Meyer v. Health Plan of Nevada: Foreboding for Payers—and for Accountable Care Organizations?

Money vs. Healthcare

A Nevada jury verdict recently found that the Health Plan of Nevada, Sierra Health Plan, and various other plans were liable in an amount over $500 million in a case alleging shoddy office procedures of network provider Dr. Desai. If upheld, this substantial award may foreshadow an expectation that health plans go beyond current “industry-standard” credentialing practices to monitor affirmatively their network of providers’ quality of care.

The American Health Lawyers Association issued a memo, reproduced below, pointing out that this award against various Sierra plans arose because of the jury’s conviction that the plans afforded their members inadequate protection from an in-network provider’s known practices that caused a Hepatitis C outbreak.

Some of us remember similar allegations against Cigna brought in 1991 by a series of patients who claimed that Dr. Acer, a Cigna Florida network dentist, infected them with HIV. Those cases also resulted in multimillion dollar settlements.

New Trend?

Plans have always had certain duties to monitor and to credential providers.  In both the 1991 Florida and this year’s Nevada cases, the network providers were independent contractors rendering deficient care. But two claims over a 22-year period probably don’t indicate an alarming new liability trend for health plans, but simply “bad acts.”

Instead, the recent Nevada award may be viewed as a potential shot across the bow of Accountable Care Organizations (ACOs).

Why ACOs?

Because the ACO model is structured largely through provider acquisitions—employees, not independent contractors, the ACO arguably carries heightened accountability for those providers’ actions. If Dr. Desai, the defendant physician in Meyer, et al. v. Health Plan of Nevada, Inc., was an independent contractor (i.e., free to set the terms of his practice), the jury in this case still expected the plans to monitor his office practice.  How much higher is the duty owed by an ACO that may be statutorily “accountable” for the care rendered within its organization?

ACOs are charged with improving the care experience and care outcomes of their patient populations while reducing aggregate costs  The perception—and reality—is that ACOs are more directly influencing delivery of medical services than are traditional health plans.

The press is full of stories concerning the delicate risk-bearing calculus that is being choreographed for ACOs. These accounts fuel concern in some quarters of a return of so-called “black box” decision-making of health plans in the 1990s if the ACO’s financial incentives too heavily influence its providers’ medical judgment. The Meyer case is an example that a plaintiff may be entitled to substantial punitive awards when  a jury suspects a bad medical outcome is the result of unspoken economics.

Bottom line, where does the ACO end and the provider begin? A few weeks ago we asked if health plans knew if their E&O coverage’s punitive damage provisions would in fact respond if faced with a Meyer, et al. v. Health Plan of Nevada, Inc., et al. verdict. ACO boards should be asking the same question.

2013 American Health Lawyers Association

Date: April 17, 2013

$500+ Million Jury Verdict Against Nevada Health Plans Potentially Expands Health Plan Liability for Provider Misconduct

By Edwin Brooks, Steven Hamilton, and Lee Muench*

“On April 9, a Nevada jury awarded three plaintiffs $24 million in compensatory damages and assessed $500 million in punitive damages against Health Plan of Nevada Inc. (HPN), and its parent company Sierra Health Services Inc. (SHS, and collectively, Plans), as a result of an in-network provider causing a Hepatitis C outbreak. In Meyer, et al. v. Health Plan of Nevada, Inc., et al., Case No. A5832799 (Clark County, NV), three plaintiffs brought claims for common law negligence and loss of consortium against the Plans, as well as United Healthcare Services Inc. and other affiliated companies, claiming that they contracted Hepatitis C after receiving treatment from Dr. Dipak Desai at the Endoscopy Center of Southern Nevada (Clinic). The factual support for the plaintiffs’ claims emanated from the Southern Nevada Health District tying the outbreak to “unsafe injection practices,” including the alleged re-use of syringes and medication vials, at the Clinic and other clinics owned by Desai.

Plaintiffs alleged the Plans had a duty to “direct, evaluate, and monitor the effectiveness of healthcare services provided by the Clinic to [their] insureds,” including to establish and implement a “quality assurance program designed and utilized to provide quality health care services.” Plaintiffs also contended that the Plans breached that duty because they knew, or should have known, about the substandard conditions and unsafe practices at Desai’s Clinics for multiple reasons, including:

(1) Desai had a reputation for performing colonoscopy procedures faster than any other physician in the area; (2) a competing doctor allegedly reported incidents of malpractice to HPN years before the incident; (3) HPN allegedly paid Desai too little to perform the procedures at any profit; and (4) in 1992, HPN dropped Desai from its network citing quality concerns, yet reinstated him five years later. Plaintiffs further contended that the Plans breached their duties to the plaintiffs by failing to discover the improper conduct and prevent plaintiffs from receiving treatment form Desai.

The Plans argued that no common law duty-imposed obligations apply above and beyond Nevada’s regulatory requirements and that they complied with all Nevada statutes because their quality improvement programs were accredited by the National Committee for Quality Assurance (NCQA) as “commendable,” meaning a plan “meets or exceeds [NCQA’s] rigorous requirements for consumer protection and quality improvement.” Moreover, the Plans argued that the Clinic was accredited by the Accreditation Association for Ambulatory Health Care (AAAHC), pursuant to which the AAAHC conducted on-site inspections of the Clinic and interviewed Clinic staff. Based upon meeting those industry-standard accreditations, the Plans argued that they could not have breached any duty as a matter of law. The court rejected that argument and the jury found the Plans to be negligent for failing to properly monitor Desai’s practice and awarded $24 million in compensatory damages and assessed a total of $500 million in punitive damages against both companies.

This case has significant implications for health plans because it held Plans liable under a negligence theory for the improper actions of an in-network provider, despite the fact that the Plans complied with Nevada law and NCQA criteria, as well as the providers having been accredited by a nationally recognized accrediting entity. Thus, not only did the court find that a duty existed to monitor and ostensibly prevent the improper conduct, the court rejected the notion that meeting industry credentialing standards was sufficient to discharge that duty.

While plans can hope that this decision embodies the saying “bad facts lead to bad law,” Plans should consider whether they are taking steps beyond industry-standard credentialing practices to monitor providers, including reviewing procedures for receiving and tracking information about contracted providers, as well as analyzing training offered to field employees who may witness potential improper behavior by providers. Likewise, health plans should re-analyze their policies and provider agreements relating to the parties’ responsibilities, audits, and termination of providers suspected of sub-par medical practices. While these steps will not insulate health plans, they will help plans show that they did everything possible to root out provider misconduct.”

*We would like to thank Edwin E. Brooks, Esquire, Steven D. Hamilton, Esquire, and Lee B. Muench, Esquire (McGuire Woods LLP, Chicago, IL), for authoring this email alert, and Robert E. Slavkin, Esquire (Akerman Senterfitt LLP, Orlando, FL), for editing it.

This memorandum reproduced with AHLA permission.


Sandra Berkowitz

Sandra Berkowitz

Guest blogger Sandra L. Berkowitz is a vice president in Willis’ National Health Care Industry Practice and Practice Leader of the Managed Care Specialty Practice. Based in our Radnor, PA, office, she works with Willis health care clients and client advocates to translate current business environment demands into best practices.

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