Home / Medicine & the Law / HMO liability presents risks to physicians

HMO liability presents risks to physicians

By Anna M. Bamonte, Esq. & Linda S. Hackett, Esq.

As the role of the HMO evolves over time, so follow the theories of liability. Where once state tort claims were, for the most part, deemed “preempted” by the Employment Retirement Income Security Act (ERISA) and other such federal statutes, two important recent cases in Pennsylvania have opened up HMOs to state litigation. The United States District Court for the Eastern District of Pennsylvania and the Pennsylvania Superior Court have recently decided that a health maintenance organization (HMO) can be sued under the theories of vicarious liability and corporate negligence.

Traditionally, ERISA and like statutes have protected most employer-sponsored health plans from state tort actions through preemption provisions contained in the statutes. The Supreme Court, in New York Blue Cross v. Traveler’s Insurance Company, found that the ERISA preemption clause was intended to avoid “a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans.” HMOs have in the past argued that, where a state law “relates to health insurance or plans,” the federal Act would regulate. State laws “related to” an employee benefit plan if they had a connection with or a reference to such a plan.

Many court decisions have since attempted to define the “preemptive relates to” found in the ERISA and other such statutes. District and Circuit courts have for the most part been split on how broadly such preemptive provisions should be interpreted. More recently, however, courts have questioned whether it was the intent of Congress to preclude recovery to plan beneficiaries who have been injured by negligent medical decisions.

Recent Precedent

In Negron v. Pattl, the United States District Court for the Eastern District of Pennsylvania determined in May of this year that a claim against an HMO was permitted to go forward where the HMO was alleged to be vicariously liable, or indirectly legally responsible, for the claims of medical negligence. This medical malpractice action was filed against several doctors, professional associations, a hospital and an HMO. It was alleged in the suit that the patient, Peter Negron, received inadequate medical care when he presented to the hospital on several occasions with gastrointestinal complaints ultimately diagnosed as salmonella poisoning. The alleged failure to timely diagnose Negron’s condition resulted in a worsening of his condition, leading to brain damage, the partial amputation of one foot and paralysis.

The Defendant HMO in Negron moved to have all claims against it, which were based in state law, dismissed on the basis that the Federal Employees Health Benefit Act (FEHBA), under which Mr. Negron was insured, preempted or took precedence over the state laws. Like ERISA, the FEHBA preemption provision applied where a state law “relates to health insurance or plan.”

Though the District Court held that the state law claims against the HMO for breach of contract, misrepresentation, breach of fiduciary duty, unfair trade practices, fraud, corporate negligence and other tort and statutory claims were preempted by FEHBA, the District Court did not draw the same conclusion on the vicarious liability claim.

The HMO moved to have all claims against it, which were based in state law, dismissed on the basis that the Federal Employees Health Benefits Act, under which Mr. Negron was insured, “preempted” or took precedence over the state laws.

The Court determined that this claim was based on the theory that Mr. Negron was the victim of medical malpractice and that the physicians allegedly committing the malpractice were the “ostensible agents” of the HMO. Though physicians typically hold an independent contractor status with a hospital or HMO, a physician may be deemed by the court to be the agent of a hospital or HMO where the patient reasonably believes that the medical services are being rendered by the hospital or HMO. In such a case, the hospital or HMO can be held liable for the negligence of the independent contractor physician.

Though the District Court allowed the claim of vicarious liability against the HMO to go forward, the Negrons still have the burden to prove at trial that the defendant physicians were the agents, ostensible or otherwise, of the HMO, and that Mr. Negron received negligent medical treatment. Only then can liability be imposed against the HMO.

