American Journal of Law & Medicine

Physician deselection: the dynamics of a new threat to the physician-patient relationship.


A. A Problem Presented

Dr. Julia Green is a primary care physician (PCP) licensed to practice

medicine in the Commonwealth of Massachusetts.(1) On October 1, 1994, Dr. Green

signed a one-year, renewable contract with Allcare Health Plan (AHP).(2)

Pursuant to the terms of the contract, on January 1, 1995, AHP placed her on

its select list of PCPs available to its 100,000 covered lives ("enrollees").

Dr. Green provided for all primary care and specialist referrals for those

enrollees who chose her as their physician. AHP paid her on a fee-for-service

(FFS) basis for all preapproved procedures and treatments.(3)

Dr. Green felt that this contract might decrease her autonomy slightly;

however, she also felt that it would increase her patient pool significantly

and lessen the burden of collecting fees directly from patients. Dr. Green knew

that choosing not to sign the contract would preclude AHP enrollees from making

her their PCP because AHP only covered treatment provided by its own

physicians. She further feared that as enrollment in managed care organizations

(MCOs) increases, and more of her colleagues sign managed care contracts, her

pool of potential patients would decrease drastically.(4)

For several months subsequent to the commencement of her contractual duties,

Dr. Green found AHP to be an effective manager of her patients' health care.

Generally, AHP approved routine procedures and reimbursed her promptly. However,

sometimes she had to telephone the company more than once for approval of the

more advanced and expensive procedures. Occasionally, she had to complain about

denials of treatment. A few times, she even suggested to patients that they

contact AHP directly to complain about delays and denials in treatment

approval. Although Dr. Green disliked justifying her medical judgment, she

continued to make every effort to provide the best medical care possible for

her patients. However, she felt uneasy about the financial concerns of AHP, and

how they might affect the renewal of her contract.

Dr. Green looked through her contract and found that she or AHP could

terminate the agreement without cause on forty-five days notice.(5) Deselection

from AHP's provider list would not only harm her reputation and standing in the

medical community, but, economically, she could also lose a significant

percentage of her practice. Her patients would have to end their relationship

with her and choose another physician from AHP's provider list. Her concerns

illustrate those of a growing number of physicians. However, the question

remains whether these concerns are valid, and if so, should the law provide a


B. A Problem Defined

Managed care's integration into the lives of both patients and physicians

raises novel questions of both law and public policy. As a consequence of an

increasingly dominant managed care system, the strategic choices made by MCOs

regarding selection and deselection of physicians has evolved into a major

element of the health care system.(6) As a means of containing health care

costs, market-driven MCOs prefer physicians who can provide quality care at

lower Costs.(7) In pursuit of this goal, economically based factors, often seen

in determining hospital staff privileges,(8) have become prevalent in MCO

credentialing.(9) Sometimes, MCOs terminate providers for purely economic

reasons.(10) MCOs can discreetly accomplish this by invoking the

termination-without-cause provision in the provider contract.(11) Physicians

have come to know the term defining this expanding process as "deselection."(12)

Why, however, should the public, generally at risk for losing their own jobs,

grieve for doctors just because the current deselection process jeopardizes

their managed care contracts? The answer lies in the effect the physician's

relationship with the MCO has on the physician-patient relationship. While

deselected physicians may condemn the market and legal systems as betrayers of

their economic security and professional autonomy,(13) patient care must remain

the focal point of any inquiry into the health care system.(14) Mounting

pressure on physicians to acquire and maintain MCO contracts calls into

question their duty to their patients.(15) As physicians come to rely on MCO

contracts for their patient base,(16) income,(17) and marketability,(18) their

incentive to consider cost, consciously or subconsciously, in their practice of

medicine increases.(19) This financial influence evolves not from some

outstanding sense of duty to MCOs, but rather from the growing personal and

professional consequences of deselection.(20)

This Note examines the tensions underlying deselection, and argues that legal

solutions to the problem should center on the effects deselection has on

patient care, rather than its financial impact on physicians. Part II looks at

the setting in which the problem of deselection has arisen. Part III discusses

a current movement in the law, regarding physician deselection from MCOs, and

then raises several resulting concerns. Part IV examines two axioms of law that

comprise the foundation of the deselection problem. Finally, Part V describes

the tension between these two legal axioms in the managed care system, and then

explores a potential means of reconciliation.


