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Incentives and Commercial Bribery

In most states HMOs, PPOs, and other managed care plans do not directly employ and supervise physicians. The physicians are either employed by physician's associations that contract with the plan or independent practitioners who contract directly with the plan. These contracts contain provisions that are intended to encourage the physicians to change the medical care decisions that they would have made in the absence of the plan.

Some of these provisions, such as those governing the submission of bills and discount schedules for prompt payment, have no effect on medical care decision making. Others have profound effects on physician decision making. The most benign of these incentives are disallowing or heavily discounting procedures that the plan wants to discourage. This gives physicians the option to offer the care and absorb the reduced reimbursement. These become more troubling when they are coupled with provisions that prevent discounting care. This prevents physicians from providing the treatment at cost to help needy patients. The most ethically and legally problematic provisions are those that prohibit the physician from rendering the necessary care.

Some plans attempted to have physicians contractually agree not to provide routine ultrasound to pregnant women and not to inform the women that routine ultrasound was available. By preventing women from knowing about the procedure, the plans hoped to avoid complaints from women who wanted ultrasound.

Total capitation plans pose the greatest conflicts of interest. A total capitation scheme makes the physicians or clinic group the insurer of the patient by requiring that they provide all necessary patient care for a fixed payment. Services that the physician cannot perform personally must be bought out of this allocation. These plans shift the risk of insurance onto the physicians or clinic--a powerful disincentive for the physician to order tests or consult with outside specialists about the patient's care. These plans are dangerous for all but clinics large enough to employ all necessary specialists and with enough patient volume to average out the risks. Smaller entities face the risk that a run of seriously ill patients will deplete the clinic's assets, making it unable to buy the necessary care for the patients.

While these incentive plans are ubiquitous, their legal status is quite uncertain. (The Wall Street insider trading scandals and the prosecution of savings and loan executives illustrate that generally accepted business practices may nonetheless be illegal.) Perhaps the clearest threat to these arrangements are state commercial bribery statutes. These laws are based on the Model Penal Code, section 224.8:

Commercial Bribery and Breach of Duty to Act Disinterestedly:

A person commits a misdemeanor if he solicits, accepts or agrees to accept any benefit as consideration for knowingly violating or agreeing to violate a duty of fidelity to which he is subject as:

... (c)
lawyer, physician, accountant, appraiser, or other professional adviser or informant; ...

A person commits a misdemeanor if he confers, or offers or agrees to confer, any benefit the acceptance of which would be criminal under this Section.

The Model Penal Code broadly defines the "benefit or consideration" as "gain or advantage, or anything regarded by the beneficiary as gain or advantage."

It is clear that incentive plans affect physicians' clinical judgment; physicians make different therapeutic decisions under incentive systems.[48] Under the technical provisions of most commercial bribery, this is illegal, irrespective of whether it harms the patient. If the incentive denies patients care that they would otherwise have received, it is illegal under all the state commercial bribery laws. The test is whether the fiduciary duty is breached when viewed from the patient's perspective, not the plan's.

Violating a state commercial bribery statute is a predicate act for RICO only if the statute provides for imprisonment for greater than one year. Several states specifically prohibit physician incentives under their commercial bribery laws and provide for imprisonment for more than a year. In these states, physician incentive plans are clearly predicate acts for RICO. Some states do not specifically mention physicians in their commercial bribery statutes but prohibit bribing physicians. These states have case law that defines a physician as fiduciary. Even in states that do not directly criminalize physician incentives under a commercial bribery statute, a plaintiff can argue that the model penal code prohibitions on bribing physicians are evidence that incentive plans violate the physician's common law fiduciary duty. These breaches of the physician's fiduciary duty can be the basis for mail and wire fraud, which are predicate acts for RICO.

[48]Hemenway D; Killen A; Cashman SB; Parks CL; Bicknell WJ: Physicians' responses to financial incentives. N Engl J Med. 1990; 322:1059-63.

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