wickline v. state of california: closing the door of third-party payor liability?

WICKLINE V. STATE OF CALIFORNIA: CLOSING THE DOOR OF THIRD-PARTY PAYORLIABILITY?Author(s): Stephen J. SchanzSource: Tort & Insurance Law Journal, Vol. 22, No. 2 (Winter 1987), pp. 331-335Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/25761756 .

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CASENOTE

WICKLINE V. STATE OF CALIFORNIA: CLOSING THE DOOR OF THIRD-PARTY PAYOR LIABILITY?

Stephen J. Schanz

In what appears to be one of the first appellate cases addressing the potential conflict between quality of care and health care cost containment mechanisms, the Califor nia Court of Appeals has overturned a jury finding of liability against the State of California for the premature discharge of a patient. Initially awarded 1500,000 by the trial jury, the appellate court reversed that ruling and held that the third-party health benefit payor was not liable as a matter of law for the plaintiff patients' inju ries. Such a ruling appears to be the first to specifically address the potential problems ostensibly created by the rapidly changing health care environment and the various

payment programs adopted as a result thereof.

In Wickline v. State of California1 the plaintiff-patient qualified as a recipient of Medi-Cal benefits, which involved a prior authorization type of benefit plan. A mar

ried woman in her mid-forties, the plaintiff was being treated by her family practice physician for leg and back problems. When she failed to respond to physical therapy, a consultation with a vascular surgeon was obtained. The consulting surgeon deter mined that the plaintiff was suffering from an occlusion of the abdominal aorta as a

result of arteriosclerosis and recommended surgery whereby the affected artery would be replaced by a synthetic graft. The plaintiff agreed to the recommended

surgery and was discharged from the community hospital where she had been under

going evaluation and sent home to await approval of the physician's diagnosis and to

secure proper authorization from Medi-Cal for the requisite hospitalization.2

1. Wickline v. State of California, 288 Cal. Rptr. 661, 183 Cal. App. 3d 1175 (1986). 2. Id at 664.

Stephen J. Scbanz is an Assistant Professor in the Department of Finance and Commercial Law at

Western Michigan University and a practicing attorney in Kalamazoo, Michigan.

331



332 TORT & INSURANCE LAW JOURNAL

The plaintiffs family practice physician submitted a request for authorization of treat ment to Medi-Cal and received authorization for both the surgery and a total of ten days of hospitalization. Thereafter, the plaintiff was admitted to the hospital on January 6, 1977, and underwent surgery the following day.3 Post-operatively the same day surgery

was performed, the plaintiff experienced complications which necessitated a second sur

gical procedure. Her post-surgical recovery was characterized as "stormy" and later,

some five days after the initial operation, she underwent another surgery called a lumbar

sympathectomy, designed to remove a section of nerves next to the spinal column. Such a procedure causes the lower extremity blood vessels to remain wide open in hopes of

alleviating vessel spasms and, in turn, reduces the risk of clotting.4 Because the plaintiff was admitted on January 6, 19 7 7, her initial discharge date had

been planned for January 16, upon exhaustion of the ten-day authorization from Medi-Cal. On the final day, however, her doctors believed that an additional eight days of hospitalization were necessary. As a result, the plaintiff s surgeon requested that a

hospital nurse fill out Medi-Cal's prescribed form upon which extension of benefits are

sought. It is the hospital's responsibility to prepare this particular extension form al

though the physician is to furnish the diagnosis, history, treatment plan, etc.5

Upon review of the extension request by Medi-Cal's on-site nurse it was felt that the proposed eight-day extension could not be approved. The on-site nurse for

Medi-Cal then spoke with a Medi-Cal consultant (in this instance, a physician board certified in general surgery). The Medi-Cal consultant denied the requested eight day extension and, instead, authorized an additional four days of benefits. Subse

quendy, the plaintiff was discharged on January 21, 1977, upon the completion of the four-day extension. Both the plaintiffs' family practice physician and vascular

surgeon wrote discharge orders.

