALTH CARE FINANCING, Spring 1993, at 1. There is now a movement in California to develop a standard physician cre- dentialing form to eliminate the need for physicians to complete multiple applications. The new form, re- ferred to as the California Participating Physician Application, is seen as a first step toward centralized cre- dentialing. Jeannine Mjoseth, Standardized Credentialing Form Advanced to Cut Duplicative Efforts, 5 Health L, Rep. (BNA) No. 21, at 771, 771-72 (May 23, 1996).

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structure, diversify their operations beyond their walls, and enter into varying managed care agreements, the role of the medical staff as the distant professional arm has been altered. Medical staffs are integral to institutional success in the world of managed care, but the composition of that staff is no longer exclusively determined by quality considerations. The current environment is oriented toward efficient delivery of care, and efficiency translates into medical practice which balances clinical performance with economics.64 As hospitals enter into new ventures, they need physicians whose practices enhance the viability of these institutional enterprises. In an effort to be lean, hospitals must pare down the number of specialists and subspecialists on staff and contract out for certain medical services.65 Medi- cal staffs will be seen not only as economic units, but also as marketing vehicles whose in- dividual and collective profiles can attract business.

The changes in the institutional perceptions of medical staffs are only beginning to alter the hospital credentialing process nationally, and because hospital markets are in dif- ferent stages of development, changes in this area are anything but uniform. In reflecting on the current status of hospital credentialing as an area in transition, several developments can be identified which individually and collectively represent harbingers of change. De- velopments that are particularly noteworthy include the growth of exclusive contracts, eco- nomic credentialing, and physician hospital organizations (PHOs).

1. Evaluation Revolution

A revolution in health services research, occurring over the last twenty years, has dra- matically impacted the evaluation of physicians, the essence of the credentialing process. Since the 1970s, small area variation studies have found widespread differences in medical practice.66 The attempt to deal with variability in medical practice has resulted in the pro- liferation of clinical guidelines and outcome measures, now widely used in most clinical settings.67 The use of DRGs, together with new information technologies, has made it pos- sible to measure virtually all aspects of health delivery on both an individual and collective basis.68 Not only is clinical performance being recorded, tracked, and measured, but eco- nomic performance factors can be isolated or merged with medical data.69 Provider organi- zations can identify high utilizers, and break down financial data to determine if a clinician is practicing in an unduly costly fashion.

A very popular analytical tool, which derives from the recent changes in medical practice measurement, is the physician profile.70 Profiles are statistical pictures of individ- ual or collective physician practices expressed as rates that can be compared with other physician practices or practice guidelines.7' Profiles can be structured in various ways.

64 Kolb et al,, supra note 63, at 58; Ryan et al., supra note 63, at 1, 65 Billi et al., supra note 16, at 979 (referring to network models and combined models used in analyz-

ing the number of subscribers a large academic medical center's HMO would need to preserve the current level of revenue for specialists).

66 See Mark R, Chassin et al.. Variations in the Use of Medical and Surgical Services by the Medicare Population, 314 NEW ENG. J, MED, 285 (1986) (discussing variations in use by Medicare population in 1981); John E, Wennberg, Dealing with Medical Practice Variations: A Proposal for Action, HEALTH AFF., Summer 1984, at 6,

67 See generally Clark C. Havighurst, Practice Guidelines for Medical Care: The Policy Rationale, 34 ST. LOUIS U. L.J , 777 (1990) (presenting an excellent overview ofthe underlying policy issues driving the quality improvement trend's use of clinical practice guidelines).

68 See, e.g., Bruce T. Gipe, A New Method for Direct Cost Analysis: A Study ofthe Hospital Costs for Patients with Respiratory Disease, COST QUALITY Q.J., July 1995, at 13, 13-20.

69 M. 70 See Welch et al,, supra note 30, at 607. 71 M.

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combining data elements in the quality and utilization areas in a manner most relevant to a particular entity's evaluative needs.72 Profiles are important not only for intemal analytical purposes, but also in negotiating and structuring managed care arrangements because they are often pivotal pieces of information for all involved parties. To date, the focus on profil- ing has been educational. However, profiles clearly represent sources of information about individual physicians that are utilized in hospital-based physician evaluation processes, in- cluding credentialing.73

2. Exclusive Contracts

In the 1980s, hospitals began entering into exclusive contractual arrangements with physicians and physician groups, typically for surgery or hospital-based specialties such as radiology, anesthesiology, and pathology.74 These arrangements are prompted both by an institutional desire to enhance quality of care and by the need to introduce efficiencies into key departmental operations, and as such, these arrangements have strong underlying eco- nomic motivations. For physicians to be included in an exclusive arrangement, they must not only be members ofthe medical staff, but must meet the dictates of a particular contract. Often hospitals structure these arrangements in such a way that the existence ofthe contract and an individual's medical staff privileges are linked.75 Exclusive contracts are gaining popularity in managed care as plans seek to establish exclusive arrangements with particular physician networks.76

Organized medicine has opposed exclusive contracts, seeing them as a way to circum- vent the medical staffs decisionmaking authority over credentialing.77 Medical lobbies have argued that exclusive contracts should receive approval by a medical staff prior to be- ing entered into.78 There is a growing body of case law involving physician challenges to exclusive arrangements based on breach of contract, violation of bylaw procedures, and antitrust law. These cases arise when physicians, excluded or terminated from exclusive contracts, sue because they are, in effect, barred from hospital practice. Typically, plaintiff- physicians seek to enforce their rights to a bylaw hearing, arguing that termination or ex- clusion from a contract constituted a retraction of their hospital medical staff privileges in violation of bylaws.79 Where hospital corporate and medical staff bylaws are viewed as contracts, these actions are waged as breach of contract cases.80 It is possible to cast an exclusive contract action as an unlawful restraint of trade in violation of antitrust law, but it may be very difficult to prove the requisite elements, such as conspiracy or economic in- jury.8'

'^2 See id. at 607 , 6 1 0 - 1 1 , 73 Steven Findlay, Profiling Systems Aim to Eliminate Second-Guessing of Doctors. Bus, & HEALTH,

Apr. 1993, at 58; Jim Montague, Profiling in Practice; Comparing Physician Practice Profiles, HoSP, & HEALTH NETWORKS, Jan, 20, 1994, at 50,

74 Marshall Ruffin, Physician Profiling: Trends and Implications, PHYSICIAN EXECUTIVE, NOV, 1995, at 34, available in LEXIS, News Library, ASAPII File.

75 5"̂ ^ generally Anne Arundel Gen, Hosp., Inc, v, O'Brien, 432 A,2d 483, 488 (Md, Ct, Spec, App, 1981) (finding that a hospital had no obligation to grant privileges to a group of radiologists after their ex- clusive contract had expired),

76 Julie Johnsson, Magic Carpet Ride? An Exclusive Provider Deal May Seem Enchanted — Until the Insurer Pulls the Rug Out, AM. MED. NEWS, iune 13, 1994, at 23, 24.

77 Howard Larkin, States Battle Denial of Privileges by Exclusive Contract, AM, M E D , N E W S , July 11, 1994, at 5,

78 Johnsson, supra note 76, at 24, 79 See Garibaldi v, Applebaum, 653 N,E.2d 42, 43 (III. App. Ct. 1995), 80 See id.\ Gonzalez v. San Jacinto Methodist Hosp., 880 S,W,2d 436, 438 (Tex, Ct, App, 1994). ^^ See Patel v, Scotland Memorial Hosp,, No, 3:94CV00284, 1995 U.S. Dist, LEXIS 5258, at *5-6

(M.D.N.C. Mar. 31 , 1995),

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By and large, courts have upheld the validity of exclusive contracts, allowing the con- tract to be separate from the question of medical staff privileges. The Supreme Court of Kansas, in Dutta v. St. Francis Regional Medical Center, ruled that an exclusive contract was a business arrangement that could be ended on its own terms, and did not reach the question of professional competence.82 Similarly, a Califomia court, in Abrams v. St. John's Hospital and Health Center, concluded that contractual agreements which waive a physician's rights to bylaw hearing procedures can be enforced.83 Under Califomia law, qualified physicians have a protected property interest to use hospital facilities, but those interests can be contractually waived.84 In most cases where plaintiffs have prevailed, the contracts at issue failed to link the exclusive deal with continuation of medical staff privi- leges, or courts have been unwilling to allow contracts to operate as a de facto vehicle to deny hospital privileges.85 Illinois is the only state providing a statutory right to a fair hearing to physicians whose privileges have been terminated or reduced as a result of an exclusive contract.86

The existence of exclusive contracts creates a new dimension in the credentialing process. While the medical staff may retain evaluative functions on the professional and ethical side, in reality the exclusive contract, in certain specialties, is the key element in allowing a particular physician or group of physicians access to hospital facilities.87 The hospital determines the rationale for exclusive contracts, and may evaluate physicians in a manner quite different from the medical staff process. Clearly, the institution has a strong financial stake in seeing that its departments are economically viable, and uses the exclusive contracting process as a way to enhance that viability. From a political standpoint, exclu- sive contracts move staffing decisions into the management arena, and regardless of appro- priateness, erode medical staff authority.

