Cyber Stocks: PaineWebber View

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HMO Physicians Beware

This articles by Barbara Fox were published in U.S. 1 Newspaper on March 24, 1999. All rights reserved.

If you are a doctor, and your failure to refer a patient

to a specialist results in that patient getting sicker or dying, you

can be sued — even though the HMO you work for might have discouraged

the referral. If you do refer the patient, you may have to pay for

it yourself.

So says Brad X. Terry, an attorney with Reed Smith Shaw & McClay

at Forrestal Village. He moderates a panel, "Managed Care Liability

in Medical Malpractice Cases," for the New Jersey Institute for

Continuing Legal Education (NJ-ICLE) on Ryders Lane in New Brunswick

on Saturday, March 27, at 9 a.m. Cost: $179 for morning and afternoon

sessions. Call 732-214-8500.

An alumnus of Messiah College in Pennsylvania and Seton Hall law school,

Terry was an editor at Trial Lawyer Magazine, worked for Blume Goldfadden

et al in Chatham, and joined Reed Smith this year. He frequently lectures

on managed care liability issues.

Physicians can protect themselves against any potential future claims,

says Terry, by not allowing personal or financial interests to compromise

their sound medical judgment when making referrals and using hospital


Most often, these controversies result from HMO payment policies.

In 1975 New Jersey had only two HMOs caring for a total of 5,000 clients.

Now more than 23 HMOs provide care to 2.5 million clients. Most of

them pay doctors a set amount per member patient per month, no matter

what services a patient might need. This is called a "capitation"

plan, and the HMO sets targets for everything from number of hospital

visits to number of prescriptions per member each month. For instance,

an HMO may allocate $4.58 in radiology expenses per member each month,

or $18.01 for specialist care.

Meanwhile the HMO may withhold 20 to 30 percent of the payments and

put them in a kind of escrow, a Performance Risk Pool. At the end

of the year, if a doctor has had more than the allowed number of referrals

or hospital visits, the HMO keeps some or all of the money in the

risk pool, and if the risk pool is depleted, the HMO may even bill

the doctor for the extra.

Although it is in a physician’s financial interest to limit referrals

and treatments, if money clouds the doctor’s medical judgment, the

physician could end up in court. An example of insufficient treatment:

a man showed tell tale signs of stroke. Instead of being admitted

to the hospital for a full neurological evaluation, he was given an

outpatient CAT scan and sent home with aspirin. He died eight hours


"Under state statute," says Terry, "an HMO is prohibited

from using financial incentives to induce a health care provider to

withhold covered health care services that are medically necessary.

But there will absolutely be instances where your medical decision

will have an economic effect on your practice." Do not, says Terry,

allow economics to influence your medical judgment in any way. Terry’s

tips to physicians:

Check your contract. If you are paid a "capitated"

amount, you want to know not only what percentage is withheld, but,

also, the number of other physicians included in the risk pool, and

how often the risk pools are reviewed and paid out.

Make sure stop-loss protection or reinsurance is included

in your contract. A stop-loss fund will pay for unexpectedly high

medical costs for a certain patient, so that the medical expenses

will not be deducted from your pool after they reach a certain amount.

Be aware of the exact language of the contract about what

services or medical treatment you must provide, and whether there

are any "carve-outs" or set fees for such services as immunizations.

Don’t assume that your patient will get adequate care

from network specialists. Find out who pays for out-of-plan services.

If needed, make the out-of-plan referral, even if you will be penalized


Always tell your patient all available treatment options,

regardless of whether that type of treatment is available under the

terms of the HMO plan. Doctors used to be subject to "gag clauses,"

discouraging them from telling patients about more costly treatments,

but the New Jersey Health Care Quality Act, which became effective

in February, 1998, prohibits the use of "gag" clauses. Also,

the New Jersey Consumer Bill of Rights requires disclosure of treatment

options. Now HMOs — attempting to protect themselves against medical

malpractice suits — often use broad contract language stating

that nothing constrains the provider’s ability to make needed referrals.

Keep a record. Write down immediately in medical records

— or dictate into a recorder while the patient is sitting there

— your suggestion that the patient undergo a certain diagnostic

test or seek treatment from a specialist, even if outside the network.

If the patient declines an option, note audibly that the patient was

advised of a recommended treatment and has declined. "If there

is a lawsuit, and your recommended course of treatment is noted in

your medical records, that would be considered by the court,"

says Terry.

Exercise your right to appeal a utilization review decision

that is adverse to the health and wellbeing of your patient. Your

patient can appeal, but you as the doctor (with the patient’s consent)

can do it too. Most appeals deal with denial of hospital days, surgical

procedures, equipment, or skilled nursing care.

