When Can Managed Care Companies Be Sued?
Managed care companies are not immune to lawsuits, even those who are
protected by ERISA. While every case needs to be assessed on its individual merits and
with consideration of individual state laws which differ across the country, there are a
few guideposts for clinicians
to suggest when a case warrants legal consideration. It is
important, however, to remember that the legal community is not particularly familiar
with managed care and is in general wary of mental health related cases. Thus, patients
should not automatically take a negative evaluation from an attorney as a sign they do
not have a valid legal claim.
- 1. Has the patient been denied care that is "medically necessary"?
This is the single biggest category of complaint against a managed care company.
They promise patients certain benefit levels "to the extent it is medically necessary" but
then define medical necessity in a manner that no responsible clinician would support.
To the extent patients suffer from such denials (including emotional suffering) they may
have a valid legal claim against the managed care company.
- 2. Has the patient been denied reimbursement for care that is medically necessary?
This question raises the issue of insurance "bad faith" law in which if an
insurance company denies a claim "in bad faith" (i.e. knowing the patient needs the care
but denying it for financial self interest) they can be liable for punitive damages
determined by a jury. Punitive damages go beyond the plaintiffs damages to punish the
insurance company for denying claims and depending upon the facts can be very sizable.
This is a major threat to managed care companies in states where state law permits
punitive damages in bad faith cases.
- 3. Has the patient received substandard care?
This is a standard malpractice action but can also be applied to managed care
companies of all types if the hospital, HMO or provider of care is the “agent” of the
managed care company. Most in-network providers meet the test of “agency”. Under a
legal doctrine of vicarious liability, the managed care company is legally responsible for
what its "agents" do.
Bryant Welch, J.D.,Ph.D. is a clinical psychologist and attorney with one of the first
nationally-based law firms devoted exclusively to managed care abuse. He can be
reached at 11261 South Glen Rd., Potomac, MD. 20854 or by phone at 301-983-4344.
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