3. Economic Credentialing

More overtly financial than exclusive contracting is the practice of economic creden- tialing. The American Medical Association (AMA) has defined economic credentialing as the application of economic criteria unrelated to quality of care or professional competence to decisions conceming appointment, reappointment, or delineation of privileges.88 While the trend in physician evaluation is moving toward merging clinical and financial data, the AMA argues that purely financial factors—like charges per DRG and payer mix—should not be used as a basis on which to make staffing decisions.89 Like exclusive contracting, the decision to engage in economic credentialing emanates from the hospital administration, but unlike exclusive contracts, it is very difficult to ascertain how many institutions are overtly involved in economic credentialing. It is reasonable to argue that the political sen- sitivity surrounding the issue makes it unlikely that hospitals engage in any process explic- itly labeled economic credentialing. It is more likely that the evaluation of physician per- formance, in utilization review and other internal quality improvement evaluations, consid-

82 867 P,2d 1057 (Kan, 1994). 83 30 Cal, Rptr, 2d 603, 608 (Ct, App, 1994). 84 M ,

85 For example, see Gonzales v, San Jacinto Methodist Hosp,, 880 S.W.2d 436 (Tex. Ct. App, 1994). 86 I I I , A N N , STAT, ch, 210, para. 85/10.4 (Smith-Hurd Supp. 1996), 87 Mary T, Koska, Review Exclusive Contracts in Light of Recent Challenges: Hospitals' Contracts

with Physicians, HoSPS,, Apr. 20, 1992, at 38; Michael A, Morrisey & Deal C. Brooks, The Myth ofthe Closed Medical Staff, HosPS., July 1, 1985, at 75,

88 AMERICAN MEDICAL A S S ' N , PROCEEDINGS OF THE H O U S E OF DELEGATES, 4 7 T H INTERIM MEETING 51

(Dec. 5-8, 1993) [hereinafter AMA PROCEEDINGS] .

89 Id. at 52.

PHYSICIAN CREDENTIALING 183

ers economic variables, and the results of such review processes are shared with department chairs and credentials committees. The fact that hospitals are engaged in profiling pro- grams which assemble a certain amount of financial data makes it likely that staffmembers are being measured on the basis of some economic criteria. What is unlikely is the use of economic measures devoid of clinical indicators such as patient mix and acuity levels, as the sole measurements in physician evaluation.

As an issue, economic credentialing is more political than practical.90 The heart ofthe dispute surrounding the practice is not that physicians are being evaluated economically, but that such evaluation is being promoted by hospital management. As an administratively generated practice, economic credentialing is seen as a direct assault on the power of the medical staff to set the criteria for staff appointments and privileges. Even though legally the hospital board is the final arbiter of credentialing, organized medicine has seen this process as one within the sole purview ofthe medical staff. While the concept of economic credentialing, and the debate it created, does not seem to directly alter the mechanics of credentialing, it dramatically illustrates that a physician's financial performance will be- come a pivotal concern in the current business-oriented environment of health delivery.

Critics of economic credentialing have argued its illegality on several grounds, ranging from violations of hospital licensing laws, antitrust law, and Medicare fraud and abuse provisions.9' Despite the rhetoric, the case law dealing with challenges to economic cre- dentialing is sparse. The best known economic credentialing case is the Florida lower court opinion in Rosenblum v. Tallahassee Memorial Regional Hospital.^^ The court in Rosen- blum, based on an economic conflict of interest, upheld the board's right not to extend tho- racic surgical privileges to the plaintiff, despite the credentials committee's recommenda- tion that privileges be granted.93 The court ruling was based on the broad grant of statutory power the board possessed, the fact that the application was for an initial grant of privileges and as such no property interest could be claimed, and the existence of a contractual agree- ment between Rosenblum and a competitor hospital. Most jurisdictions would reach a similar result.94 This is not to say, however, that a board can engage in economic creden- tialing in violation of corporate or medical staff bylaws. In the case of Austin v. Mercy Health System Corp., a hospital board unilaterally changed the credentialing requirements for physicians in the hospital's intensive care units (ICUs) and specialty care units (SCUs) in violation of bylaw requirements.95 While the decision did not mention economics, the recommendation to limit ICU and SCU privileges was made by the medical director of those units, and a reasonable conclusion can be drawn that the credentialing policy change was made for financial reasons.

90 John D, Blum, Economic Credentialing Moves from the Hospital to Managed Care, J. HEALTH CARE

FIN., Fall 1995, at 60, 61. 9' Albert Trentalance, Economic Credentialing Is Here to Stay, PHYSICIAN EXECUTIVE, Sept, 1994, at

38, available in LEXIS, News Library, ASAPII File, 92 Final Summary Judgment in Favor of the Defendant, Rosenblum v. Tallahassee Memorial Regional

Medical Ctr., Inc., No. 91-589 (Fla. Cir. Ct, June 18, 1992). 93 M . at 4-5. 94 M, at 4; John D, Blum, Evaluation of Medical Staff Using Fiscal Factors: Economic Credentialing,

J. HEALTH &. HOSP. L , , Mar. 1993, at 65, 68-69. 95 Unilateral Change in Staff Credentials Violates Hospital's Contractual Duties, 4 Health L, Rep,

(BNA) No. 41 , at 1578 (Oct. 19, 1995), In this case, a breach of contract action was brought against the hospital by 29 physicians who argued that the bylaws were violated when hospital ICU and SCU privileges were changed without medical staff approval. Id. at 1578-79,

184 AMERICAN JOURNAL OF LAW & MEDICINE VOL. XXII NOS. 2&3 1996

4. Physician-Hospital Organizations

While exclusive contracts and economic credentialing are affecting traditional hospital credentialing processes, a more fundamental impact on medical staff selection and evalua- tion may occur as a result of corporate restructuring strategies that confound the relation- ships physicians have with hospitals. In particular, the development ofthe PHO can be seen as a corporate vehicle which changes the dynamics of the practitioner-institution relation- ship.96 PHOs are joint ventures formed to improve the ability of physicians and hospitals to contract with MCOs.97 These entities enhance the ability of the sponsors to respond to capitation and facilitate a closer collaboration among physician members.98

From an organizational standpoint, the PHO brings physicians and hospitals into a business relationship that has the potential to evolve into an MCO. These entities may sell their products on a retail basis (to MCOs) and wholesale basis (to employers), but to date, the focus of PHO efforts has been contracting with MCOs and insurers.99 The majority of PHOs have some capitated arrangements, with the likelihood of accepting a significant number of risk contracts rising as the size ofthe PHO increases.'oo The hospital-physician collaborative model has spawned a number of other permutations, such as the hospital- physician organization (HPO), the physician organization (PO), and the medical service organization (MSO), all of which entail varying levels of institutional/practitioner collabo- ration and joint investment.'O'

Most PHOs are relatively new entities, and have taken an open approach to staffing, allowing any physician with privileges in a participating hospital to join. Interestingly enough, experience has shown that not all members of a medical staff are inclined to join the institution's PHO.'02 That PHO physicians have jointly invested with a hospital in a medical plan alters the relationship these individuals have with the institution. Investor physicians have a direct financial stake in the institution's viability which their nonmember medical staff colleagues do not have. In turn, most PHOs have a physician organization, an independent practice association (IPA), which similar to the hospital's medical staff, en- gages in its own credentialing.'03 Additionally, the IPA credentialing process may adopt different standards than the hospital partner, further distancing PHO members from other hospital medical staff physicians.

As PHOs mature, it is unlikely that they will be able to maintain open panels and re- main fiscally viable. Physician membership in PHOs is currently specialist dominated, but that will change as payers seek to contract with plans having higher ratios of primary care physicians. Some plans are limiting specialist membership to physicians who admit a cer- tain percentage of their patients to the sponsoring hospital; others have placed a moratorium on new specialist members.'04 For PHOs to succeed, they need to attract a high volume of

96 Mike Mitka, What Makes a PHO Go?, A M , M E D , N E W S , June 20, 1994, at 15, 97 Frederick B, Abbey & K. Michael Treash, Jr., Reasons Providers Form PHO's, HEALTHCARE FiN,

M G M T , , Aug. 1995, at 38,

98 M . at 38, 40. 99 M , at 38-39. 100 M , at 42. '01 The HPO is in fact very close to a PHO, except that the hospital partner may exert more control over

the arrangement. An MSO is an organization that leases facilities, equipment, etc. or provides management services to a physician entity. A PO is a physician organization that is fairly generic in nature and can pur- sue single or multiple activities, but is physician-owned and -operated.

'02 Mitka, supra note 96, at 16, '03 Laura Buterbaugh, The Hospital and Me: Friends and PHOs; Physician-Hospital Organizations,

MED. WORLD NEWS, Sept. 15, 1993, at 36, 40. '04 Mitka, .ywpra note 96, at 15-16.

PHYSICIAN CREDENTIALING 185

contracts, and to do so they must demonstrate that their IPAs are efficient.'05 To realize practitioner efficiencies, PHOs are evaluating physicians for membership and renewal, not only on the basis of clinical performance, but also on economic criteria. Some PHOs have gone so far as to only extend membership to doctors who have a "book of managed care business."'06 While the PHO world exists somewhere between the boundaries of hospitals and managed care, it is a highly significant development in altering the stmcture of hospi- tal-physician relationships. The hospital credentialing function is still distinct from the PHO, but it seems reasonable to conclude that in hospitals sponsoring PHOs, PHO creden- tialing will ultimately affect medical staff credentialing practices.

An even more dramatic alteration of hospital physician relationships occurs when the institution acquires physician practices. Clearly, the hospital's motivation for a practice acquisition is to increase patient fiow and thus revenues.'07 While physicians may be seek- ing security and reduced hours, the purchasing institutions will have high expectations about the business potential of acquired practices, and may be unwilling to continue physi- cian employment contracts if financial targets are not met. In particular, as hospitals enter into risk contracts with institutionally owned physician practices, a higher standard of eco- nomic performance could be demanded than what is expected for general credentialing pur- poses. It is likely that physicians who have sold practices and operate as hospital employ- ees will be evaluated beyond traditional peer review systems.'08 Additionally, physician employees may be pressured to adopt hospital generated (or endorsed) practice profiles containing strong economic components.'09 Just as PHO physician membership sets up a different relationship between physician and hospital, there is clearly greater control and scrutiny of those doctors whose practices have been taken over by their hospitals.

