Special E-Mail Bulletin #3
May 2000
"Without Cause" Termination Voided?
Special E-Mail Bulletin
Hi, everyone.
Physicians have long argued that it's fundamentally unfair for a healthplan to terminate a provider agreement without reason, explanation, or hearing (i.e., "without cause"). Last week California's Supreme Court issued a ruling on the matter that could have profound impact on provider-healthplan relations in many states. Here's information you should know about, this is from the current issue of AM News.
Gil Weber
AMNews home
May 22/29, 2000.
Court: Major plans can't drop doctors without a hearing
In a landmark ruling, the California Supreme Court declared that a managed care company that controls a substantial economic interest in a physician's practice cannot deselect the physician without an explanation and hearing.
The 4-3 ruling this month in the case of Louis E. Potvin, MD, v. Metropolitan Life Insurance Co. effectively voids "termination without cause" clauses in major provider contracts in California and any state that looks to California for precedent. By extension, it also invalidates the clauses in independent practice association contracts.
The decision upholds a lower court ruling that the late Dr. Potvin, an obstetrician-gynecologist from Orange County, had a common-law right to an explanation and hearing after his 1992 termination from MetLife.
Dr. Potvin argued that the company's termination, based upon the existence of four malpractice lawsuits -- three of which were dropped -- had led to a series of terminations by other health plans and physician groups, ruining his practice.
The California Supreme Court agreed that when an insurer's termination "significantly impairs the ability of an ordinary, competent physician to practice medicine or a medical specialty in a particular geographic area," a physician is entitled to notice and a hearing.
"Our holding ... does not prevent an insurer subject to obligations of common law fair procedure from exercising its sound business judgment when establishing standards of removal of physicians from its preferred provider lists," wrote Associate Justice Joyce L. Kennard.
"We simply hold that, under principles recognized by the common law of this state for over a century, such removal must be 'both substantively rational and procedurally fair,'" Kennard wrote.
The three dissenting justices objected to special protections for physicians.
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