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Long Awaited Potvin Decision:
Half a Loaf?

By Dan Groszkruger, JD, MPH
Consulting Editor

The late Louis E. Potvin, M.D., an Orange County OB-GYN and former CAP Board director, never had a chance to read the California Supreme Court’s long-awaited decision in his own case. Potvin v. Metropolitan Life Insurance Company was finally published on May 8, 2000. Had Dr. Potvin survived to receive the Court’s decision, arising out of his “deselection” from an insurance company’s preferred provider panel, he probably would not be satisfied with receiving “half a loaf.”

The issue in Potvin was: What are the physician’s legal rights when, without cause, a managed care organization (“MCO”) drops the physician from its preferred provider list? Unlike hospital staff privileges, there is no statutory protection for a deselected physician. In Potvin, the Court determined that a physician has a right to “fair procedure,” but only if the MCO is so powerful that deselection significantly affects the physician’s ability to practice in a particular geographic area. And, the Court did not explain exactly what constitutes fair procedure.

In 1988, Dr. Potvin initially signed on with MetLife to care for its HMO and PPO patients. His 1990 renewal agreement allowed “without cause” termination. In 1992, without offering any explanation, MetLife notified Dr. Potvin that he had been dropped from its panel. Only after repeated demands did Dr. Potvin learn that his malpractice history exceeded MetLife’s selection and retention criteria (he was sued four times; MetLife’s limit was two). Dr. Potvin requested a hearing, but MetLife never granted one. Since he was unable to directly challenge his deselection by the MCO, Dr. Potvin filed a lawsuit in the Orange County Superior Court.

In his lawsuit, Dr. Potvin alleged that MetLife’s arbitrary decision, based on his malpractice history, denied him “fair procedure” and violated his statutory right to “notice and a hearing” under peer review rules.¹ The trial court disagreed, ruling in favor of MetLife, and Dr. Potvin appealed.

The Supreme Court concluded that deselection could significantly impair “an ordinary, competent physician’s ability to practice medicine” in a particular geographic area. In other words, some preferred providers’ income might be so dependent upon referrals from the MCO that deselection could significantly threaten his or her ability to earn a living. Such a physician has a right to fair procedure to challenge arbitrary removal from the preferred provider list.

One conclusion from Potvin likely to attract critical comment is that “without cause” termination clauses are unenforceable in such circumstances. In setting forth a principle that supercedes the parties’ own written agreement, what kind of damage has the Supreme Court inflicted on the validity of “without cause” termination (i.e., “at will”) employment contracts?

The practical impact of Potvin is yet to be felt. Obviously, MCOs must begin to offer some form of notice and hearing to physicians whom they wish to deselect. But, if offered an opportunity for a hearing, how can an individual physician persuade the MCO to change its mind? What if the MCO merely wants to decrease the number of preferred providers because fewer patients in the area have re-enrolled?

How many patients must a physician lose to qualify as “substantial impairment” of one’s ability to practice? A recent appellate court decision held that a San Luis Obispo physician was entitled to fair procedure before being dropped from an Independent Practice Association (IPA) that furnished one-third of his patients, and about 35% of his gross income.² Is the loss of only 5-10% of one’s patients, caused by deselection, enough economic hardship to entitle a physician to notice and a hearing? And, what rights does a physician have, whose initial application to join an IPA or an MCO, is denied without any explanation? These and other important questions about physician-MCO relationships remain unanswered after Potvin. When it comes to such questions, the long-awaited Potvin decision may well represent only “half a loaf.”

^2. Castellanos v. Coastal Providers (2000) 78 Cal.App.4 th 1292, 93 Cal.Rptr.2d 613.