All hospital medical staff credentialing processes have been affected to a certain extent by the developments noted above. Even in the most extreme cases, in which hospital cre- dentialing has been significantly impacted by new clinical and economic evaluations, the process of credentialing still must reside within the borders of established law and policy. While aggrieved physicians may not prevail, the law affords them some established paths of recourse. As far as capitation is concerned, it is too soon to determine its impact on the medical staff credentialing function in hospitals that have accepted capitated contracts, other than to conclude that physician evaluation programs will be subjected to even greater pressures to apply efficiency measures.

While physician credentialing in the hospital has undergone profound recent changes, credentialing—as it moves into the contract-run environment of managed care—faces con- siderable uncertainty and will operate within a legal vacuum. Initially, the hospital creden- tialing imprimatur will open the doors to membership in most MCOs, but over time MCOs will face pressures that will necessitate independent credentialing. In managed care cre- dentialing, two new and unpredictable variables come to the forefront: selective contracting and capitation. That the physician-MCO relationship rests on contract, not on statutory and common law precedent, makes the relationship between doctors and health plans legally tenuous. Undoubtedly, states will develop statutes and regulations that will afford physi- cians some rights in MCO credentialing, but the protections found in the hospital medical staff world will never be replicated.

'05 Buterbaugh, j'wpra note 103, at 41, '06 Mitka, supra note 96, at 16, A book of business means that a physician has patients he or she ean

bring into the managed care entity, '07 Sandra L, Breisch, Look Out for Landmines: Hospital Purchases of Physician Practices Can Be

Fraught with Peril, AM. MED. NEWS, Feb. 14, 1994, at 19. '08 Id. at 20. '09 Id

186 AMERICAN JOURNAL OF LAW & MEDICINE VOL. XXII NOS. 2&3 1996

On the capitation side, the marriage between this new payment mechanism and MCO credentialing remains somewhat of a wild card. At first blush, one might argue that the topics of capitation and credentialing do not seem very compatible, in that the capitation payment dictates the boundaries of practice, negating the need for physician credentialing. It can be argued that capitation puts the onus on physicians to perform at set rates, and that credentialing becomes a matter of contracting with physicians who can live within the eco- nomic parameters of the payment system. There may be a need for initial screening of physician credentials, but beyond that, the burden shifts from the plan to individual clini- cians, either to practice efficiently, or to withdraw from a particular plan. In the formative stages of managed care, some plans are undoubtedly scrambling to put together physician networks to attract business, and their primary concem is contracting with physicians who will accept their capitated rates. In such an environment, the topic of credentialing seems misplaced.

Managed care is still evolving, and as it matures the initial pressures to quickly de- velop physician networks will abate. Capitation should result in price stabilization within individual markets, and purchasers facing similar pricing structures will make contracting decisions on the basis of not only price, but also quality, at least in the foreseeable future."o In the world of corporate-provided benefits, quality may entail several considerations, but a major focus will be on assessment of quantifiable clinical outcome measures. From the capitated MCO perspective, it will be essential to contract with physicians who not only have the ability to practice efficiently, but can utilize resources effectively to produce desir- able clinical results. An MCO cannot only depend on economic incentives to result in ap- propriate actions, but must monitor physician performance to ensure that practitioners meet their clinical goals, and by so doing meet purchaser expectations. A key ingredient in phy- sician quality monitoring is a credentialing program.

Credentialing is an essential tool in ensuring that MCOs select and retain physicians who balance the demands of clinical appropriateness with economic efficiency within a capitated environment. The MCO credentialing challenge will be to develop effective measures that initially identify physician applicants able to practice successfully within the strictures of capitation. Recredentialing may be an easier task in that individual clinician performance can be assessed against plan-specific economic and clinical indicators relevant to a given capitated arrangement. While one may argue that capitated credentialing will gravitate toward quantitative quality measures, cost will be a dominant concem in many markets and in the initial stages of plan development.

The remainder of this paper will examine legal considerations in the linkage between capitation and credentialing, and while the analysis is oriented to capitated managed care, as noted in the introduction, the analysis has applicability to any managed care-physician ar- rangement. Like hospital credentialing, the legal analysis of capitated plan credentialing centers on the responsibilities ofthe plan to engage in credentialing and the challenges that aggrieved physicians mount when they feel their rights have been violated by a capitated program. On the plan side, this Article will examine credentialing mandates that have arisen under state law and National Committee on Quality Assurance (NCQA) accredita- tion. Capitated MCO liability will be examined, exploring corporate, vicarious, and agency liability; contractual and fiduciary responsibilities; informed consent; and consumer protec- tions. Plan liability will be assessed in light of the potential impact of ERISA and the HCQIA. On the physician side, the paper will focus on legal challenges brought against capitated programs based on contract, procedure, faimess, antitrust, and tortious interfer-

" 0 Deborah S, Kolb & Judith L, Horowitz, Managing the Transition to Capitation, HEALTHCARE FlN. MGMT,, Feb, 1995, at 64, 66.

PHYSICIAN CREDENTIALING 187

ence. In addition, the statutory and regulatory protections physicians may avail themselves of in fighting arbitrary plan conduct, such as any willing provider laws, will be reviewed.

III. CREDENTIALING ON THE OTHER SIDE OF THE STREET— WHEN CREDENTIALING BECOMES CONTRACTING

A. STATE AND NCQA REQUIREMENTS

Numerous state laws mandate that quality assurance programs be established for vari- ous types of MCOs, particularly health maintenance organizations (HMOs), but those laws generally do not specify the structure of credentialing programs."' Each managed care program has considerable discretion in designing credentialing functions, but it is difficult to obtain details on the specific criteria plans use to make decisions about contracting poli- cies because credentialing processes are proprietary.

One window into managed care credentialing processes is through consideration ofthe overall evaluation systems that plans are developing."2 Many plans are using the NCQA Health Plan Employer Data and Information Set (HEDIS) system as the basis of plan-wide evaluation, often referred to as plan report cards."3 Such evaluations are usually split into four major categories: quality of care, operating efficiency, administrative costs, and cost reduction."4 While the report cards are plan-wide documents, they are composite pictures ofthe performance of individual clinicians and member institutions. Thus, it is possible to break the program-wide data down to a micro level and evaluate individual physicians using the same measures. Although it does not necessarily follow that credentialing evaluations rely on the same indicators present in report cards, it seems reasonable to conclude that cli- nicians whose practices deviate considerably from areas reported in plan-wide assessments may have difficulty retaining their plan affiliation.

In the ranks of organized medicine there is growing concern that physician evaluation processes, including credentialing, are economically driven, particularly in capitated set- tings. The AMA has recently launched an effort to develop a physician performance as- sessment instrument based on accepted medical practice parameters."5 The AMA's goal is to develop physician evaluation instruments that are universally applicable to all managed care settings, and that focus evaluation on quality measures. The physician performance evaluation project is designed to produce educational tools, but such products could be eas- ily used in credentialing and contracting decisions. Undoubtedly, the medical community will welcome evaluation tools with a strong quality spin, but the AMA must move quickly if it hopes to replace the proliferation of MCO evaluation instruments already in use, which are heavily weighted toward practice efficiency measures.

While government regulation may be sparse, many MCOs are now accredited privately by NCQA."6 A small number of states require that MCOs undergo an evaluation by a quality review organization, and two jurisdictions require that plans serving state entities be NCQA-accredited. In addition, many purchasers are requiring accreditation as a condition

" ' PHYSICIAN PAYMENT REVIEW COMM'N, 1995 ANNUAL REPORT TO CONGRESS 345-49 (1995), ^^2 Health Care Report Cards: Profiles of All Major Report Cards, Performance Reports, Shopping

Guides, and Consumer Satisfaction Surveys, ACCOUNTABILITY NEWS FOR HEALTH CARE MANAGERS (Atlantic Info, Servs., Washington D.C,), 1995,

" 3 NATIONAL COMM, FOR QUALITY ASSURANCE, HEALTH PLAN EMPLOYER DATA AND INFORMATION

SET AND USERS MANUAL VERSION 4,0 (Washington D.C: 1995). " 4 M,

" 5 Linda O. Prager, Payers, Providers Open to AMA Profiling Ventures, AM, MED, NEWS, Mar, 25, 1996, at 1.

" 6 PHYSICIAN PAYMENT REVIEW COMM'N, supra note 111, at 349-57.

188 AMERICAN JOURNAL OF LAW & MEDICINE VOL. XXII NOS. 2&3 1996

for contracting."7 NCQA dominates managed care accrediting and is creating a uniform approach in the quality assurance area. NCQA has delineated a broad set of credentialing requirements as part ofthe accreditation process. "8

Within the NCQA accreditation criteria, credentialing is the second highest weighted section in the plan evaluation process."9 Unlike hospital processes, NCQA requires that physician information not be supplied by applicants. Standards call for primary source verification.'20 In addition to standard physician information such as licensure, education, work history, hospital clinical privileges, and medical malpractice history, NCQA requires data about Medicare/Medicaid sanctions, and mandates an inquiry to the National Practitio- ner Data Bank (NPDB).'2' The infonnation used by an MCO credentials committee must not be more than 180 days old.'22 A unique feature in the criteria is a requirement that pri- mary care physicians, obstetricians/gynecologists, and other high volume specialists un- dergo an office site visit.'23 Site visits are designed to determine compatibility of office structure and record-keeping practices with the MCO's standards.'24 NCQA requires phy- sician credentials to be updated periodically for purposes of reappointment, and that the process include a review of member complaints, satisfaction surveys, and evaluation of utilization data and quality review.'25

Clearly, an MCO cannot rely on the fact that an applicant has been credentialed by a hospital as sufficient to meet NCQA standards in this area. The credentialing guidelines allow plans to delegate their credentialing function, but they must monitor the activities of outside evaluators and retain decisionmaking authority over appointments, suspensions, and terminations.'26 To meet NCQA credentialing requirements, particularly primary source verification, MCOs need adequate staffing and electronic capabilities.'27 It is becoming more common for plans to outsource credentialing to third-party commercial entities known as credentialing verifications organizations (CVOs).'28 A CVO conducts all the required verification searches mandated by NCQA, presumably faster and more economically than a plan could in-house. Over time, large CVOs develop extensive physician data bases that can be used by many plans, avoiding the need for duplicated credentialing by individual MCOs.'29