Shortly after returning home the plaintiff began experiencing pain and losing color in her leg until she was finally admitted again to the community hospital on January 30, 1977, some nine days subsequent to her post-surgical discharge. Because the

January 30 admission was as an emergency patient, pre-authorization from Medi Cal was not a prerequisite. After admission, the plaintiff s physician observed an

open wound in the groin area and a secondary infection at the incision site.8 Further

surgical intervention was not recommended due to the presence of the infection and risk of spreading it throughout the body. After other avenues to save the plaintiffs leg failed, she underwent a below-the-knee amputation of the leg on February 8, 1977, and a second above-the-knee amputation on February 17, 1977. The plaintiff subsequendy filed suit against the State of California (Medi-Cal) and

alleged, among other theories, a negjigent discontinuance of Medi-Cal eligibility and

3. Id. 4. Id. 5. Id. at 665. 6. /<? at 665-666. 7. Id. at 667. 8. Id. at 668.



Wickline v. State of California 333

premature discharge from the hospital.9 At the trial level a jury awarded a verdict of

1500,000 in her favor and the state appealed. On appeal, the state contended the Medi-Cal action's constituted reasonable con

duct which would not support a cause of action for negligence. Their support for this

position was based in part upon the fact that all three of the plaintiffs physicians discharged her and that each indicated that had it not been in her best interest to go home they would have requested another extension.10 Further, the state argued that the actions of Medi-Cal were immune from liability pursuant to state statute.

Buttressing the argument of the state insofar as public policy was concerned, while

taking no position as to the particular facts as to negligence, was an amicus curiae brief filed by Cost Care Incorporated. Therein, the key conflict underlying the appeal was

concisely stated:

Specifically addressed is prior authorization of hospital days, whereby the physician intending to

hospitalize a patient must obtain authorization from the utilization re

viewer for a definite, specific length of stay in the hospital. Failure to obtain such autho

rization jeopardizes the qualification of that hospitalization for coverage under Medi

Cal. The policy espoused by Plaintiff/Respondent's case, and the trial court's decision

is that since utilization review affects the actual medical decisions made by the various

providers involved, and impacts the quality of care delivered to the patient, the utiliza

tion reviewer should stand in the shoes of the provider and be held liable for the medical

consequences of the utilization review determination. This position cleariy undermines

well-established public policy in favor of health cost containment and physician duty to

provide quality care at reasonable cost.11

By contrast, the positions taken by the plaintiff and several amicus curiae briefs filed in support thereof reach different public policy conclusions. The plaintiff argued that it was the opinion of one of her physicians that her leg amputation would have been avoided had the full eight-day extension been granted.12 Specifically, it was charged that if the plaintiff had been hospitalized when either the infection or clotting com

plications arose, there would have been, within a reasonable degree of medical cer

tainty, a chance of successfully treating either complication.13 An amicus curiae brief filed by the California Medical Association also declined to

assert a particular position based upon the particular facts involved in Wickline. It

did, however, succinctly enunciate the broad policy ramifications facing the court in

confronting such a medical decision. The California Medical Association (CMA) brief targeted in on the dilemma facing physicians as follows:

9. Id. at 662-663. 10. See Appellants Brief submitted by Attorneys for the State of California, Wickline v. State of Cali

fornia, Court of Appeal of the State of California, Second Appellate District. \\. See Amicus Curiae Brief on Behalf of Cost Care Incorporated in Support of Appellant State of

California, at 3, Wickline v. State of California, Court of State of California, Second Appellate District, Division Five, filed by John E. Shorkey, Esq.

12. Respondent's Brief filed by Thomas E. Bruyneel, Esq., Wickline v. State of California, Court of

Appeal of the State of California, Second Appellate District, Division Five at 7.

13. Id at 31.



334 TORT & INSURANCE LAW JOURNAL

CMA recognizes the responsibility of the medical profession to cooperate in control

ling health care costs. However, CMA has an obligation to describe patient risks which

badly constructed or maintained systems present. CMA is also concerned that physi cians not be placed between the proverbial rock and hard place. The patient who is

injured when care which should have been provided is not provided will recover from

someone. If the third party payor imposing these controls is permitted to avoid liability

by maintaining the fiction that the mechanisms have only fiscal consequences, so that

patient care is solely the physician's responsibility, the physician becomes the insurer. If

rationing malfunctions, the physician who complies with the program is liable to the

patient. If the physician does not comply, the physician is punished or faces responsibil ity for incurring unauthorized costs.1

The CMA brief concluded by arguing that neither the State of California nor any other third-party payor should be able to avoid legal liability for injuries resulting from negtigently designed or negligendy implemented programs. On July 30, 1986, the California Court of Appeals reversed the trial court verdict

after finding as a matter of law that the state was not liable for the plaintiff s injuries. The court appeared to be fully cognizant of the paramount issues before it and can

didly framed the novel controversy as follows:

In the cost containment program in issue in this case, prospective utilization review,

authority for the rendering of health care services must be obtained before medical care

is rendered. Its purpose is to promote the well recognized public interest in controlling health care costs by reducing unnecessary services while still intending to assure that

appropriate medical and hospital services are provided to the patient in need. However, such a cost containment strategy creates new and added pressures on the quality assur

ance portion of the utilization review mechanism. The stakes, the risks at issue, are

much higher when a prospective cost containment review process is utilized than when

a retrospective review process is used.

