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
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. 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.
Hemenway D; Killen A; Cashman SB; Parks
CL; Bicknell WJ: Physicians' responses to financial incentives. N Engl J Med.
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