While the CVO business is still in its infancy, NCQA has recently developed a set of standards to certify these entities.'30 CVO certification entails a review ofthe credentialing entity's policies and procedures, intemal quality assurance processes, data integrity and confidentiality safeguards, physician application components, and the ability to track and report on disciplinary matters.'3' In addition, the survey requires that a random sample of

" 7 M. at 349. " 8 NATIONAL COMM. FOR QUALITY ASSURANCE, STANDARDS FOR ACCREDITATION 27-31 (NCQA,

Washington D,C,, 1995) [hereinafter NCQA STANDARDS], " 9 Sara Shapiro, Cracking Down on Credentialing, MANAGED HEALTHCARE, June 1995, at 30. '20 NCQA STANDARDS, supra note 118, CR 5,0-5,7, at 27-28, '2 ' Id CR 7,1-7,3, at 28. '22 Id. CR 5.0, at 27; see also NATIONAL CoMM, FOR QUALITY ASSURANCE, 1996 REVIEW GUIDELINES

73 (1996), ' 23 M, CR 8.0, at 28, ' 24 M, CR 8,1, at 28, ' 25 M, CR 10.0, at 29. ' 2 6 M. CR 15.0, at 31. '27 Shapiro, supra note 119, at 32. ' 28 M.

'29 M,

'30 NATIONAL COMM. FOR QUALITY ASSURANCE, CVO CERTIFICATION PROGRAM 1995-1996, at 22-45 (1996).

' 3 ' M

PHYSICIAN CREDENTIALING 189

the CVO's files and/or reports be examined to verify the accuracy ofthe collected data.'32 Although NCQA CVO certification is in its early stages, it seems likely that certification will become a necessity before MCOs will entrust a particular entity with their credentialing function. It also seems reasonable that delegation of credentialing to a CVO will not ab- solve a plan for primary responsibility and liability in this area.

B. HEALTH CARE QUALITY IMPROVEMENT ACT

An interesting question in the MCO credentialing area concems whether a plan which terminates a physician contract must comply with the federal HCQIA. Under this statute, physician terminations from health care entities based on competence or conduct affecting the quality of patient care must be reported to the NPDB.'33 Medical organizations engaged in quality review activities, of which credentialing is traditionally one, are provided with immunity from federal and state law damages under HCQIA, provided that the dictates of procedure outlined in the statute are followed.'34 While issues concerning substandard medical care clearly fall within the patient quality area, it is not as clear whether physician performance measured by efficiency standards does. In the case of capitation, exclusion from an MCO based on inappropriate referrals, overutilization of tests, or general inability to manage patients efficiently seems to fit within the quality of patient care area. On the other hand, arguments can be made that matters relating to capitation are organizational efficiency issues that do not comfortably fall under quality of care. Guidance from case law and regulations, as to whether physician exclusions based on failure to meet capitation stan- dards are reportable under HCQIA, does not exist. MCOs will need to develop policies on whether contract terminations need to be reported to the NPDB. Clearly, plans have an in- centive to treat such terminations as quality-based because of eligibility for legal immunity.

C. A DUTY TO CREDENTIAL: SOURCES OF MCO LIABILITY

While the new mandates required by NCQA have a profound effect on MCOs' cre- dentialing obligations, the law in this area is driven from two other directions. Capitated plans, like hospitals, are engaging in credentialing not only to ensure quality, but also as a form of risk management to protect themselves from potential liability. Additionally, po- tential legal challenges mounted by physicians who have been denied contracts or had exist- ing agreements terminated motivate capitated credentialing. Common and statutory law developments, and the pressure to apply the more developed body of hospital credentialing law to this new setting affect both organizational liability and physician challenges. This section ofthe paper will review five general areas in which physicians and consumers may challenge capitated MCOs for inappropriate credentialing.

1. Corporate Liability

Statutory law, particularly involving HMOs, mandates almost universally that plans develop programs to ensure acceptable levels of quality.'35 in addition, as other managed care entities fall under state regulatory control, legislatures are creating similar quality mandates.'36 In the area of common law, a handful of cases have found a direct corporate responsibility to engage in effective credentialing. For example, in McCellan v. Health

'33 45C.F,R. §60.2(1995). '34 42 U.S.C. § l l l l l ( a ) ( l ) . '35 PHYSICIAN PAYMENT REVIEW COMM'N, supra note 111, at 344. ' 3 6 M.

190 AMERICAN JOURNAL OF LAW & MEDICINE VOL. XXII NOS. 2&3 1996

Maintenance Organization, a state court ruled that an IPA-model HMO had a nondelegable duty to select and retain competent providers.'37 To date, no major state supreme court de- cisions establish managed care corporate liability for credentialing, but such a finding could easily be made. Certainly in those jurisdictions where hospital corporate liability for cre- dentialing has been judicially established, courts will look to those cases and readily pull this body of precedent into the managed care arena. That MCOs often market themselves on the strength of their physician panels makes a corporate credentialing duty even more compelling than on the hospital side. Additionally, as pointed out in Harrell v. Total Health Care, Inc., the MCO can limit an enrollee's choice of practitioners to those in its panel,'38 and thus, failure to carefully assess participating physicians may jeopardize enrollee safety.

2. Vicarious and Agency Liability

In addition to corporate liability, MCOs, capitated or not, are liable for the negligence of participating physicians under vicarious liability and agency law doctrine. In the event a plan employs or contracts with physicians, the plan can be held liable under the application of respondeat superior.'39 Apparent agency doctrine is applicable to MCOs if patients view the plan as the source of care, as opposed to the treating physician, and the plan's actions perpetuate that belief.'40 in Boyd v. Albert Einstein Medical Center, an appellate court found the existence of apparent agency liability based on the HMO payment system, re- stricted practitioner choice, constraints on specialty care, and plan marketing documents.'4' The existence of respondeat superior and apparent agency liability should be catalysts for MCOs to exercise caution when entering into and renewing physician contracts.

3. Breach of Contract and Fiduciary Duties

An enrollee in an MCO has a benefit agreement that entitles the individual to a quali- fied physician who will provide competent medical care. A breach of contract claim arises if a plan physician injures the enrollee, because the plan's failure to manage the enrollee's overall health care by selecting and retaining unqualified doctors would break the benefit agreement. Plans, not uncommonly, make assertions about the quality of their medical panels that could be viewed as contractually binding as well.'42 In addition, the MCO can be drawn into suits against its physician members through state comparative negligence statutes on the grounds that plans have a contractual obligation to manage subscribers' overall health care.'43

One of the most controversial issues in managed care concems the perception that capitated arrangements, which encourage efficiencies in primary care and restrictions on referrals, result in patient undertreatment.'44 An argument was recently made by a plaintiff in a suit against an HMO that primary care physicians who fail to refer patients to special-

'37 604 A,2d 1053, 1059 (Pa, Super. 1992). '38 781 S.W.2d58, 59 (Mo, 1989), '39 See Schleier v. Kaiser Found, Health Plan, 876 F,2d 174, 178 (D.C. Cir, 1989); see also Howard v.

Sasson, Civ. A, No. 95-0068, 1995 U.S. Dist. LEXIS 14373 (E.D. Pa. Oct. 3, 1995). '40 Diana J. Bearden &. Bryan J. Maldgen, Emerging Theories in Liability in the Managed Care Indus-

try, 47 BAYLOR L. REV, 285, 309-12 (1995), '4 ' See 547 A.2d 1229 (Pa. Super, 1988); see also Decker v, Saini, No. 88-361768, 1991 WL 277590

(Mich, Cir, Ct. Sept. 17, 1991). '42 See McClellan v. Health Maintenance Org., 604 A,2d 1053 (Pa, Super, 1992); Elsesser v. Hospital

of Phila. College of Osteopathic Medicine, 795 F, Supp, 142 (E.D. Pa, 1992). '43 See Dunn v. Praiss, 656 A.2d 413, 416 (N.J. 1995). '44 Deven C. McGraw, Financial Incentives to Limit Services: Should Physicians Be Required to Dis-

close These to Patients?, 83 GEO. L.J. 1821, 1828-29 (1995).

PHYSICIAN CREDENTIALING 191

ists for monetary reasons breach a patient fiduciary duty.'45 The court rejected the breach of fiduciary duty theory, but the case highlights the assault plaintiffs' lawyers are likely to direct against MCOs, arguing that capitated arrangements have altered the standard of medical care in inappropriate ways. Undoubtedly, capitated systems discourage referrals, but over time policies in capitated plans restricting referrals will be incorporated into stan- dard medical practice as the norm. However, a tragic outcome based on failure to refer will always be difficult for plans to overcome, as juries are often willing to ignore standards in cases against large, impersonal managed care entities.

4. Informed Consent

It has been suggested that patients have the right to know the terms of managed care financial arrangements, such as capitation, when selecting plans or treating physicians and when deciding about specific treatment options.'46 Various state and federal laws mandate that HMOs make written descriptions of plans available to enrollees.'47 But even the most detailed disclosure laws do not specifically require that physician financial arrangements be shared with enrollees.'48 There would need to be specific regulations for plans to be obli- gated to specify the details of capitation to enrollees.