Newer Precedent

More recently, the Pennsylvania Superior Court has ruled in the Shannon v. NcNulty that federal preemption no longer applies to claims against HMOs for corporate negligence. In Shannon, the parents of a premature baby which subsequently died filed a malpractice suit against the physician alleging failure to timely diagnose and treat pre-term labor and against the HMO under theories of vicarious and corporate liability. The Shannons alleged that the HMO was vicariously liable for the negligence of its nursing staff in failing to respond to Mrs. Shannon’s complaints. The Shannons also alleged that the HMO was directly liable under the theory of corporate negligence for its negligent supervision of the physician’s care and its lack of appropriate procedures and protocols when dispensing medical advice to its subscribers by phone.

Corporate negligence is a doctrine which imposes direct liability against a party who fails to uphold the proper standard of care owed to the patient. This theory creates a non-delegable duty which is owed directly to the patient. Under corporation liability, a hospital owes a duty of care to its patients to maintain safe and adequate facilities and equipment; to select and retain competent physicians; to oversee all persons who practice medicine; and to formulate, adopt and enforce adequate rules and policies to ensure quality care for its patients. The Superior Court in Shannon has now expanded the corporate liability doctrine to include HMOs which provide health care services.

In its opinion, the Superior Court acknowledged the “central role played by HMOs in total health care of its subscribers” in dictating and directing the subscriber’s medical care. Although an HMO does not practice medicine, the daily decisions made by an HMO, e.g., the length of hospital stay, the use or restriction of specialists and the use of emergency room care, affect the medical care of the subscriber. The Superior Court stated that when “a benefits provider, be it an insurer or managed health care organization, interjects itself into the rendering of medical decisions which affect its’ subscribers care, it must do so in a medically reasonable manner.”

While these decisions seem to affect only the HMOs, they may result in increased potential exposure for the physician. The physician does not have increased exposure in cases where the theory of recovery is based on corporate liability because that is a claim of direct negligence against the HMO.

The physician does, however, have the potential of increased exposure where the theory of recovery is based on vicarious liability.

If at trial there was a finding that the HMO was vicariously liable for the acts of the physicians, the HMO would have a right to seek indemnification, that is, recover the full amount of the damages from the physicians found to be negligent. HMOs which are named as defendants in malpractice actions under a vicarious liability claim can assert their right of indemnification directly against an alleged negligent co-defendant physician. Where the physician is not already a party to the lawsuit, the HMO can join the physician as an additional defendant or wait until a final resolution of the case and, if determined to be vicariously liable, commence a separate action against the physician for indemnification. This right of indemnification may arise contractually, through an agreement between the HMO and physician, or may be established through common law.

The HMOs, which now can be subject to claims of vicarious liability in the State and Federal Courts, may be motivated to pass on the risk of liability by requiring contractual indemnification from their providers. The physician may not only be subject to additional litigation by being joined in a suit or sued after a final determination of vicarious liability on the part of the HMO, but may also find himself/herself without the protection of insurance. Generally, malpractice insurance policies will exclude contractual obligations from coverage. If a physician’s contract with an HMO includes an indemnification provision, the physician should determine whether his or her insurance policy provides coverage. While indemnification provisions are not commonly included in contracts between HMOs and physicians, this may change in light of the recent court decisions.

The potential increased exposure for physicians may also be affected if Congress enacts legislation to reform managed health care. In July of 1998, the House of Representatives passed the Republican sponsored patient rights bill which would provide broader protections to the private individual. The Republican bill, which has been placed on the Senate Legislative calendar, limits its applicability to federally regulated health plans, does not eliminate the federal law shielding HMOs from excessive awards in malpractice suits and does not include a patient’s right to sue the HMOs.

The Senate also has a proposed bill pending which would permit, among other things, the patient’s right to sue the HMO. The enactment of legislation permitting patients to sue the HMOs could not only result in an influx of litigation against the HMOs, since the effect would be to weaken the protection the HMOs have under ERISA, but it could also increase a physician’s exposure to indemnification claims.

Anna M. Bamonte, Esq., is a senior attorney and Linda S. Hackett. Esq., is a senior associate attorney with Houston Harbaugh in Pittsburgh.

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