New Jersey doctors who appeal a utilization decision are protected

by the Healthcare Quality Act at all three levels: the informal review

by the HMO’s medical director, the panel of physicians with the HMO,

and the nonbinding arbitration before an independent utilization review

organization. A provider contract may not be terminated by the HMO

because the provider appeals.

Though there is no law that the doctor must appeal an adverse HMO

decision, the duty to appeal is implied by the law protecting the

doctor from the consequences of appealing.

Take time to get a thorough medical history of your patient.

Your malpractice lawyer will find it more difficult to defend you

if you were not aware of your patient’s hereditary disease, allergy,

or a condition such as an artificial heart valve.

No New Jersey doctor has been taken to court for failure to

appeal an HMO’s utilization decision, but it happened in California

in the case of "Wickline v. State." After back and leg surgery

the plaintiff had circulatory problems in her right leg, and her primary

care physician prescribed an eight-day hospital stay to be sure it

did not get infected. But when the insuring agency (Medi-Cal, a state

assistance program) denied the request, allowing only a four-day stay,

the primary care physician did not object. The plaintiff did get an

infection and had to have her leg amputated.

The California Court of Appeals ruled that the primary care physician

complied without protest, was therefore responsible for the discharge,

and that the HMO was not liable.

No matter what the legal system does, it pays to be nice, says Terry:

A good relationship with your patient is one of the best ways to avoid

malpractice suits.

— Barbara Fox

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Cyber Stocks: PaineWebber View

Many stock gurus warn that Internet stocks are overvalued,

but Jim Preissler, head Internet analyst for PaineWebber, disagrees:

"I wouldn’t necessarily say they are overvalued. That is not a

fair or accurate assessment," says Preissler. Preissler talks

on "The Internet: Sizing the Opportunities," for a PaineWebber

seminar, free by reservation, on Tuesday, March 30, at 7 p.m. at the

Hyatt. Call 800-307-4799 for reservations.

Preissler majored in history at Yale, Class of 1993, and worked as

a mutual funds analyst before joining PaineWebber four years ago.

He has been the firm’s Internet analyst for two years. The Internet

is "a brutally efficient marketplace," says Preissler. "It

brings the world closer together, and the information flow is instantaneous.

It is very democratizing."

Preissler will discuss how to value Internet stocks more fairly, asking:

What is the opportunity?

What is the opportunity worth?

How do you invest and take advantage of it?

Internet stocks constitute an incredibly large new category,

he says. "In some cases the growth will be incremental and in

some cases it will be taking share from other areas. Some existing

companies will make the change and some won’t, and some new players

will be created."

Of the media stocks using the Internet, Preissler believes the Wall

Street Journal has one of the better strategies in cyberspace. "Some

are still trying to figure out how to effectively leverage their content

information, and I am not sure they have done that so far."

Media companies should consider whether they have a brand that is

strong enough that consumers directly want to go to it. The New York

Times or CNN would qualify for this category. "Or should they

embed their content somewhere else, do they need access and distribution?"

By default, many firms fall into this niche.

To value an Internet stock, Preissler says an investor should ask

what is the size of the opportunity that is available for the company,

and what are the growth rates associated with that. "Barnes&

may not be as ambitious as an," he points out, "because

their market opportunity may not be the same." Barnes & Noble

seems to focus on selling what is in their store, whereas

is saying, "Anything that can be sold over the internet, we are

going to sell it."

Every analyst wins some and loses some, and Preissler says his biggest

incorrect guess was that E-commerce would be more widespread than

it is today. The flurry of correcting the Year 2000 computer bug,

he suggests, may have helped to slow the E-commerce programmers.

The developers that have been most successful, says Preissler, are

those that provide "clean, fast, efficient, good usable experiences,"

such as Yahoo or Amazon. What didn’t work, he says, are those that

tried "multimedia intense splashy sites" and some of the content

sites. "Because of bandwidth, there is not a big audience for

multimedia content, because most users can’t access it. Once more

users have faster speeds, that will change."

Two of the biggest music sellers show the contrast. CDNow (which emphasized

clean, fast experience on a white background) and N2K (which has dense

multimedia on a black background) merged, and CDNow’s approach won;

the site is white.

His current pick for electronic trading networks: Knight/Trimark (ticker

symbol NITE). "It’s a market maker and gets a lot of order flow

not only from traditional firms but from online firms," says Preissler,

noting that many of the other candidates for this category are not

yet public and that, in any case, predicting the future of cyberspace

is still a risky business.

— Barbara Fox

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