One possible way by which enrollees could learn about the details of capitation is through the application ofthe informed consent doctrine to financial arrangements. Under the more popular approach to informed consent, clinicians must disclose information to patients which is material to the individual's decisionmaking. Clinical factors such as risks versus benefits, altemative treatments, and implications of no treatment, generally consti- tute the elements of materiality.'49 It could be argued that capitation in a particular instance affects a physician's decision to offer costly alternative treatments, and as such should be disclosed. There is precedent for extending the concept of materiality beyond medical risks to any information that affects a treatment decision, including financial matters.'50 Disclo- sure of financial issues raise interesting considerations for MCOs in that MCO-physician contracts often contain gag clauses. Such clauses prohibit physicians from discussing treatment options not covered by the MCO, and such a ban could be seen as a direct in- fringement of patient informed consent. Gag clauses may not be broad enough to actually violate informed consent doctrine, but they do restrict physicians from revealing proprietary data on matters such as rates, and thus, conceivably capitation information. States are now developing laws that will restrict gag clauses from impeding physician discussion about benefit and treatment options.'5'

Assuming that the doctrine of informed consent can be applied to capitation, it would still have to be demonstrated that the selection of a less costly treatment was medically in- appropriate, and that the informed plaintiff would have chosen a more costly and appropri- ate altemative resulting in a better outcome. Allowing a violation of informed consent to proceed on the basis of failure to disclose financial information would create an odd dispar-

'45 Plaintiffs Third Amended Complaint, Ching v, Gaines, No. 137656, at 5-6 (Cal. Super. Ct. Apr. 5, 1995).

'46 Id at 6. '47 See 42 C.F.R. § 417.124(b) (1994). '48 CAL. HEALTH & SAFETY CODE § 1363 (West Supp, 1990). '49 BARRY R, FURROW ET AL,. HEALTH LAW CASES, MATERIALS AND PROBLEMS 321 -45 (2d ed, 1991), ^^0 See generally Moore v. Regents ofthe Univ. of Cal,, 793 P.2d 479, 483 (Cal. 1990) ("a reasonable

patient would want to know whether a physician has an economic interest that might affect [the physician's] professional judgment"), cert, denied, 499 U.S. 936 (1991).

'5 ' MASS. GEN. L. ch. 176B, § 7 (Supp, 1996); id ch. 176G, § 6; id ch. 1761, § 2; Alison Bass, New Law Bans Gag Rules on Doctors: Health Insurers' Contracts at Issue, BOSTON GLOBE, Jan, 23, 1996, at 1.

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ity in malpractice law. On the one hand, patient enrollees could sue for lack of financial disclosure, yet defendant physicians would still not be allowed by the courts to use financial constraints as a defense against allegations of medical misconduct.'52

Specific to credentialing, disclosure of capitation arrangements would require infor- mation not only on capitation per se, but also on how that reimbursement system colors physician selection and evaluation. It seems unlikely, even if capitation arrangements must be disclosed by physicians, that the details of credentialing processes would be included in this disclosure. It is difficult to argue that the specifics of practitioner economic assessment are necessary to a patient's informed decisionmaking beyond a general awareness that a physician might have an incentive not to treat. Outside of informed consent, a separate case could be made that if capitation results in economic credentialing, that fact should be dis- closed to enrollees by plans under a consumer information responsibility. To reveal the details of capitated credentialing, a legislative or regulatory directive needs to exist, and a failure to comply with such a directive could possibly form the basis of a suit.

5. Consumer Fraud

A case filed in the U.S. District Court for the Eastem District of Pennsylvania, Muller V, Maron, claimed that U.S. Health Care violated the state's Unfair Trade Practices and Consumer Protection law.'53 The plaintiff alleged that the MCO had a financial arrange- ment rewarding doctors with additional compensation for not making referrals and penaliz- ing those who overrefer. The allegation challenged U.S. Health Care's failure to inform the plaintiff-decedent ofthe financial relationship, and as such violated state law.'54 in essence, Muller parallels an informed consent claim, using consumer protection law.

There is some precedent for applying consumer protection laws to the business aspects of medicine.'55 Whether the failure to detail capitation arrangements rises to the level of consumer fraud and is an individual practitioner's obligation is questionable. Still, it is likely that consumer statutes will become more widely utilized in suits based, in part, on a failure to disclose capitation. Undoubtedly, state laws will be enacted that go beyond in- formation issues and treat underutilization as a form of consumer fraud generally.'56

D. LIABILITY OF THE CONTEXT OF ERISA

The majority of U.S. health plans are offered through employer self-funded arrange- ments, and as such, are covered by ERISA.'57 ERISA provides remedies to plan beneficiar- ies who are denied benefits, but the federal remedies do not allow for recovery of state- based tort claims, such as negligent credentialing or improper physician supervision.'58 Under ERISA, state claims related to qualified employee benefit plans are preempted by federal law.'59 The preemption argument has become a first line of defense in actions against MCO which allege corporate negligence or vicarious liability on the part of a plan.

'52 For example, see Wickline v. State, 239 Cal. Rptr. 810 (Ct. App, 1986); E. Haavi Morreim, Cost Containment and the Standard of Medical Care, 75 CALIF. L, REV. 1719 (1987); Rachel Kreier, Playing the Liability Lottery, AM, MED, NEWS, Apr, 15, 1996, at 11,

'53 No, CIV.A,94-5052, 1995 WL 605483, at * 1 (E.D. Pa. Oct, 13, 1995). ' 5 4 M ,

'55 5ee Gadson v. Newman, 807 F. Supp. 1412, 1415 ( C D . III. 1992); see also Johnston v. Anchor Org., 621 N.E.2d 137 (III. App. Ct. 1993).

^^^ Fraud: Underutilization in Managed Care New Target of Joint Fraud Efforts, 4 Health L. Rep. (BNA) No. 47, at 1809 (Dec. 7, 1995),

'57 29U,S.C. §§ 1001-1461 (1994). ' 5 8 M. § 1132(a)(l)(B). ^^'^ Id., see also id § 1144(a).

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The state law theories, previously discussed, that are vehicles to challenge improper capi- tated credentialing will likely face defense arguments that they are preempted by ERISA.

The power of ERISA preemption is vividly illustrated in Corcoran v. United Health- Care, Inc., in which a court ruled that ERISA barred a medical malpractice claim for negli- gent utilization review brought against an MCO.'60 The Corcorans sued an MCO alleging that the death of their unbom child was due to the negligence ofthe plan's third-party re- view entity and the failure of United HealthCare to approve hospitalization for Mrs. Corco- ran.'6i The plaintiffs never had their day in court because the federal district court, and later the Fourth Circuit Court of Appeals, mled that the Corcorans' claims were preempted by §514ofERISA.'62

Corcoran typifies the heart ofthe preemption problem, which is fundamentally a mat- ter of faimess. If the plaintiffs in Corcoran were not enrolled in an ERISA-qualified plan, the original action could have proceeded as a state-based tort claim. Review of ERISA's legislative history indicates that its drafters did not contemplate that state law preemption would result in barring enrollees from a medical malpractice remedy.'63 The inequity of preemption has led some federal courts to a more careful reading of ERISA, and to the de- velopment of theories that allow medical malpractice claims against qualified plans to pro- ceed. Still it must be recognized that ERISA preemption is very broad and strong, and the statute remains a constant challenge to the most creative attempts to circumvent its preemp- tion provisions.

ERISA preemption involves two separate sections ofthe statute, §§ 502 and 514(a), and analysis of this area requires a distinction between the concept of preemption and ar- guments to remove actions from state courts.'64 Under § 502, complete preemption applies to state law claims within the scope ofthe civil enforcement provisions of this section.'65 In order for preemption to apply under § 514(a), it must be demonstrated that the issue in question relates to the qualified employee benefit plan.'66

For a state action to be removed under the civil enforcement provisions of § 502, it must be properly characterized as seeking to recover benefits due, enforce rights, or clarify rights to future benefits under a qualified plan.'67 A leading ERISA decision is Dukes v. U.S. Healthcare, Inc., in which the court dealt with an appeal involving two cases, each in part claiming HMO liability on the basis of ostensible agency and vicarious liability for

'60 965 F.2d 1321 (5th Cir.), cert, denied, 113 S. Ct. 812 (1992), '6 ' Id at 1321, '62 Id '63 See Dukes v. U.S, Healthcare, Inc, 57 F.3d 350, 357 (3d Cir. 1995). '64 See Warner v. Ford Motor Co., 46 F,3d 531, 535 (6th Cir, 1995). Typically medical malpractice

cases filed against an ERISA-qualified plan are brought in state courts. Defendants generally seek to remove these actions to the federal courts arguing that a complete preemption of state law is mandated by ERISA's § 502, and that the federal district court has original subject matter jurisdiction. In order for a claim to be removable, the well-pleaded complaint rule must generally be satisfied. This rule requires that a federal question be presented on the face ofthe plaintiffs complaint. Clearly, a plaintiff who seeks a state remedy will not be apt to argue the presence of a federal question, and even the inclusion of anticipatory defenses to the defendant's likely preemption argument does not create a federal question. In Metropolitan Life Ins. Co. V. Taylor, 481 U.S. 58 (1986), the Supreme Court established an exception to the well-pleaded complaint rule, holding that state common law claims are to be treated as federal claims provided that the claim falls within the bounds ofthe civil enforcement actions outlined in § 502 of ERISA. Id. at 64-65. It is clear from Metropolitan Life that a state claim cannot be automatically removed to federal court by a general argument that such claims are inherently federal in nature. Id.

'65 29 U.S.C. § 1132(a)(l)(B). '66 29 U.S.C. § 1144(a). For recent analysis of the impact of ERISA's § 514(a), see Pacificare of Okla.,

Inc. V. Burrage, 59 F.3d 151 (10th Cir. 1995). '67 Metropolitan Life, 481 U.S. at 66.

