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Movement on vicarious HMO liability

By Renee Martin, J.D., R.N.

A federal court in the Eastern District of Pennsylvania on May 8, 1998 ruled that a medical malpractice suit against an HMO may proceed under the theory that the allegedly negligent physician was acting as the agent of the HMO.

In Negron v. Patel, et. al, parents of a 34 year old autistic man, covered by his father’s federal employee health benefits plan (The Federal Employee Health Benefits Act or “FEHBA”), filed a complaint against physicians, a hospital and Aetna U.S. Healthcare alleging that Peter Negron received inadequate care after being taken to a hospital on several occasions complaining of serious gastrointestinal problems. The Negrons alleged that these problems were ultimately determined to have been caused by undiagnosed salmonella poisoning. According to the suit, Peter Negron was a self sufficient autistic adult capable of performing his own personal hygiene and activities of daily living and he now needs around the clock care because his physicians waited for over a month to hospitalize him when he continued to complain of persistent diarrhea and vomiting. The parents further alleged that they asked Peter’s physician repeatedly to admit him to the hospital but that the physician refused, because according to Aetna U.S. Healthcare guidelines, Peter’s condition was not serious enough to warrant hospitalization.

Eventually, the attending physician referred Peter to a gastroenterologist, but by this time his condition had worsened such that he was admitted to the hospital with Adult Respiratory Distress Syndrome which then evolved into Disseminated Intravascular Coagulation resulting in multiple strokes, brain damage, paralysis and a partial amputation of his left foot.

The Negrons raised numerous tort and contract theories against the defendants. Specifically, as to Aetna, the Negrons alleged corporate negligence asserting that Aetna’s financial incentives to member physicians influenced them to withhold or forestall adequate testing and prompt appropriate referrals.

Most importantly, the suit alleged vicarious liability against Aetna claiming that the attending physician was an actual or apparent agent of the HMO and that his alleged negligence could therefore be imputed to the HMO.

This legal theory advanced by the Negrons of vicarious liability or respondeat superior is a fundamental principle of agency law which allows for an employer to be held responsible for the torts of an employee, even if the employer was not negligent. Usually, in the medical setting, a physician is treated as an independent contractor rather than an employee. The HMO is then relieved of any agency-based liability for the physician’s negligent acts.

Even if a physician is not an actual employee or agent of the HMO, the HMO can still be held liable under apparent agency theory. An ostensible or apparent agency relationship arises when the HMO creates the reasonable impression that the HMO, in addition to the physician, is responsible for the care provided or that the physician is an HMO employee. To support this liability theory, patients usually cite the fact that the HMO held out the physician as its employee by listing the physician as a participating HMO provider in a member brochure or advertisement.

After the complaint was filed, Aetna U.S. Healthcare moved to dismiss all the claims against it arguing that they were preempted by FEHBA. FEHBA was enacted in the late 50’s to provide health insurance coverage for federal employees and their dependents. Notably, FEHBA contains the same general preemption language found in ERISA. This preemption language provides that any contracts (for health care benefits) which “relate to the nature or extent of coverage or benefits . . . shall supersede and preempt any state or local law . . . which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions.” This preemption provision was added by Congress so that in regard to state insurance regulations, federal employees would receive identical health care benefits nationwide. Further, Aetna’s FEHBA contract limited available remedies or damages which relate to plan benefits or coverage solely to the amount of contractual benefits in dispute.

Therefore, Aetna argued that, similar to ERISA, these FEHBA claims were preempted because the Negrons were asserting denial of health care benefits due them under the plan, i.e., hospitalization and referrals for Peter. Aetna also argued that the sole remedy available to the Negrons was then limited to that provided for in the contract: monetary damages equal to the cost of hospitalization and referrals which were not provided.

The Negrons countered that this case is not about benefit coverage or whether benefits were provided under the plan; instead, their case concerned whether the financial scheme created by the HMO motivated Peter’s treating physicians to deny, restrict or delay treatment. In essence, the Negrons argued they were contesting the quality of the benefits Peter received and that Aetna should be held liable under negligence and agency principles.

In deciding this issue, the court noted that limited case law analyzing FEHBA’s preemption clause exists. The court, therefore, turned to case law analyzing ERISA preemption in the Eastern District of Pennsylvania and determined that the Negrons’ medical malpractice claim against the HMO may proceed under a vicarious liability theory. The judge wrote that the “plaintiffs’ vicarious liability claim is predicated on the idea that Peter Negron was the victim of medical malpractice and the state law principles of agency or ostensible agency imputes such negligence to the HMO . . . . The Negrons are seeking to vindicate their rights to be free of medical malpractice, rights that are independent of the (Aetna FEHBA) contract.” The judge noted that nothing in Aetna’s FEHBA contract preempted medical malpractice law “insofar as the law may hold an HMO liable on respondeat superior principles.”

However, the judge dismissed the corporate negligence claim about financial incentives saying that it fit squarely within the preemption question. In essence, the judge stated that to determine whether the use of physician financial incentives constituted an act of corporate negligence would require an examination of the terms of the Aetna FEBHA health benefits plan. Such an examination, according to the judge, relates directly to plan administration, and if the FEBHA contract is interpreted under state law, that process could lead to varying member benefits among the states.

The action will now proceed in a Pennsylvania state court as a medical malpractice action. It should be noted, however, that the Negrons will need to demonstrate that the physicians treating Peter were actual or ostensible agents of Aetna and if they are unable to do so, they will be unable to “reach” Aetna even if the physicians are determined to be negligent.

The Negron case is significant because it is the first time that a federal court has specifically extended vicarious liability principles to an HMO. This further erodes the protection which HMOs enjoy under ERISA preemption. The case is also significant because it adds to the growing body of case law nationally, as well as in the Eastern District, holding that ERISA preemption applies only to claims that an HMO failed properly to administer the health benefits plan, not to claims of HMO negligence. If a plaintiff alleges that the HMO failed to authorize treatment or properly to administer the benefit plan, a court will likely determine that the claim relates to the benefit contract and that ERISA preempts the claim.

Conversely, if a plaintiff asserts a medical negligence claim, then the claim relates to the quality of care rendered and ERISA does not preempt it because the claim is too tenuous or remote from the health benefit plan. To decide if negligence occurred would not involve an examination of the plan, but whether or not the HMO or physician adhered to the prevailing standard of medical care.

It seems that this analysis has evolved because courts recognize that, if ERISA were interpreted to prevent all claims brought against an HMO including those for negligence, then HMOs would enjoy an unique status under the law.

Notably, plaintiffs are becoming savvy in how best to plead their case and generally now do include claims sounding in medical malpractice and negligence so that their action against the HMO is not dismissed based upon ERISA preemption.

Renee Martin, J.D., R.N., M.S.N. is an associate with the health care law firm of Kalogredis, Tsoules and Sweeney, Ltd. in Wayne, Pennsylvania.

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