Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-24T02:11:23.408Z Has data issue: false hasContentIssue false
  • English
  • Français

Fourth-Party Audit Organizations: Practical and Legal Considerations

Published online by Cambridge University Press:  28 April 2021

Nathan Hershey
Get access Rights & Permissions [Opens in a new window]

Extract

Fourth-party audit organizations (FPAOs) conduct utilization review and control programs, usually on behalf of employers that provide health benefits programs to employees. The existence of FPAOs and their increasing range of activity reflect the business community's great concern about the rising cost of health care. Over the past decade the business community has taken an increasingly active role in seeking to influence federal and state policies regarding health services, and in stimulating the development of new mechanisms of health delivery, with the goal of making its expenditures for health benefits more costeffective. Businesses rely on FPAOs to assist them in controlling the costs of health benefits programs for employees.

As desirable as cost containment in the health field is, however, the various means used to help reach that goal must be evaluated in terms of their practical effects and the relevant legal considerations. This article will (1) describe the functions performed by FPAOs; (2) provide an illustration of the impact of an FPAO in a patient care situation; (3) examine some of the practical problems created by the use of FPAOs; (4) indicate some of the legal questions presented by the activities of FPAOs; and (5) assess the role and likely impact of FPAOs in the future.

Type
Article
Information
Law, Medicine and Healthcare , Volume 14 , Issue 2 , April 1986 , pp. 54 - 65
Copyright
Copyright © American Society of Law, Medicine and Ethics 1986

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

See Herzlinger, R.E. Schwartz, J., How Companies Tackle Health Care Costs: Part I, Harvard Business Review 63(4): 69 (July/August 1985); Herzlinger, R.E., How Companies Tackle Health Care Costs: Part II, Harvard Business Review 63(5): 108 (September/October 1985).Google ScholarPubMed
Richards, G., Business Spurs UR Growth, HOSPITALS 58(5): 96 (March 1, 1984);American Hospital Association, Cost Quality Interface, Hospital Utilization and the Private Sector (1985).Google Scholar
See, Utilization Review Program Saves Thousands of Dollars, Health Law Vigil 8(26): 7 (Dec. 27, 1985); Intracorp, Control over Health Care Dollars (news release, 1985).Google Scholar
The information provided to employees will ordinarily contain a statement such as: “Patient is responsible for notifying by toll-free telephone his or her Benefits Management Coordinator, who will evaluate proposed services against the benefit plan and the approved criteria for such services. Physician's office may provide confirmation call.”Google Scholar
Examples of such provisions:Google Scholar
Hospital Council of Western Pennsylvania, Management Considerations: Fourth Party Audit Organizations (1985).Google Scholar
An excerpt from a letter sent to a hospital by a health benefits program administrator:Google Scholar
42 U.S.C. §1320c-1-1320c-10.Google Scholar
20 A.L.R.3d 1109, 1114 annot. (1968).Google Scholar
Alberts v. Devine, 479 N.E.2d 113 (Mass. 1985).Google Scholar
Schaffer v. Spicer, 215 N.W.2d 134 (S.D. 1974).Google Scholar
MacDonald v. Clinger, 446 N.Y.S.2d 801 (N.Y. App. 1982).Google Scholar
Confidentiality of Alcohol and Drug Abuse Patient Records, 42 C.F.R. §§2. 1–67 (1985).Google Scholar
Physicians & Surgeons, 70 C.J.S. §68 (1951).Google Scholar
Nursing Care v. Dobbs, 380 So.2d 516 (Fla. App. 1980); see Lozier v. Leonard, 327 S.E.2d 815 (Ga. App. 1985).Google Scholar
410 N.E.2d 821 (Ohio Mun. 1979).Google Scholar
Id. at 823, citing Ohio Rev. Code §1739.06.Google Scholar
431 A.2d 883 (Pa. 1981); see D'Amelia v. Blue Cross of Lehigh Valley, 500 A.2d 1137 (Pa. Super. 1985).Google Scholar
See Zaslow, J., Third Party Actions Against Physicians, Journal of Legal Medicine 3(9): 37, 37–38 (October 1975). Albert Einstein Medical Center v. Lipoff et Lipoff, Blue Cross of Greater Philadelphia and Eugene Brecher, M.D., No. 3872x (Phila. Court of Common Pleas, January 1972). This unreported case concerns a suit brought by a hospital against a patient and her health insurer (Blue Cross) in the Municipal Court of Philadelphia for nonpayment of a hospital bill after the insurer found the patient's admission medically unnecessary. The Municipal Court judge required that: the patient's physician be joined as an additional defendant. Thus, the suit was brought by the hospital against the patient, Blue Cross, and the physician. The judge held that the patient was liable to the hospital, and that the physician was liable to the patient for the amount due the hospital, because the patient was economically harmed as a result of the unnecessary hospitalization, having relied on her physician for the admission. The physician appealed the judgment to the Philadelphia Court of Common Pleas. The judge granted a summary judgment on the contract action because the physician was not a party to the contract between the patient and Blue Cross and, therefore, could not be liable. The case was, however, heard on the issue of whether the physician was negligent in admitting the patient to the hospital. The physician was found not to be liable for the patient's bill in this particular situation. Although the decision has no precedential value, the assertion that a physician can be held responsible, on a negligence theory, to pay a patient's hospital bill, even though he or she is not a party to the contract for the patient's hospitalization, might be made in future litigation.Google ScholarPubMed
42 U.S.C. §1395x (H) (1983).Google Scholar
Lemkin, J. Rich, J., P.P.O.s: Utilization Review, in Attorneys and Physicians Examine Preferred Provider Organizations (ed. Wayman, J.D.) (1984) Springer, E.W., PSRO's: Implications for Legal Liability, Hospital Medical Staff 4(1): 31 (January 1975).Google Scholar
Truman v. Thomas, 165 Cal. Rptr. 308 (Cal. 1980).Google Scholar
For medical staff appointment decisions involving utilization issues, see Suckle v. Madison General Hospital, 362 F.Supp. 1196 (W.D. Wis. 1973); Knapp v. Palos Community Hospital, 465 N.E.2d 554 (Ill. App. Dist. 1984); Aval v. Hawthorne Community Hospital, 184 Cal. Rptr. 914 (Cal. App. 1982); Anton v. San Antonio Community Hospital, 140 Cal. Rptr. 442 (Cal. 1977).Google Scholar
Wickline v. California, NWC 606 72 Cal. Super. L.A. Cty. Judgment entered October 21, 1982; see Carlova, J., A Jury Lands a $500,000 Haymaker on Health Bureaucrats, Medical Economics 60(10): 80 (May 16, 1983).Google Scholar
Aetna Life & Casualty Co. v. Lavoie, 470 So.2d 1060 (Ala. 1984).Google Scholar
Id. at 1068–70.Google Scholar
Mordecai v. Blue Cross-Blue Shield of Alabama, 474 So.2d 95 (Ala. 1985).Google Scholar
Erickson v. Aetna Life & Casualty Co., 469 N.E.2d 679 (Ill. App. 1984).Google Scholar
See Richards, supra note 2.Google Scholar
For an article indicating projected business for FPAOs, see Private Review Agency Escalation Creates Urgent Need for Preparation, Hospital Peer Review (October 1985), 124–26.Google Scholar
Md. Health-Gen. Code Ann. § 19–319(d) (1985).Google Scholar
La. Rev. Stat. Ann. §22–657(c) (West 1985).Google Scholar