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inadequate credentialing.'68 The cases, originally filed in a state court, were removed to the federal court by the HMO on the grounds that they fell within the well-pleaded complaint rule exception articulated in Metropolitan Life.^^^ The plaintiffs sought to have the case remanded back to state court, but the federal district court dismissed the action on the grounds that the claims against the HMO related to the benefit plan, and fell within § 502 preemption.'70 The court of appeals overtumed the district court decision in a consolidated appeal, ruling that in order for the cases to be removed there must be a showing that the state claims fit within the scope ofthe ERISA civil enforcement provisions.'7' According to Dukes, if a district court is unable to find a complete preemption under § 502(a)(l)(B), it does not have the power to resolve a § 514(a) preemption issue, and must remand that issue to the state courts.'72

The court of appeals in Dukes carefully assessed whether the claims made by the plaintiffs in the consolidated cases came within the bounds of § 502(a)(l)(B).'73 The court concluded that the complaints were not related to a failure to provide benefits, enforcement of plan beneficiary rights, or clarification of future rights to benefits.'74 Rather, the court found that the claims related to the lack of quality in the benefits provided, which did not fall under the auspices ofthe § 502 preemption.'75 Essentially, the Dukes court created a distinction between quantity of benefits and quality of benefits, with only the former falling under ERISA preemption. The court acknowledged that such a distinction may be difficult to maintain, and did note that an employer might be able to develop a contractual quality of care standard, and as such opt out of the state tort law. Dukes distinguished the Fifth Cir- cuit's Corcoran case, arguing Corcoran dealt with utilization review, which concems ques- tions of whether HMO plan benefits should be provided, and did not concem the liability of the plan for arranging the medical care.'76

An interesting line of argument, noted in Dukes, concems a claim, made by the plain- tiffs and the U.S. Department of Labor in an amicus brief, that U.S. Healthcare HMOs are separate from ERISA plans, and that the sole benefit participants and beneficiaries receive is membership in the plan, making the tort claims totally extemal to the ERISA plan.'77 The HMOs, on the other hand, argued that the medical care received is the plan benefit, and that the HMO is the entity responsible for ERISA plan implementation. The court noted these arguments, but did not resolve them. The argument to distinguish the health plan from the ERISA plan, if viable either judicially or legislatively, would allow a far broader route for state tort claims to proceed in that it overcomes preemption issues in both §§ 502 and 514.

Currently, the failure of total preemption under § 502(a)(l)(B) does not preclude a state court from preempting the action under § 514(a). The preemption provision in § 514(a) is very broad, encompassing any state common or statutory law issue that relates to employee benefit plans.'78 There is an extensive body of case law interpreting § 514(a) which makes it clear that run-of-the-mill claims against plans fall within the ambit of this

'68 57 F.3d 350 (3d Cir. 1995). '69 M. at 352. '70 M. '7 'M. at 355. '72 M. '73 M. '74 M. at 357-58. '75 M. at 357. '76 M. at 359-6L '77 Id at 356. '78 29 U.S.C. § 1144(a).

PHYSICIAN CREDENTIALING 195

provision.'79 In the context of MCO vicarious liability and ostensible agency, a number of district court opinions follow a minority position that medical malpractice claims do not relate to the ERISA plan, because these claims are coneemed with the dynamics of the en- rollee-physician interaction, not with the plan itself'80

In Schachter v. Pacificare of Oklahoma, the court ruled that § 514(a) did not preempt a vicarious liability claim against an HMO.'8' The Schachter court found that the vicarious liability claim for medical malpractice was not related to how Pacificare administered benefits, or the type of benefits that the HMO provided.'82 The court viewed this action as a type of indirect negligence, resting on a physician's substandard care, not on the plan's negligent conduct. Schachter ignores the argument that vicarious liability is based on a concept of supervision that creates more than an indirect involvement in the negligent event, but it is a decision typifying the strong desire of some courts to circumvent ERISA preemption.

ERISA remains a powerful barrier to state law actions, and while there is a movement to liberalize the application of the preemption provisions, that movement may ultimately require legislative intervention. The decisions that have carved out exceptions to the pre- emption provisions are not yet refiective of a broad national trend, but the inequity of ERISA preemption is compelling. Although plaintiffs, in actions for negligent credential- ing, will be challenged by preemption defenses requiring creative lawyering to overcome, federal courts may be willing to make difficult distinctions in a statutory realm that allows for few legal cracks.'83

E. PHYSICIAN CHALLENGES

The second major area of legal activity in the capitation-credentialing interface will involve physician challenges against MCOs for refusal to contract or deselection from a particular plan. Physicians who have been aggrieved by an MCO's contracting decisions are likely to mount legal actions similar to those seen in the hospital sector. Such actions for breach of contract, procedural faimess, or tortious interference with practice will be dif- ficult to pursue because of the lack of both judicial precedent in the area and a supportive body of state statutory law underpinning practitioner rights in the managed care arena. State and federal antitrust law is another source of physician challenges, but unlike state common law theories, the barriers to success lie in the inherent difficulties of proof in this area.

For the present, the impact of capitation on physician-MCO challenges is akin to eco- nomic credentialing, in that it skews evaluations to focus on efficiency considerations.

'79 Pacificare of Okla,, Inc. v, Burrage, 59 F.3d 151, 154-55 (10th Cir. 1995) (providing extensive cita- tions to cases that have interpreted § 514(a) preemption).

'80 See Kerney v. U.S. Healthcare, Inc., 859 F, Supp. 182 (E.D. Pa. 1994). '8 ' Pacificare of Okla., Inc., 59 F.3d at 154 (citing Schachter v, Pacificare of Okla., Inc., No. CIV-94-

C-203 (N.D. Okla, Mar. 16, 1995)). '82 Id '83 Under ERISA, health plans have a fiduciary duty to act solely in the interests ofthe participants and

beneficiaries. In a recently filed New York case, a plaintiff alleges that Aetna Health Plans violated its fi- duciary duty by switching its physician contracts from FFS to capitation. The plaintiff alleges that her chil- dren's pediatrician refused to accept Aetna's capitated arrangement, and informed his patient of sixteen years that he would not be able to continue treating her children under the HMO plan. The plaintiff is asking a federal court to enjoin Aetna from interfering with physician contracts, and to drop the use of physician incentive arrangements. The suit is a novel one which faces an uphill battle, in that the change to capitation may inconvenience the beneficiary, but it is not a denial of coverage or an action that excludes the practitio- ner, Robert Kazel, Suit Questions Legality of Aetna's Capitation, Bus, INS,, Jan, 15, 1996, at 37. There may be situations in which changes in reimbursement policy will result in large practitioner defections from a plan to an extent where such a policy shift could be characterized as a breach of fiduciary duty.

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However, unlike hospital credentialing, selective contracting has no limits of inquiry. As there are attempts to protect physician rights in capitated settings equivalent to those found in hospitals in litigation, there will also be a commensurate development in legislative are- nas to forge statutory rights for physicians who feel they have been improperly shut out of managed care arrangements. This section examines three likely areas in which physician credentialing challenges will occur—contracts, procedures, and antitrust—and concludes with two additional possible bases for physician actions.

1. Contract Challenges

Like hospital settings, the first line of argument for aggrieved physicians in a capitated plan is contractual. Managed care arrangements are rooted in contracts and when the terms of those agreements are violated challenges will ensue. Contract actions are more difficult to wage when plans initially refuse to enter into agreements with a particular physician or group than when plans fail to renew an agreement. While MCO contracts vary, many phy- sician agreements contain termination at will clauses, which although not necessarily open ended, narrow physician leverage considerably.'84

In addition to explicit contract violations, MCOs that fail to follow bylaw or policy provisions concerning credentialing will be vulnerable to breach of contract challenges. Under the NCQA accreditation standards, plans are required to have appeal processes for adverse contract decisions, and as with JCAHO criteria, courts will likely hold plans to the standards of voluntary accreditation.'85 In addition, many plans pressured by physician groups may adopt contract termination appeals. Confronted with physician challenges al- leging that plans violated their contract review policies, courts are likely to impose faimess requirements on MCOs similar to those found in the hospital arena.

Physicians who seek legal recourse for the inappropriate termination of MCO contrac- tual agreements may argue that such an action violated their property rights arising from an economic relationship with a particular plan. Suits to restore property rights have occurred in hospital credentialing, resting on both constitutional and contractual bases.'86 In the contract arena, an aggrieved physician can argue that a particular agreement has economic benefit, and that benefit cannot be improperly suspended. Thus, a plan that arbitrarily ends a relationship with a practitioner, in violation ofthe physician's contract, is guilty of perpe- trating an actionable economic injury, namely a violation of property rights. To make such an argument, a physician must demonstrate that an established relationship with a plan was disrupted. Naturally, such an argument would be difficult to mount at the applicant stage.'87

2. Procedural Challenges

With the maturation ofthe managed care industry, it is likely that more powerful phy- sician groups will demand procedural protections, and will reject the use of open-ended termination at will provisions. As noted, NCQA credentialing standards mandate appeal

'84 Bruce W, Clark, Negotiating Successful Managed Care Contracts, HEALTHCARE FiN. MGMT., Aug. 1995, at 27.

'85 NCQA STANDARDS, supra note 118, at 31. '86 Phoebe Carter, Annotation, Liability for Interference with Physician-Patient Relationship, 87

A.L,R.4TH 845 (1991). '87 It is interesting to consider whether a property right argument could be mounted by a plan member

physician if the MCO switches reimbursement from FFS to capitation, hurting the physician who is unable to adjust. Chances are, the MCO contract would allow for change in reimbursement, but in the event such change violated the practitioner agreement, the breach may be the basis of a property rights argument.