A. An Emerging Concern

Over the last thirty years, the amount of money spent on health care in the

United States has more than doubled.(21) During the 1970s and 1980s, the managed

care system(22) emerged as a prominent method of alleviating the burden of

rising health care Costs.(23) Since 1970, the percentage of Americans receiving

their health insurance from MCOs(24) has risen from less than 10% in 1970(25)

to over 50% in 1996.(26) Thus, currently, MCOs provide health insurance to

approximately 135 million Americans,(27) and this number is growing at a rate

of 11% per year.(28) By the year 2000, estimates indicate that 80% of the

population will receive their medical care through a managed care system.(29)

The managed care system attempts to "optimize the balance between care

outcome quality and care cost effectiveness."(30) Fundamentally, MCOs

micromanage patient health care by only covering those treatments that are

medically necessary.(31) However, MCOs also use slightly more subtle means of

containing costs by motivating physician behavior with "carrots" and

"sticks."(32) For example, many provider contracts offer financial bonuses to

physicians for keeping their treatment costs and quantity of referrals to a

minimum (a carrot).(33) Many contracts contain "withhold" clauses, which set

aside a percentage of the physician's income to pay for excess treatments or

referrals (a stick).(34) Some MCOs use "gag" clauses, which place restrictions

on certain communications between the physician and patient.(35) These tools of

the managed care system provide physicians with an incentive to increase the

efficiency and cost consciousness of their care.(36) Although these limitations

on physician autonomy promote the legitimate and valued end of cost-efficiency

in health care, they also cast a shadow on the integrity of the

physician-patient relationship.(37)

The struggle to reform the health care system has deposited the once

autonomous physician into the heart of the marketplace.(38) The percentage of

physicians' access to patients and income has become increasingly tied to their

membership in MCOs.(39) In 1986, 43% of physicians had at least one MCO

contract; by 1990, 61%; and by 1995, more than 83% of all physicians had at

least one MCO contract.(40) In 1990, managed care already accounted for 28% of

income for those physicians with at least one managed care contract.(41) In

1994, this percentage rose to 34%.(42) The pressures on physicians to contract

with MCOs puts them in the relatively unfamiliar role of serving two masters,

the patient and the MCO.(43)

The days of pure FFC indemnity insurance have melded into a cost-centered

scheme of capitation,(44) financial incentives, withholds, gag clauses, and

tracking deselection.(45) Whether MCOs use the term "deselection,"

"delistment," or "disenrollment," the translation for the physician remains the

same, termination.(46) Termination-without-cause provisions permit MCOs to

terminate provider contracts without disclosing their reselection criteria or

offering an appeals process.(47) The perception that the less cost-conscious

physicians place themselves at greater risk for deselection inheres in the

competitive nature of the managed care market.(48) Deselection acts as a check

on physicians by allowing MCOs to eliminate those physicians providing

unnecessary or excessive care, or exceeding the MCO's expected costs for

patient care.(49)

As dependence on MCOs for both patient pools and income grows, physicians

must contend with the difficulties associated with MCO-provider contracts.(50)

Some contracts come up for renewal annually, using "evergreen" clauses to renew

the contract automatically at the end of each year.(51) However, MCO-provider

contracts include "no-cause" termination provisions, which give MCOs

flexibility to deselect the provider during the life of the contract or to

choose not to renew the contract at its conclusion.(52) MCOs' rationale for

deselection usually falls into one or more of four general categories: (1)

noncompliance with contractual obligations; (2) downsizing; (3) incompetence;

or (4) cost inefficiency.(53) Terminations without

cause, however, often have more to do with economic factors than competence or


A deselected physician loses more than patients and income.(55) Other MCOs

are less likely to have an interest in a deselected physician.(56) Physician

reputation and marketability may further decrease if the termination is

reported to the National Practitioner Data Bank (NPDB).(57) Perhaps most

important to physicians is the perceived threat that deselection decreases

their professional autonomy.(58) However, the legal and public policy questions

associated with deselection transcend physicians' jeopardized income and

reputation. Physician distaste for this process represents only a part of the

problem. The real issue is how physicians' perception of deselection affects

the quality of patient care?

