Dr. Potvin's Legacy

A landmark State Supreme Court decision extends physician rights to a fair hearing.

In 1990, Dr. Potvin entered into an agreement with Metropolitan Life Insurance ("Met Life") to include him as a "preferred provider" on two of its panels. He would provide medical services to Met Life's insured for an agreed-upon payment.

As with most agreements of this type, it created no employment or agency relationship, and it allowed Dr. Potvin to also "contract with other preferred provider organizations, health maintenance organizations or other participating provider arrangements." The contract could be terminated "at any time, with or without cause, by giving thirty (30) days prior written notice to the other party."

About two years later, Met Life notified Dr. Potvin in writing that it was terminating his preferred provider status. Dr. Potvin immediately requested clarification on the reason or reasons for his dismissal. Met Life replied that its action was consistent with the contract, which allowed termination "without cause." When Dr. Potvin insisted on further explanation, Met Life reiterated its right to terminate the contract without cause and without a hearing.

After Dr. Potvin's continued inquiries, Met Life reluctantly informed him that the reasons for his termination were "related to the fact that he did not meet Met Life's current selection and retention standard for malpractice history." At the time, Met Life's policy was to exclude physicians who had more than two malpractice lawsuits, or who had paid an aggregate sum of $50,000 in judgment or settlement of such actions.

Dr. Potvin had been sued for malpractice on four occasions, all predating his contracting with Met Life. In three actions, plaintiffs had abandoned their claims; the fourth case settled for $713,000.

After Met Life failed to respond to numerous requests for a hearing, Dr. Potvin filed a lawsuit. He claimed the termination devastated his obstetrics and gynecology practice, because he could no longer care for Met Life patients and would be branded an inferior practitioner. As a consequence, he would be excluded from other panels. Dr. Potvin contended the procedures for removal from Met Life's panel should be similar to the termination of hospital medical staff membership: the removal from the panel had to be "substantively rational" and Met Life had to conduct an impartial "hearing" to allow him to challenge the decision.

The trial court upheld Met Life's position. However, the Court of Appeal reversed the trial court, stating that Dr. Potvin's complaint included a claim for violation of the common law right to fair procedure. The Court of Appeal also held that, before removing Dr. Potvin from its preferred provider lists, Met Life should have given him notice of the grounds for its actions and a reasonable opportunity to be heard. It was then Met Life's turn to appeal.

At the Supreme Court, the American Medical Association, the California Medical Association and the American Society of Obstetricians and Gynecologists joined Dr. Potvin as "friends of the court." Meanwhile, the California Association of Health Plans, the California Health Care Association, several insurance industry associations, certain medical groups and IPA trade associations, and a prominent medical group backed Met Life.

The Supreme Court majority held that, under certain circumstances, Met Life could not terminate Dr. Potvin's provider agreement without cause and the reason for termination had to be "substantively rational." The majority cited as precedent James v. Marinship Corp., Pinsker v. Pacific Coast Society of Orthodontists and Ezekial v. Winkle as standing for the proposition that, if a private entity had substantial power that significantly impaired the affected individual's ability to work in a particular field or profession, the entity must comply with the common law right to fair procedure prior to terminating an individual's right to participate.¹

Dr. Potvin was able to show that managed care organizations in California hold substantial economic power over physicians and their patients. He also contended that the control exercised by managed care organizations makes access to provider panels a practical prerequisite to any effective practice as a health care provider. The Supreme Court held that, if Met Life wielded power so substantial as to significantly impair an ordinary, competent physician's ability to practice medicine or medical specialty in a particular geographic area, Dr. Potvin was entitled to a hearing on the reasons for his removal from Met Life's preferred provider network.²

The ruling means a "without cause" termination provision is null and void if a physician can demonstrate that a particular health care service plan or insurer "wields power so substantively as to significantly impair an ordinary, competent physician's ability to practice medicine or a medical specialty in a particular geographic area." A physician who enters into such a contract will most likely be entitled to a hearing on the cause of termination prior to removal from a panel.

Interestingly, two months prior to the Supreme Court's decision in Potvin, the California Court of Appeal held that an IPA must afford notice and hearing rights to physicians who are terminated without cause.³

I suggest that any physician removed without cause from any panel insist on a hearing on the reason for the dismissal, regardless of any provision in a contract. Contact a lawyer who is knowledgeable in this area to provide representation during the hearing process.

Unfortunately, Dr. Potvin died in 1997 before the Supreme Court decision. However, his name will always be associated with the principle that, at a minimum, a health insurer must provide a physician who is excluded or terminated from a panel the right to a fair hearing.

Michael Polis is an associate with the law firm of Wilke, Fleury, Hoffelt, Gould & Birney, LLP, who specializes in health care and insurance regulatory matters, and representation of physicians in legal matters. He is an attorney and a Certified Public Accountant.

1. Marinship held that a union could not arbitrarily deny full membership privileges to African-American workers. Pinsker held that a dentist could not be arbitrarily excluded from a dental professional organization. Ezekial held that a surgical resident could not be arbitrarily excluded from a hospital residency program.
2. Dr. Potvin did not provide information as to whether Met Life had the power to substantially affect his ability to practice in the Orange County area. Consequently, the Supreme Court remanded the case to the trial court to determine whether Met Life possessed such power.
3. Costellanos v. Coastal Providers of San Luis Obispo.