Psychiatrists in Pennsylvania are processing the impact of two recent developments in their landmark lawsuit challenging the legality of practices that are common in the managed care industry but interfere with patients’ ability to receive optimal care and psychiatrists’ ability to provide it.

Last May the Pennsylvania Psychiatric Society (PPS) filed a lawsuit against Highmark Inc., a large insurance firm in western Pennsylvania, its behavioral health carveout contractor, Magellan Health Services Inc., Magellan subsidiary Green Spring Health Services, and several Keystone health plans. The multicount suit charges the companies with interfering in the relationship between psychiatrists and patients, misrepresenting the level of care available in their plans, violating the terms of contracts they signed with psychiatrists, illegally terminating them from provider panels, and giving patients incorrect information about why the psychiatrists were removed from the panels.

After the suit was filed, the PPS asked the magistrate hearing the first stage of the suit to issue a preliminary injunction that would order Magellan and the other defendants to cease the practices in dispute until the court ruled on the case. The PPS based its injunction request in large part on a contention that psychiatrists who are unable to participate in the health plan as well as their patients "will suffer irreparable harm" if the judge declines to issue an injunction. It emphasized that if the managed care companies are allowed to continue the practices at issue, it will "disrupt the psychiatrist-patient relationship, thus diminishing the quality of care received by the patient and irreparably injure the psychiatrists’ ability to attract new patients."

However, Magellan and Green Spring, in response to the injunction motion but before the injunction was acted on, made a concession in papers submitted to the court. They said that as a result of their misinterpretation of Medicare rules (the health plan at issue is a Medicare HMO called Security Blue), it may have terminated or suspended psychiatrists who were in fact eligible to continue providing services to plan beneficiaries.

The company told the court that it would reinstate these psychiatrists to its provider panels and inform the psychiatrists’ patients that they would not have to continue their treatment with a new plan psychiatrist after all. Magellan’s Green Spring division sent letters to the psychiatrists and their patients in early February.

The company had earlier told these patients that their psychiatrist was either terminated or suspended for violating Medicare reimbursement rules.

The carveout company acknowledged that "certain confusion has previously existed" regarding three psychiatrists’ eligibility to continue providing services, and after consultations with the federal Health Care Financing Administration, the agency that administers the Medicare program, the company realized that those psychiatrists "in fact are eligible to provide services to patients" in the Medicare HMO.

As a result of the steps it has taken to correct its misunderstanding, Magellan and Green Spring have told Magistrate Kenneth J. Benson that there is thus no need for him to issue the injunction against them that the PPS requested.

Another Pennsylvania psychiatrist came forward, however, and informed the PPS that he too had been disqualified from Green Spring’s provider panel after the company took steps to remedy the problem with the other psychiatrists. Consequently, PPS’s attorneys have asked the magistrate to continue reviewing the injunction request even though defendants say they have remedied the problem.

While very pleased by Magellan/Green Spring’s concession about its mishandled credentialing decisions, the Pennsylvania psychiatrists are troubled by Magistrate Benson’s indication that he plans to recommend to a federal judge that the suit be dismissed.

The magistrate’s task under Pennsylvania law is to address motions in the earlier phases of certain legal proceedings and then forward recommendations to the judge, in this case Judge Gary Lancaster of the U.S. District Court for the Western District of Pennsylvania.

Benson agrees with the defendants’ claim that the suit should be dismissed because the PPS does not have legal standing to sue these companies on the charges alleged in its complaint. Among the explanations Benson provided for his recommendation are that the PPS did not suffer any monetary damages and, following other court rulings, may not, as an association, "bring claims for monetary relief on behalf of [its] members."

He also disagreed with the PPS’s contention that it can bring breach of contract charges on behalf of individuals without the specific individuals also participating in the suit. Benson said that "PPS is attempting to litigate the rights of third parties and not the rights which it possesses." The third parties in this case are the individual psychiatrists who contend that the managed care companies breached their contracts.

Phillip Lebowitz, one of the PPS’s attorneys in this case, told Psychiatric News that he thinks that Benson "either misunderstood the facts or misapplied the law." The magistrate "was wrong to say that a society could not bring an action because some of its members might have to testify," Lebowitz said. "The law is clear that an association can sue on behalf of its members."

The magistrate noted as well that the PPS’s standing to sue is further negated by the fact that "each of the [credentialing and quality of care] claims raised by the PPS would be the subject of mandatory arbitration if brought by individual PPS members. Hence, the individual members of the Provider Network should not be permitted to circumvent the arbitration provision by having the claims brought by an association of which they are members, but which itself is not party to the Provider Agreements."

Lebowitz, who is with the Philadelphia law firm Pepper Hamilton, said that while the PPS acknowledges that some claims alleged in the suit are subject to mandatory arbitration, not all fall under that rubric. "For instance, we don’t think that medical-necessity determination procedures are subject to arbitration, and they should remain in court," he said.

State law gives either party 10 days to file written objections to a magistrate’s report, and the PPS’s attorneys did so on March 2. The defendants in turn had 10 days to respond to the PPS’s objections, a deadline that fell at press time. Once the magistrate reviews presentations from both sides, his original or modified recommendations will go on to the federal judge. It is unusual for a federal judge to reject a magistrate’s recommendation, Lebowitz noted.