Court Gives New Life to DB’s Suit Against MCOs

The Pennsylvania Psychiatric Society (PPS) can resume its interrupted legal challenge to the way the managed care industry does business.

In May 1999 the PPS decided its members and their patients had suffered enough at the hands of the managed care industry. Frustrated with the lack of change after numerous meetings and educational efforts, the district branch decided that it had sufficient evidence to convince a court to alter the managed care equation.

The PPS filed suit against several managed care companies (MCOs), including mental health carveouts, alleging that they misrepresent their services to beneficiaries, harm patients by interfering with medical care, and use procedures that allow them to limit severely the number of psychiatrists who can treat patients via provider networks (Psychiatric News, July 2, 1999).

In March 2000, however, their legal challenge suffered a severe setback when a U.S. district court judge dismissed the suit, ruling that as a professional association (rather than as a collection of individuals bringing suit), the psychiatric society had no legal grounds on which to proceed (Psychiatric News, May 19, 2000). The targeted companies were Highmark Inc., Magellan Health Services, Magellan’s Green Spring subsidiary, and three Keystone Health Plans.

Then last month the PPS’s suit experienced a reversal of fortune.

The U.S. Court of Appeals for the Third Circuit vacated the district court’s ruling and said that the organization does have sufficient standing to proceed, in part because it did not suffer harm or injury as a result of managed care actions. The appeals panel said that since the PPS was seeking only an injunction preventing the managed care companies from continuing their allegedly harmful and improper practices, that goal did not require a “need for excessive individual involvement” of individual Pennsylvania psychiatrists.

Not only did the appeals court rule that the PPS has standing to sue on behalf of its members, it also said that those members have standing to sue on behalf of their patients. The lower court had ruled to the contrary on that issue as well.

The legal requirement the appeals court identified for psychiatrists to sue on behalf of their patients mandates that psychiatrists and patients must have a relationship that is “sufficiently close” so that the psychiatrist is qualified “to effectively advance their patients’ claims.”

The appeals court found, “The patients’ relationships with their psychiatrists fulfills this requirement. . . .Psychiatrists clearly have the kind of relationship with their patients, which lends itself to advancing claims on their behalf. This intimate relationship and the resulting mental health treatment ensures psychiatrists can effectively assert their patients’ rights.”

The appeals panel noted as well that psychiatrists merit standing to sue on behalf of their patients, because “the stigma associated with receiving mental health services presents a considerable deterrent to litigation” that the patient might want to bring on his or her own behalf.

Having decided that PPS and its members do have standing to sue the MCOs, the appeals court sent the case back to the district court.

Among the specific charges the PPS cites in its suit are that “the MCOs refused to authorize and provide reimbursement for medically necessary mental health treatment; interfered with patients’ care by permitting nonpsychiatrists to make psychiatric treatment decisions; violated provider agreements by improperly terminating relationships with certain psychiatrists; and breached the contractual duties of good faith and fair dealing by failing to timely pay psychiatrists and by referring patients to inconvenient treatment locations, thereby depriving some patients of access to treatment.”

PPS President Lawrence Real, M.D., applauded the appeals panel’s decision. “This decision makes sense,” he said in a statement, “because it recognizes the principle that associated suits such as ours are a legitimate vehicle for pursuing systemic relief in areas where the cost and burden of individual lawsuits has made it nearly impossible for our individual members to achieve meaningful change.”

Magellan, Green Spring’s parent company and the nation’s largest mental health carveout company, disputes the charges, labeling them “vague and unsubstantiated” and “completely without merit.” It maintains that its policies have been designed to protect patients and “ensure quality care.”

Magellan has challenged the appeals court panel’s ruling. The decision to grant the PPS legal standing was made by a three-judge panel of the federal appeals court, and Magellan has filed a petition asking to have the appeal heard en banc, that is, by the full appeals court.

The company contends that the panel’s ruling “is so against the settled weight of precedent and constitutes such a dangerous expansion of the doctrine of third-party standing that it should be addressed” by the full appeals court. It wants the court to rule that the applicable legal principle is that “claims should be litigated by the persons who hold them, i.e., persons who are directly impacted by the outcome of prospective litigation.” It maintains that the appeals panel was in error when it ruled that the PPS has “associational standing” to sue the MCOs and that there was a sufficient obstacle preventing the supposedly aggrieved third parties, namely psychiatrists and patients, to sue on their own behalf.

The appeals court panel’s ruling inPennsylvania Psychiatric Society v. Green Spring Health Services, et al.,is posted on the Web at www.ca3.uscourts.gov/opinions/003403.pdf.▪