Outsourced health care companies making care decisions, plaintiffs' lawyers say

By Justin Kloczko

Last year, Shernoff Bidart Echeverria LLP attorneys confidentially settled a lawsuit against health insurance giant Cigna alleging wrongful medical denial related to a 38-year-old mother who needed a PET scan for her cancer treatment.

The plaintiff's doctor requested the scan five times in order to discover the full extent of the disease, but it was denied each time, according to the lawsuit. After paying about $1,800 out of pocket for the scan, it was revealed the cancer spread throughout the woman's skeleton, liver, and spleen.

Her doctors and attorneys said that if the procedure had been granted earlier, her cancer could have been prevented from spreading.

But what shocked her attorney, William Shernoff, was finding out during deposition that it wasn't the insurance company making the denial, but an obscure company located in South Carolina called MedSolutions. Engelbrecht v. Connecticut General Life Insurance Company et al., BC570740 (L.A. Super. Ct., filed Jan. 28, 2015).

"They hire their own doctors. Sometimes they don't even talk to the treating doctor," Shernoff said.

MedSolutions, now called eviCore healthcare, is owned by hedge funds and markets itself on its company website as having a "commitment to containing healthcare costs and achieving quality medical outcomes." Although the company touts these services for patients, providers, and plans, many insurance bad faith attorneys see this as cost-saving measures aimed at health insurance companies.

In one of the denials, the overruling doctor was a surgeon, not an oncologist, who never spoke to Shernoff's client when deciding the procedure was not medically necessary, according to court documents.

"Bottom line is Wall Street is deciding whether you get PET scans or you get surgery, or you get a drug. It's pretty bad," Shernoff said.

This issue of "doctor policing," where a health insurance company outsources its medical decisions to another company in order to cut costs, is an increasing issue of concern for Shernoff and attorneys pursuing insurance bad faith claims, who say the practice has allowed health insurance companies to wash their hands of any legal liability when they are sued for wrongfully denying claims.

"When care is wrongfully denied, they are going to argue it's not them, it's the third party," said Pasadena attorney Scott Glovsky, who litigates insurance cases.

And despite two state Supreme Court cases ruling that it is the treating doctor's judgment that prevails, not the insurance companies, case law has been ignored, Shernoff said.

"That legal doctrine is being totally ignored by insurance companies," he said. Sarchett v. Blue Shield of California (1987) 43 Cal.3d 1 and Hughes v. Blue Cross of Northern California (1989) 215 Cal. App. 3d 832.

"California law is well established. In order to deny a health insurance claim on the basis that a treatment or hospitalization was not medically necessary, the legal standard is that the treating physician's judgment must be shown to be 'plainly unreasonable or contrary to community medical standards,'" said Travis Corby, a Shernoff Bidart Echeverria attorney who said he is looking into two more PET scan denial claims.

In Hughes, the state Supreme Court set forth the standard already in place by Sarchett, "where the court considered whether the duty of good faith requires an insurer to defer to the judgment of the treating physician on the issue of medical necessity. It refused to adopt this extreme position, holding that 'medical necessity' or similar policy language is an objective standard to be applied by the trier of fact," the court said.

Yet since those decisions, the battle has not gotten easier, as courts have also narrowed the non-delegable duty doctrine in the context of medical groups, according to Glovsky. Under the doctrine, an entity cannot escape a duty by deferring it to another party.

In a case that went up to the 2nd District Court of Appeal, the court affirmed a jury's ruling that Blue Shield of California had not breached its duty of good faith and fair dealing regarding a policy holder who said she received unfair treatment from a contracted specialist.

Glovsky contended Blue Shield wrongly delegated away his client's health care decision making to a medical group by denying a trip to the optometrist. However, the panel disagreed, ruling a health care service plan is not responsible for inadequacies in the health care which its contracting service providers deliver.

"Contrary to appellant's claim, this does not mean that it is only Blue Shield who was to make medical decisions. The EOC and the documents incorporated into the EOC make it quite clear that, in the first place, it is the provider and not Blue Shield who was to make the initial decision," the panel ruled. Watanabe v. California Physician's Service Cal.App.2nd B195725 (Cal. App. 2nd Dist. Nov. 18, 2008).

Attorneys interviewed for this story said it was fruitless to try to prosecute medical groups like eviCore, instead focusing their resources on the actual insurance policies. "These companies do not have any requirement to act in good faith," said Glovsky. "They're not technically employees of health plans," he said.

EviCore did not respond to requests for comment, while Cigna declined answering questions from the Daily Journal. Insurance defense attorneys reached for comment also declined to speak on the record.

EviCore did participate in the settlement regarding the Shernoff PET scan case, but its contract with Cigna was sealed in federal court. Corby called the agreement a "handsome settlement."

"The whole reason of implied covenant good faith exists in California is because there is an unequal bargaining position between patients and health insurance companies. It's actually a fiduciary-like relationship. Under the current state of law in California, which is awful, insurance companies can have the medical group that they hire deny treatment for a patient," said Glovsky.