Managing Risks When Practicing in Three-Party Care Settings

Following trends in medicine, psychiatry is faced with limited resources and third-party administration of resource allocation. This has affected psychiatric practice in many ways and altered the doc-tor-patient relationship. Trends toward resource-sensitive, third-party–related psychiatric practice may be accelerated by the current social concerns regarding the economy. Thus, an awareness of social context and the growing recognition that autonomy-enhancing alternatives to paternalistic care are fundamental to improve both the effectiveness and accessibility of care in limited-resource environments are each becoming vital for an informed clinical and risk-management practice perspective.1

To increase the likelihood of effective help for patients, psychiatrists need to know how third-party administration and limited resources influence their practice. It is also important to ask whether an individual who pre- sents for help is actually willing to assume sufficient responsibility for his or her care to benefit from what help is available. Psychiatrists must also understand how to follow up if treatments are not covered or claims are denied. In addition, when a psychiatrist leaves a preferred provider network, he also needs to know what steps can be taken to ensure continuity of care for patients.

Practicing within the standard of care

Psychiatric practice is affected by limited resources administered by third parties such as managed care organizations.2 The persistence of irrational beliefs—such as the conviction that medical care (including psychiatric care) occurs in a vacuum of unlimited resources—is among the biggest impediments to adequate care and risk management for clinicians and patients.3 As Voltaire recognized, “the better [perfect] is the enemy of the good.”4

The limited resources that face psychiatrists include relatively short face-to-face time with patients, a finite number of sessions budgeted to treat insured patients on an inpatient and outpatient basis, and the ongoing struggle to provide care for the uninsured. One way to cope is to practice in a more cost-effective manner. This may include using screening instruments such as patient questionnaires, using limited time more effectively, and prescribing generic equivalents instead of brand-name medications whenever possible. Used critically, evidence-based practice guidelines may offer direction for more cost-effective treatment.5 Other mental health providers, such as physician assistants or psychiatric nurses, can see patients for routine visits at a lower overall cost.

Screening instruments help separate persons who may benefit from psychiatric care from those for whom it may not be helpful or may even be counterproductive. For example, individuals who are actively abusing substances need to commit to being substance-free before they will benefit from psychiatric care. Similarly, the autonomy of long-standing paranoid patients with schizoid or avoidant traits who drop in and out of treatment needs to be respected.

Even in an environment of limited resources, psychiatrists can make treatment recommendations that fit the patient’s problems. This means being informed about laws, professional ethics, and standards of care that can be learned through training, continuing education, and consultation with colleagues.


■ The persistence of irrational beliefs—such as the conviction that medical care, including psychiatric care, occurs in a vacuum of unlimited resources—is among the biggest impediments to adequate care and risk management.

■ Practicing in a more cost-effective manner may include use of screening instruments, using limited time more effectively, and using generic equivalents instead of brand-name medications whenever possible.

■ In light of third-party administration and the need for more efficiency amid limited resources, respecting patient autonomy has become increasingly important in clinical practice.

Malpractice standards vary state by state. In California, for example, a representative standard for medical malpractice was described in the 1976 California Supreme Court case of Landeros v Flood.6 The case standard states: “A physician is required to exercise, in both diagnosis and treatment, that reasonable degree of knowledge and skill which is ordinarily possessed and exercised by other members of his profession in similar circumstances.” A key phrase here is “in similar circumstances.”6

A psychiatrist’s care may fall below the standard of care if, for example, he fails to conduct an adequate risk assessment of a suicidal patient, or if he prescribes a medication—eg, a neuroleptic—without informing the competent patient about the potential for tardive dyskinesia or metabolic syndrome. It is important to distinguish optimal care from care that is sufficient to meet the standard of care. The standard of care can be met in a variety of ways. What a physician can do may be limited by considerations that range from respect for a patient’s autonomy to resources that are available when a problem arises.

It helps for the clinician to be flexible in coordination and communication and to consider the limits of doctor-patient confidentiality. For example, in the outpatient setting, enlisting help from other office members in dealing with a patient in crisis can bring about efficient transfer to the hospital. Coordinating the management of a patient’s acute psychosocial stressors with social workers may allow more time for a treatment session.