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mechanisms, and over time those mechanisms are likely to become industry-wide prac- tices.'88

A settlement reached by the Medical Society ofthe District of Columbia and a Wash- ington, D.C. MCO is noteworthy because it requires a credentialing process that could serve as a model for other MCOs.'89 The Medical Society alleged that a plan made false and misleading statements about its physician selection processes, and that the methodology used in the physician software evaluation was fiawed.'9O In the settlement, the plan agreed to establish quality improvement and credentialing advisory committees comprised of phy- sician members and insurance company representatives.'9' A two-stage appeal process was developed, allowing nonselected providers the right to challenge the insurer's decision and to obtain specific information about the reasons for nonselection.'92 Under the terms ofthe settlement, the quality improvement committee is responsible for reviewing practice guide- lines and monitoring aspects of care.'93 The credentialing committee has the power to make recommendations about specific credentialing decisions, and to oversee selection and ap- peals generally.'94 It does not appear that MCOs will replicate the hospital medical staff credentialing arrangement, but will instead move to a middle ground where physician mem- bers have a voice in the process.

With the establishment of some procedural safeguards in MCO credentialing, ag- grieved physicians may challenge plans on the basis of violation of procedural criteria. It will be difficult for physicians to argue that plan credentialing failures constitute due proc- ess violations because the plans are private, and licensure and reimbursement are inadequate for the necessary state action.'95 Violations of credentialing procedures will more likely fall within the orbit of contractual challenges. The few jurisdictions that allow altemative common law theories in the hospital sector may be willing to do so in the managed care arena. However, for this to occur, a stronger statutory base may be necessary. For exam- ple, in Califomia, physicians have been able to challenge hospital credentialing decisions on the basis ofthe common law fairness doctrine.'96 Under the fairness doctrine, courts will entertain physician claims against hospital disciplinary actions when the plaintiff-physician alleges that he or she was treated improperly by the institution.'97 The fairness doctrine rests on economic considerations, with legal remedies being provided because financial relationships are arbitrarily and unfairly disrupted.

In Delta Dental Plan v. Banasky, a California appellate court applied the fairness doc- trine to a provider fee dispute.'98 In Banasky, the plan rejected the request of two dentists, with whom it had contracted, for arbitration to settle a fee dispute. The court ruled that un- der the fairness doctrine the two dentists were entitled to an administrative hearing because

'88 NCQA STANDARDS, supra note 118, at 31. '89 Mutual Release and Settlement Agreement, Medical Soc'y ofthe Dist, of Columbia v. Blue Cross

and Blue Shield Ass'n, Civ, A, No. 94-1426, at 3 (June 12, 1995) [hereinafter Settlement Agreement], ^^0 Capital Blues, D.C. Medical Society Settle Selection, Quality Issues Dispute, 4 Health L. Rep,

(BNA) No, 24, at 914 (June 15, 1995), '9 ' Settlement Agreement, supra note 189, at 3-5. '92 Id at 8. '93 Id. at 4. '94 M. at 5. '95 Under New Jersey law, hospitals are treated as quasi-public entities, thus allowing physicians who

have been adversely affected by hospital credentialing decisions to bring due process type actions. In order for that right to be extended to the managed care arena, MCOs would have to be viewed by the courts as quasi-public in nature. Perhaps MCO entities which are licensed could be thought of as quasi-public, but those that are just financial conduits may not be,

'96 See Delta Dental Plan v. Banasky, 33 Cal, Rptr, 2d 381, 384 (Ct. App. 1994), '97 See Ascherman v. St. Francis Memorial Hosp., 119 Cal, Rptr, 507 (Ct. App. 1975). '98 33 Cal. Rptr. 2d at 385.

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the plan's actions unfairly affected their economic interests.'99 It is reasonable to conclude that Califomia physicians who feel that they were improperly terminated from an MCO would be able to use the faimess doctrine as a basis for a legal challenge.

Related to the Califomia faimess doctrine is a physician agreement challenging an MCO contract termination on the basis of an implied covenant of good faith and fair deal- ing. In the New Hampshire case of Harper v. Healthsource New Hampshire, Inc., the plaintiff-physician sued an HMO for terminating his contract, arguing in part that the termi- nation was void on public policy grounds.200 Dr. Harper had expressed concem to the HMO quality review committee that his patient records were inaccurate, affecting his per- formance evaluation.201 The physician was subsequently informed that the plan's creden- tials committee found no quality problems, but recommended termination because the phy- sician had failed to satisfy credentialing criteria.202 Dr. Harper appealed the credentials committee decision, but was denied access to the committee's documentation and so de- clined to participate in the first appeal. Harper filed a second appeal to the HMO Executive Committee but that committee decided to terminate without cause.203

Failing in his bid for relief at the lower court level. Harper appealed his termination to the New Hampshire Supreme Court. The court found a substantial public interest in the relationship between a physician and an HMO.204 The court reasoned that the public inter- est in physician-HMO contracts created an implied covenant of good faith and fair deal- ing.205 WTiere a viable claim for bad faith termination is made, the Harper court ruled that a hearing on the merits should be allowed even in the face of a termination without cause provision.206

Harper opens the door for physicians to argue for an MCO termination hearing on the basis of quasi-contract doctrine. It is unlikely that the implied covenant of good faith found in Harper will be recognized in other states. The New Hampshire case does not prevent termination without cause, but to date is the most viable option open to physicians to obtain a hearing on the merits. It is interesting to note that a plaintiff challenge in Harper on due process grounds was rejected in that sufficient state action could not be found in a private HMO operation.

A physician's right to appeal loss of an MCO contract may be helpful, but arguments used in the hospital setting about the inappropriateness of economic evaluation in creden- tialing will not necessarily be viable in managed care settings. Decisions to enter into and renew contracts with physicians in capitated environments are currently not limited to qual- ity considerations. The hospital medical staff structure which has controlled the parameters of credentialing does not exist in managed care, even in PHO models. The realities of capitation, as noted previously, result in financial assessments of physician practices that lie at the core of decisions about contract renewal, and no amount of process will alter that fact.

' 9 9 M,

200 674 A,2d 962, 964 (N.H. 1996). 20' Id at 963. 202 Id. 203 Id at 964. 204 Id at 965-66, 205 Id 206 Id at 966-67.

PHYSICIAN CREDENTIALING 199

3. Antitrust

One likely avenue of challenge for physicians excluded from MCO capitated deals is antitrust law.207 A credentialing exclusion motivated by a desire to limit competition or create a monopoly for certain physicians could be characterized as a violation of § 1 or 2 of the Sherman Act.208 in general, courts have looked favorably on restrictive contracting where procompetitive justifications are present. In fact, commentators have argued that for managed care to work, plans must have the ability to limit physician membership or face market failure.209 The same logic could be applied to capitated plans, the argument being that the idiosyncrasies of this payment mechanism, which benefit consumers in service and price, require plans to be selective in making physician contracting decisions. The eco- nomic integration which capitation fosters cannot succeed if MCOs are locked into accept- ing and retaining any provider.2'o Clearly, factual scenarios can be identified in which the deliberate exclusion of practitioners by an MCO constitutes an antitrust violation. How- ever, significant barriers to finding such violations exist, such as determination ofthe rele- vant market, and the ability to overcome defenses of economic justification.

In Ambroze v. Aetna Health Plans of New York, Inc., several anesthesiologists seeking tojoin an Aetna plan filed suit alleging that Aetna threatened to terminate its contracts with the hospitals where these doctors practiced, unless the anesthesiologists accepted Aetna's contract terms without alterations.2" The physicians sought appeal rights from the MCO for disputes over patient eligibility, medical necessity, utilization, and any other issue af- fecting a physician's rights to provide service.2'2 Aetna refused, taking the position that it did not negotiate its standard physician agreements. In a novel claim, the plaintiffs alleged that the MCO's behavior constituted an illegal restraint of trade, which reduced competition and quality of care in the intrabrand market for anesthesia services, in violation of § 1 ofthe Sherman Act.2'3 For plaintiffs to succeed, they must establish the existence of an anesthesia market, and then prove that the MCO's refusal to negotiate contracts harmed consumer choice. More typically, practitioner antitrust credentialing claims allege exclusion from an MCO plan because of failure to abide by restrictions such as most favored nation clauses or bans on dealing with competing plans, but the success of such claims hinges on the unique nature ofthe market in question.2i4

4. Other Claims

Physicians whose capitated managed care contracts are improperly terminated may be able to sue MCOs for tortious interference with practice.2'5 To establish tortious interfer- ence, the plaintiff-physician must demonstrate that the deselection from a plan severed cur- rent and future patient relationships, and most importantly, the physician must prove mal- ice, bad faith, or unlawful activity by the plan.2'6 Clearly, a contract termination will sever patient relationships, but a finding of purposeful wrongdoing, or an improper motive on the

207 See generally Increasing Antitrust Challenges Will Parallel HMO Growth, Experts Say, 3 Health L. Rep. (BNA) No. 16, at 513 (Apr, 21, 1994) (asserting that antitrust litigation will target HMOs more and more as they increase their market share).

208 M. at 514, 209 Thomas L. Greaney, Managed Competition, Integrated Delivery Systems and Antitrust, 79 CORNELL

L. REV. 1507(1994), 2 ' O M , at 1537-43. 2 " No. 95 av. 6631 (S.D.N.Y, filed Aug. 21, 1995), 2'2 Id 2'3 Id 2'4 Greaney, supra note 209, at 1541. 2'5 See Carter, supra note 186, § 10[a], at 877-78. 2'6 Id

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part of a managed care entity, may be difficult to establish. There are a number of cases in hospital credentialing in which tortious interference claims are raised, usually as one of sev- eral allegations of improper conduct by the hospital.2'7

In the case of a negative MCO credentialing decision, a physician could find malice or bad faith if he or she demonstrated that a plan violated its contract evaluation processes, and no other explanation for the MCO conduct existed. Still, the physician-plaintiff would need to show that severance of the MCO contract created an economic hardship in that the doc- tor's patient volume fell considerably as a result ofthe improper termination. Proof of all the elements needed to establish tortious interference may be difficult to develop. In refer- ence to capitation and credentialing, this claim could be pursued if a plan acts in bad faith or in violation of a future state capitation policy by altering the terms of a physician's capi- tation as a way to exclude the doctor from a plan.