A mistaken conclusion about medical necessity following retrospective review will

result in the wrongful withholding of payment. An erroneous decision in a prospective review process, on the other hand, in practical consequences, results in the withholding of necessary care, potentially leading to a

patient's permanent disability or death.15

In reaching their decision, the appellate court appeared to be swayed substantially by expert medical testimony from both sides which indicated that acceptable stan dards of medical practice, as existed in 1977, placed upon the physician the duty to decide a patient's course of treatment.16 While charging the physician with such a

responsibility, the court nevertheless pointedly opined that the third-party health care service payors could be liable in circumstances wherein cost containment pro gram design defects or implementation defects cause medically inappropriate deci sions.17 The distinguishing difference in the placement of liability centered around

whether program defects caused injuries on the one hand, or whether a physician

14. The Amicus Curiae Brief Filed on Behalf of the California Medical Association by the attorneys for the Association, Hassard, Bonnington, Rogers & Huber, at 4-5.

15. Wickline v. State of California, 228 Cal. Rptr. 661, at 663. 16. Id. at 670. 17. Id. at 671.



Wickline v. State of California 335

complied with third-party payor limitations without protest, on the other hand. The court succincdy stated that the state (via Medi-Cal) did not override or otherwise

supersede the medical judgment of the plaintiff s physicians1 and that mechanisms aimed at cost constraints should not be allowed to

"corrupt" medical practice.19

Judicial decisions long ago began addressing whether liability should be imposed when economic or other nonmedical factors infringe upon or after medical judg ment.20 Circumstances involving premature hospital discharges have also been previ ously evaluated. For instance, in Kekua v. Kaiser Foundation Hospitaf1 a young infant

exhibiting a high fever, diarrhea and vomiting went to the defendant hospital. The

youngster was discharged and died at home thereafter. Suit was subsequendy brought and liability premised upon a theory of premature discharge after negli gendy failing to determine the actual cause of illness.

A similar case involving theories sounding in wrongful discharge arose in Florida.22

Therein, a young child in need of an appendectomy was compelled to transfer to another hospital because of his mother's inability to pay the requisite fees. The court found for the plaintiff despite the fact that formal admission documents had not been executed and, instead, seemed to base their decision upon allegations the child had been examined, clothes removed, etc.

The issues raised in Wickline, and variations of particular problems associated with cost containment strategies in the health care field, are likely to arise with rapidity. The role of third-party payors has continued to increase in recent times. Whereas

third-party insurance payors accounted for approximately 48.4 percent of total per sonal health expenditures in 1965, this segment had risen to an estimated 67.6 per cent in 1980.23 More dramatically, hospitals received an estimated 90.9 percent of their revenues from third-party payors in 1980, while over 50 percent of this amount came from public programs.24 Until such time as greater experience with health care cost containment programs

has been obtained, physicians continue to be the primary decisionmaker insofar as

patient care and treatment is concerned. Similarly, they are faced with primary expo sure for negligent decisions relating thereto. Although Wickline specifically leaves

open the window of possibility for liability stemming from defective implementa tion or defective design of a cost containment program, definitive guidelines in the area appear to be nonexistent. Physicians, therefore, would be prudent to continue the exercise of their best independent medical judgment while third-party payors, on

the other hand, must be ever vigilant of the ramifications of their cost containment

programs to insure defects therein do not re-open the liability door.

18. Id. 19. Id. at 672. 20. See Larsen v. Yelle, 246 N.W.2d 841 (Minn. 1976). 21. 601 P.2d 364 (Hawaii, 1979). 22. Lejuene Rood Hospital, Inc. v. Watson, 171 So. 2d 202 (Fla. App. 1965). 23. See Gibson and Waldo, National Health Expenditures 1980, Health Care Financing Rev., Sep

tember 1981, at 42-47. 24. Id.



wickline v. state of california: closing the door of third-party payor liability?

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