Physicians should avoid unrealistic expectations about available resources and the utility of those resources. This includes refraining from expressing unrealistic hope that certain treatments will be successful when research data indicate otherwise or from practicing defensive medicine by considering hospitalization inevitably to be the best treatment. For some, hospitalization can be counterproductive insofar as it undermines a patient’s ability or motivation to be responsible for his own treatment. Similarly, any short-term benefit of a forced hospitalization must be weighed against the potential risk of undermining the potential for a therapeutic alliance with a care-avoiding patient.

When working with limited resources, it is important to use approaches that respect patient autonomy and are cost-effective. Approaches that respect patient autonomy promote good clinical practice and, with proper documentation and consultation, good risk management. Critical consideration of evidence-based guidelines and being open to the use of decision aids and systems approaches to patient care can also be of help.5,7

Understanding health plans to provide care and anticipate risks

Psychiatrists should be knowledgeable about the benefits provided un-der their patients’ health care plans. There are significant differences among plans, whether they are private or government-sponsored organizations. Most health care plans, including HMOs and PPOs, use evidence-based guidelines as a road map to decide what treatments are approved and in their review of physicians’ recommendations. Understanding the basics of each plan, such as the recommended formularies and approved treatment, will allow you and your patients to make more informed decisions.

Plans list certain mental illnesses as “coverable.” For each illness, plans specify approved treatments and the contexts in which those treatments can be prescribed. Although medication may be covered, many brand-name medications will not be approved until there have been trials of generic alternatives. A patient may not be able to continue to take certain brand-name medications started as an inpatient when outpatient use of those medications is not covered by his plan. In this situation, switching to a generic or other alternative treatment may lead to the loss of any short-term gain as the patient transitions to outpatient care. That is, such transitions may involve hidden transaction costs, such as when the patient is uninformed of the potential consequences of switching from a brand-name to a generic medication. For example, patients may be left without medications for a while, until they can see their outpatient provider. Also, alternative treatments may not be as effective as the inpatient treatment. In both of these cases, the transaction cost is the increased risk of decompensation of the patient. Thus, a lack of planning, information, and communication increases the risk of an eventual negative outcome, including possible rehospitalization.

In light of third-party administration and the need for more efficiency amid limited resources, respect for patient autonomy has become increasingly important in clinical practice. Encouraging patients to learn about their illness, to reduce stress, to take responsibility for avoidance of substance use, and to understand their plan promotes thoughtful patient decisions about where to access care.8 This also allows patients to make more informed decisions about treatment, including when they may be required, or may even elect, to pay for services out-of-pocket.

If benefits are denied by a health care plan, psychiatrists may appeal on behalf of patients or, alternatively, educate patients about their rights so that patients can pursue their own appeals. This is especially important in cases where there is no adequate alternative to care. However, the likelihood of a successful appeal must be considered in light of informa-tion such as that from the New York Insurance Department, which indicates that of 11,179 appealed decisions to 15 HMOs, only 38% were successful.9

Even in cases where an insurance company acts egregiously, such as by denying standard care, patients who sue their health care plan providers may be limited to recovering only the benefit itself or a monetary equivalent under the Employee Retirement Income Security Act of 1974 (ERISA).10 Recovery cannot be gained from plans covered under ERISA for expenses lost and personal injury, including pain and suffering, because of an inappropriate denial of benefits.10

Administrative guidelines may protect the managed care organization when benefits are denied but may not protect the clinician. In sum, understanding covered conditions and treatment allows both psychiatrists and patients to better under-stand the most cost-effective ways to proceed with treatment. This also allows psychiatrists and patients to anticipate any potential denial of benefits and, therefore, prospectively plan for potential alternatives to care.

Managing Risks When Practicing in Three-Party Care Settings

This article originally appeared in:

Psychiatric Times

It is reprinted here with permission.


APA Reference
Paul,, R. (2011). Managing Risks When Practicing in Three-Party Care Settings. Psych Central. Retrieved on September 18, 2020, from


Scientifically Reviewed
Last updated: 30 Aug 2011
Last reviewed: By John M. Grohol, Psy.D. on 30 Aug 2011
Published on All rights reserved.