Most MCOs operate as profit maximizing businesses by managing and

underwriting health care.(59) MCOs make economic comparisons among treatment

choices and use these evaluations for credentialing purposes.(60) Physicians,

however, often have no knowledge of their MCO's economic expectations in the

credentialing process.(61) Often, physicians' treatment choices fall within the

margins of standard practice, making it difficult to determine what role, if

any, economic considerations play.(62) MCO providers have such strong

reputation and economic interests at stake that their patients may wonder how

these economic factors influence their medical treatment.(63) Ideally,

physicians should focus on their patients' interests when making treatment

choices. The threat of deselection, however, can create fear and anxiety,

motivating physicians to consider personal financial interests and MCOs'

interests when making such choices.(64) Thus, deselection creates a tension

between physicians' professional autonomy and security, and their duty to their


Although deselection places physicians at personal risk, lawmakers are more

likely to respond to the risks deselection poses to patients.(65)

Unfortunately, this leaves concerned physicians with a paradox. A promising

argument against deselection requires physicians to take the self-deprecating

position that fear and finance have so upset their fiduciary and ethical duty

to their patients that they can no longer be trusted to provide competent

health care.(66)


As more physicians become familiar with deselection, the risks to patient

care grow. Law making bodies have recently begun to react to pressures placed

on them by individual physicians and medical associations.(67)

A. Statutory Law: A First Cut

The dangers posed by deselection have prompted attention from both state and

federal legislatures.(68) Physicians have had some protection through state

"any willing provider" (AWP) laws.(69) Yet, AWP laws do not cover all provider

agreements.(70) Furthermore, compelling MCOs to credential and then to contract

with all willing physicians undermines an important goal of managed care,

namely, cost-efficiency.(71)

Recently, states have begun specifically to address the risks posed by the

managed care system and deselection.(72) In 1996, Governor George Pataki of New

York signed a strong amendment to New York's Public Health Law which protects

both physicians and patients from the effects of deselection.(73) Insurers have

already begun to amend their provider contracts to comply with this new


The 1996 amendment requires that before health care plans terminate

providers, they must provide both "a written explanation of the reasons for the

proposed contract termination and an opportunity for a review or hearing."(75)

It also requires health care plans to inform their providers of the information

they maintain and criteria they use for performance evaluations.(76) Plans must

consult with providers on which data to collect and the means used to collect

it.(77) When credentialing, health care plans must disclose the information

they have gathered about their providers, and may only measure this data

against stated criteria.(78) The amendment limits these physician comparisons

even further by only allowing comparisons of providers using similar treatment

methods and serving like patient populations.(79) This gives providers the

opportunity to show that the uniqueness of their particular patient pool led to

the negative profile.(80) Finally, the amendment prohibits health care plans

from terminating, or refusing to renew, a provider contract solely because the

provider advocated for a patient's rights, filed a complaint against the plan

or appealed a plan decision.(81)

Assuming this amendment survives a potential challenge based on the

Employee Retirement Income Security Act's preemption clause,(82) New York

health care plans may no longer terminate a participating physician without

cause.(83) Providers will have complete access to their performance data and

plan criteria,(84) denying plans a "deselection loophole" around any future

provider contract laws or regulations. Through the disclosure and due process

requirements, New York physicians now have a forum for proving that their plan

deselected them against public policy.(85)

What does this sweeping New York law mean for patients? The law does not

specifically limit the criteria plans may use in their physician

credentialing.(86) Therefore, economic credentialing may remain a viable

option.(87) However, the disclosure requirement increases the likelihood that

only just terminations will survive an appeals process. The days of FFS

physician autonomy and credentialing based solely on the quality of patient

care have passed.(88) Reform laws like New York's can fortify the ties of the

physician-patient relationship.

Although all of these new provider protections may lead to more costly

administrative hearings,(89) the potential for better patient care makes such

reform a worthwhile endeavor. Whether for business or ethical reasons,

physicians and MCOs serve their own interests best by ensuring the quality of

patient care.(90) New York's law reminds MCOs and providers of this higher

goal. …

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