Bill for Poor Physician Credentialing Could Run to Millions of Dollars

A court case shows what can happen when health plans and provider groups fail to tell the truth, the whole truth, and nothing but the truth

Michael Levinson, MD, JD

In a physician credentialing case with significant repercussions for health insurers and others performing credentialing, a Louisiana hospital and two physicians were recently ordered to pay $4.1 million for failing to disclose the background of an anesthesiologist previously on its medical staff.

According to testimony at the federal trial, the anesthesiologist's allegedly drug-induced negligence in a case at Kadlec Medical Center in Richland, Wash., left a patient in a permanent vegetative state. The family sued Kadlec, which paid the injured patient $7.5 million in damages.

Kadlec Medical Center and its insurer then filed suit against Lakeview Anesthesia Associates in Covington, La., which employed the anesthesiologist, and Lakeview Regional Medical Center, which gave him staff privileges. According to the lawsuit, the medical group had fired the anesthesiologist in 2001 for poor record keeping and for working under the influence of narcotics.

An "excellent" physician

Despite this, two members of the former employer who also sat on Lakeview Regional's board of directors wrote letters of reference calling him an "excellent" physician, while the hospital itself simply verified the anesthesiologist's dates of affiliation and made no further comment.

Kadlec said it relied on those reference letters in issuing credentials to the anesthesiologist, and sued the Louisiana anesthesia group and medical center for intentional misrepresentation, negligent misrepresentation, strict responsibility misrepresentation, and negligence. On May 26, 2006, a U.S. District Court jury agreed, awarding damages to the Washington hospital (Kadlec Medical Center v. Lakeview Anesthesia Associates).

While that verdict is now under appeal, it's clear that managed care entities across the nation need to review their information disclosure policies and credentialing procedures in light of Kadlec.

What suffices

In the past, when entities received requests for information about their credentialed physicians, they verified that the physician was a member of their network without providing any further details. Credentialing parties preferred to limit the disclosure of information to the bare minimum, rather than face a potential defamation lawsuit from a physician whose affiliation had not been renewed or had been dismissed.

That practice may have been common in the past, but it is clearly not acceptable today. In Kadlec, the court said that when a hospital — and by implication any other health care entity that credentials physicians — chooses to respond to a request, it must disclose all available information. No longer may an insurer pick and choose what information to disclose. Instead, the community's right to know all the facts supersedes a physician's right to personal privacy.

In light of the substantial damages awarded in the Kadlec Medical Center case, managed care entities now must be very careful in responding to requests for information regarding physician members of their networks.

This means instituting a formal policy and making sure that every step in the procedure is followed correctly and consistently. In addition, any disclosure must always be made in good faith, without malice, and be as complete as possible.

It should be noted that one option is not to respond at all. In Kadlec, the court did not say that there was an absolute duty to respond — only that the institution must not misinform, misrepresent, or omit information in its response.

However, this nondisclosure strategy is not a recommended option because it blocks the flow of information that remains an essential part of the credentialing process. A "no comment" policy can also limit potential career or civic opportunities for physicians who are in good standing.

For the party requesting information about a physician, it is important to exercise due diligence in undertaking background checks. If there is no response to a request, further steps should be taken to investigate the situation, including follow-up questions to the physician who is requesting privileges.

Suggested process

In the post-Kadlec era, health plans should act quickly to establish a formal procedure for responding to requests for physician information. This means preparing a standard release-of-information form for the physician to sign, and developing a formal process that must be followed before disclosing information.

Here are several recommendations for implementing a disclosure procedure that is appropriate for today's legal environment:

  • Require the physician to sign a detailed release form granting immunity to the credentialing entity for disclosures to the requesting person or institution.
  • Confirm this authorization and ensure that it encompasses the nature of the requested information.
  • Verify that the physician and any other appropriate parties have signed the authorization.
  • Negotiate a response with departing physicians regarding their medical staff history and status.
  • Prepare a written response to the request for information and avoid informal communication. It is essential to have a clear record in writing of what information was disclosed.
  • Avoid e-mail. Such messages are typically prepared in haste and are more likely to contain errors than are other written forms of communication. E-mail may also be broadly circulated beyond the intended recipient, increasing the potential liability for the sender.
  • Answer only the questions asked and respond only with the facts.
  • In responding to questions regarding pending claims, include the nature of those claims and whether the physician is challenging them. Choose words and responses carefully, so as to be truthful and appropriate.
  • Try to plan for all contingencies and be sensitive that the information disclosed may influence careers and lives.
  • Limit the number of individuals who are authorized to respond to a request for information, and, if possible, have a second person review the response before sending it out.

Again, any type of communication — a phone call, a text message, an instant message, or e-mail — could jeopardize this carefully developed formal process and open the door to liability.

Awareness program

Because of the importance of this recent decision, credentialing entities may also find it beneficial to institute a training or awareness program regarding their disclosure policies. That will help to ensure a standard response, even if different personnel handle these disclosure requests.

For the managed care industry, the Kadlec decision is another step along the path toward greater disclosure of internal operations and better transparency in the governance process.

Credentialing entities and institutions need to recognize this broad societal trend, while responding quickly and appropriately to this groundbreaking legal decision.

Michael Levinson, MD, JD, is counsel at Zuckerman Spaeder, a law practice in Miami, where he focuses on legal issues in health care, including corporate operations, medical staff peer review proceedings, antikickback and self-referral issues, provider licensing, managed care, medical ethics, confidentiality, Medicare and Medicaid payments, and regulatory compliance.

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