It is conceivable that a physician could challenge an MCO credentialing program on the basis ofthe corporate practice of medicine doctrine. The corporate practice of medicine doctrine is a state law prohibition based on the principle that corporations lack the qualifi- cations necessary for a license to practice medicine, and thus cannot legally hold one.2'8 The rule is anything but absolute with exceptions found in state and federal law, particularly for HMOs and professional organizations.2'9

In order for the corporate practice ban to apply to credentialing, this evaluation would have to be viewed as a medical function. While aspects of credentialing clearly require medical judgment, it has never been a purely medical activity, in that lay boards have tradi- tionally been involved in the process. Assuming the doctrine can be applied to a particular managed care entity, a plan may chose to move the credentialing function to a related ex- empt entity, such as a medical corporation or group practice. In the event an MCO is cov- ered by the ban on corporate practice and credentialing is classified as medical practice, an aggrieved physician may be able to argue that particular MCO's credentialing system is illegal.

F. LEGISLATIVE RIGHTS

Undoubtedly, physicians who are adversely affected by an MCO credentialing process will seek recourse in the courts. The barriers to success, as already noted, are considerable. Thus, it is not surprising that organized medicine, at the state and national levels, has sought to develop legislative and regulatory safeguards against improper MCO credentialing. Physicians may seek some protection from managed care credentialing decisions under the HCQIA, or in appropriate cases, the ADA.220 This section will primarily examine the emergence of state statutory law aimed at affording physicians some ofthe rights they enjoy in the hospital medical staff context.

I. Any Willing Provider

The primary legislative protection for physicians in the managed care arena is the any willing provider provision,22' which requires that MCOs accept any practitioner for plan

. § 10[b], at879. 2'8 Patricia Jacobsen, Prohibition Against Corporate Practice of Medicine: Dinosaur or Dynamic

Problem, in HEALTH LAW HANDBOOK 67, 67-68, 78-98 (1993). 2'9 Federal HMO Act, 42 U.S.C. § 300e (1994); see also Medical Practice Act of 1987, I I I . ANN. STAT.

ch. 225, paras. 60/1-60/4 (Smith-Hurd 1993). 220 42 U.S.C. §§ 11101-11152 (1994); 42 U.S.C. §§ 12101-12213(1994). 22' Any Willing Provider Bills Proliferate at State Level, 3 Health L. Rep. (BNA) No. 46, at 1683 (Dec.

I, 1994).

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membership who is willing to abide by the contract terms of the plan. Although many states have enacted such legislation, not all any willing provider laws cover all provider agreements.222 Many are limited to access provisions for pharmacists only, or for certain types of managed care entities, such as HMOs.223 While these laws may ensure that practi- tioners are not locked out of a particular plan, they do not guarantee that the physician in question will be pleased with the terms ofthe service agreement the MCO offers.

Any willing provider legislation has been sold to state legislatures on the grounds that it is a vehicle to facilitate the inclusion of all physicians in managed care networks, thus increasing competition, and holding down prices. It has been suggested that this type of legislation is cost free, and it appeals to legislators' desire to please powerful state medical lobbies. Opponents of any willing provider laws, in particular, the managed care industry, argue that MCOs must be able to limit the number of physicians in order to control costs and quality effectively. The managed care industry is also coneemed about the added costs of credentialing more physicians, and the difficulties of marketing open panels to employ- ers. The Federal Trade Commission has gone on record as opposing any willing provider laws, taking the position that open physician enrollment will result in higher prices.224 The AMA has adopted a neutral position on any willing provider protections, arguing that there may be instances where physician networks will need to limit membership, but advocating for broader physician credentialing protections, including physician developed quality stan- dards.225

Any willing provider laws have been challenged on the grounds that they are pre- empted by ERISA. In Stuart Circle Hospital Corp. v. Aetna Health Management, the Fourth Circuit Court of Appeals found that a Virginia any willing provider law did not af- fect how an employee health benefit plan was delivered and administered, and did not fall under the ERISA insurance preemption.226 The court in Stuart Circle agreed with the con- clusion of the Virginia Supreme Court in a related state case that the law in question was part ofthe state's insurance scheme, and thus was not preempted by ERISA.227 The oppo- site conclusion was reached in Cigna Healthplan of Louisiana Inc. v. Louisiana, where the district court found that the Louisiana any willing provider law related to the administration ofthe ERISA plan by limiting the discretion ofthe plan to select participating physicians, and it did not fall within the insurance exception, and thus was preempted.228 if Cigna, now on appeal, is not overruled by the Fifth Circuit, the issue of ERISA preemption of any will- ing provider laws may ultimately be settled by the Supreme Court.

2. Patient Protection Act

Other statutory efforts have been initiated to provide physicians with credentialing protections paralleling those found in the hospital sector. In 1994, the AMA promoted a federal Patient Protection Act, an outgrowth of guidelines it had developed with the Na-

222 Terese Hudson, State Laws: A Stumbling Block for System Integration, HosP. &. HEALTH NET- WORKS, Apr, 20, 1994, at 40, 40,

223 4fiy Willing Provider Bills Proliferate at State Level, supra note 221, at 1683. 224 M, at 1684. 225 See Any Willing Provider Provisions and Laws (Resolution 718, A-93), in AMA PROCEEDINGS, su-

pra note 88, at 25. 226 995 F.2d 500, 505 (4th Cir,), cert, denied, 114 S. Ct. 579 (1993). 227 M. (citing Blue Cross and Blue Shield v. St. Mary's Hosp. of Richmond, Inc., 426 S,E.2d 117, 121

(Va. 1993)). 228 883 F. Supp, 94, 104 (M.D. La, 1995).

202 AMERICAN JOURNAL OF LAW «& MEDICINE VOL. XXII NOS. 2&3 1996

tional Blue Cross/Blue Shield Association and the Cigna Corporation.229 Several sections of the Patient Protections Act had a direct bearing on credentialing. The AMA bill called for the establishment of a formal mechanism for MCO physician input into credentialing, and for the development of procedural faimess standards.230 in addition, the Patient Pro- tection Act would have created a Physician Executive Committee, responsible for creden- tialing and making recommendations to the plan's governing body regarding initial and ongoing physician participation matters.23' The AMA proposal mandated the creation and publication of objective physician evaluation standards and barred plans from discriminat- ing against practitioners whose patient mix includes a higher number of risky or vulnerable patients.232 The AMA has shifted its efforts away from passage of the Patient Protection Act to incorporation of similar provisions into Medicare reform legislation. The AMA is attempting, through legislation, to develop a physician controlled credentialing system; but even if it succeeds, it is unlikely to result in the development of contracting policies that focus exclusively on quality issues.

3. State Initiatives: Texas

State legislative efforts, similar to the AMA's approach of developing broader creden- tialing safeguards, will likely be launched in managed care settings.233 The Texas Insurance Commissioner recently issued final rules designed to create a more level playing field for physicians to deal with managed care entities.234 The Texas regulations require that MCOs provide any interested physician application information and written reasons for denial of membership.235 The Texas rules also provide physicians and dentists who are terminated by an HMO the right to a review by an advisory panel.236 Preferred provider organizations (PPOs) in Texas must, in addition, offer a review process to those who are turned down for admission to a network.237 While the regulations do not delineate the reasons an MCO may reject applicants or terminate contracts, plans are free to reject applicants if they have enough providers, presumably without a hearing.238 At this point, no other state has statu- tory or regulatory provisions similar to Texas's, but it is likely that others will follow suit.239

IV. CONCLUSION

The erosion ofthe hospital medical staff credentialing model, resulting from a variety of external forces has led to a managed care physician selection process far different from the long-standing medically dominated model. Market forces, combined with capitation

229 s, 2196, 103d Cong., 3d Sess. (1994); H.R. REP. N O . 4527, 103d Cong,, 2d Sess. (1994); AMA Pro- posal Requires Health Plans to Give Consumers Coverage, Cost Data, 3 Health L. Rep. (BNA) No. 21, at 698 (May 26, 1994),

230 s. 2196, 103d Cong., 2d Sess, § 4(5)-(6), 23' Id § 4(6)(B), 232 Id § 4(6)(B)(II). 233 N.J.A.B. 1393, 207th Leg,, 1st Annual Sess, (1996), 234 TEXAS ADMIN. CODE tit. 28, §§3,3703,3.3705, 11.1601 (1996). 235 M, § ll . l601(a), 236 M, §§3.3705(4), 11.1601(b). 237 M . §3.3703(1). 238 Id. § 11.1601 (a) (unless otherwise prohibited by Texas Insurance Code art. 2I.52B). 239 Recently a group of five Houston physicians sued Aetna Life Insurance Company arguing that they

were unfairly dropped from the insurer's PPO. The U.S. District Court for the Southern District of Texas ruled that it had no jurisdiction in the case because Texas law does not provide a private cause of action to enforce PPO regulations. According to the Fifth Circuit, only the Texas Department of Insurance has the authority to enforce PPO rules, Texas Medical Ass'n v. Aetna Life Ins. Co., 80 F.3d 153 (5th Cir. 1996).

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and discounted FFS arrangements, have moved MCO physician evaluations to place even greater emphasis on measuring economic efficiencies. While power currently resides with the managed care industry, the balance will undoubtedly shift back toward the medical community. Physicians will likely win some protections from arbitrary exclusion or dis- missal by MCOs through legislation, accreditation, and legal challenges. For the near fu- ture, physician credentialing in an era of selective contracting will eventually allow for greater physician input, but the economic underpinnings of managed care, particularly capitation, will continue to dictate selection and retention based on performance measures that are imbued with efficiency elements. Gradually, physician reimbursement schemes, like capitation and its successors, may operate in markets where quality factors will ree- merge as the dominant focus of physician evaluation, but it is unlikely that the hospital medical staff world ofthe recent past will be replicated.