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Holding HMOs Responsible
DENTISTRY
AND THE LAW
Holding
HMOs
Responsible
A
recent decision of the Illinois Supreme Court significantly expands the liability exposure of health maintenance organizations in Illinois and reflects a trend toward holding HMOs legally responsible for medical malpractice. In Petrovich vs. Share Health Plan of Illinois,1 the state’s high court held that an HMO could be held liable for the actions of an independent contractor physician. This decision was announced only about a month after Illinois enacted legislation that places greater restrictions on HMOs, but does not grant patients the right to sue them for malpractice. In the Petrovich case, Inga Petrovich was a member of Share Health Plan. Mrs. Petrovich selected a primary care physician, or PCP, and consulted with that physician about pain in her mouth, tongue, throat and face, along with other symptoms. The PCP referred Mrs. Petrovich to a neurologist and to an ear, nose and throat specialist, or ENT. The ENT recommended that Mrs. Petrovich receive either a magnetic resonance imaging test or a computed tomographic scan. According to Mrs. Petrovich’s deposition, the PCP informed her that Share would not allow the new tests recomBY PETER M. SFIKAS, J.D. 250
mended by the ENT. However, the PCP later ordered an MRI, but the MRI did not image the area that the ENT had requested. Mrs. Petrovich testified that the PCP told her the MRI was normal. But she continued to experience pain, so the PCP again referred her to the ENT, who performed multiple biopsies and discovered that she had squamous cell carcinoma in the base of her tongue and in surrounding tissues of her pharynx. Mrs. Petrovich later underwent surgery and received radiation and rehabilitation therapies. Mrs. Petrovich, now deceased, sued Share, the PCP and others. In the lawsuit, she alleged that both the PCP and the ENT were negligent, and that Share was vicariously liable for their negligence. If Share were found vicariously liable, that would mean the HMO was indirectly legally responsible for the acts of the PCP and ENT. The trial court held that Share could not be held vicariously liable for the negligence of independent contractor physicians, but an appellate court reversed that ruling and returned the case to the trial court for further proceedings. Share appealed that decision to the Illinois Supreme Court, which found there should be a trial to determine whether Share was vicariously liable. In its analysis, the Illinois Supreme Court noted that the Share member handbook described the physicians as “your Share physician,” “Share
JADA, Vol. 131, February 2000 Copyright ©1998-2001 American Dental Association. All rights reserved.
LAW physicians” and “our staff.” The handbook, which was provided to Mrs. Petrovich, also referred to physicians’ offices as “Your Share physician’s office,” and stated that “all of the Share staff and Medical Offices look forward to serving you.” While agreements involving Share, the physicians in this case and the hospital stated that the physicians were independent contractors, Mrs. Petrovich did not receive copies of those agreements. A subscriber certificate contained in Share’s benefits contract stated that Share’s physicians were independent contractors. Mrs. Petrovich testified that she did not recall receiving the subscriber certificate. Share countered that it customarily provided those certificates to members, but did not know whether a certificate had been given to Mrs. Petrovich. The court noted that at the time she received treatment, Mrs. Petrovich believed that her physicians were Share employees. As the Illinois Supreme Court observed, entities generally are not liable for the actions of independent contractors. However, entities can become vicariously liable for those actions if it appears that the independent contractor was acting as the entity’s agent. Under the doctrine of apparent authority, an entity will be bound by the authority that it appears to give an independent contractor, if a third party reasonably relied on that appearance and was consequently harmed. The court concluded that the apparent authority doctrine could be used to impose vicarious liability on HMOs. To do so,
a patient must prove: dthat the HMO held itself out as the provider of health care, without informing the patient that the care is given by independent contractors; dthat the patient justifiably relied on the HMO’s conduct by looking to the HMO for health care services, rather than to a specific physician. In this case, the Illinois court concluded that the agreements involving Share, the physicians and a hospital failed to establish that Share did not hold out the physicians as its agents, since there was no reason that Mrs. Petrovich should have known about those agreements.
The court concluded that the apparent authority doctrine could be used to impose vicarious liability on HMOs. The court held also that Mrs. Petrovich’s statements that she believed the physicians were Share employees, along with Share’s statements in its handbook, supported the conclusion that Share held itself out to Mrs. Petrovich as the provider of her health care. The court observed that Share had contracted with Mrs. Petrovich’s employer to become her sole provider of health care; Mrs. Petrovich’s reliance on Share was “literally compelled.” The Illinois Supreme Court also considered whether the doctrine of implied authority applied in this case. The court observed that implied authority could be shown if the alleged agent, in this case the physicians, lost the right to control
the way they performed their work. The court found that where “an HMO effectively controls a physician’s exercise of medical judgment, and that judgment is exercised negligently, the HMO cannot be allowed to claim that the physician is solely responsible for the harm that results.” A physician’s status as an independent contractor, the court held, could be “negated,” at least as it applies to patients, if the HMO exercised sufficient control over the physician. Here, the court held, evidence of Share’s capitation method of compensation, Share’s “quality assurance review,” Share’s referral system and Share’s requirement that its primary care physicians act as gatekeepers, along with the handling of Mrs. Petrovich’s treatment, supported an argument that Share controlled the manner in which its independent contractor physicians performed their work. As noted earlier, the Illinois Supreme Court did not hold that Share was liable in this case. Rather, it held that an HMO could be found vicariously liable for the negligence of independent contractor physicians, and that the plaintiff in this case, the administrator of Mrs. Petrovich’s estate, was entitled to a trial on whether Share was vicariously liable here. The Illinois ruling is not the first of this nature. For example, the U.S. Court of Appeals for the District of Columbia Circuit has held that an HMO was vicariously liable for the negligence of a consulting physician who was an independent contractor.2 However, health plans faced with such suits often have raised the
JADA, Vol. 131, February 2000 Copyright ©1998-2001 American Dental Association. All rights reserved.
251
LAW defense that a claim of vicarious liability was preempted by the Employee Mr. Sfikas is ADA Retirement general counsel and Income Secuan adjunct professor rity Act, or of law at Loyola University of Chicago ERISA, a fedSchool of Law. He eral law that has lectured and written on legal regulates emissues and is a fellow ployee benefit of the American Colplans. lege of Trial Lawyers. Address reprint This requests to Mr. defense was Sfikas at the ADA, 211 E. Chicago Ave., accepted by Chicago, Ill. 60611. the U.S. Court of Appeals for the 7th Circuit. The appeals court held that a claim under Illinois law of vicarious liability against a health plan for the actions of a physician who, according to the court, appeared to be an independent contractor was preempted by ERISA.3 The 7th Circuit reasoned that, since ERISA preempts state laws that relate to employee benefit plans covered by ERISA, and since an employee benefit plan would have to be examined to determine the relationship between the physician and the health plan, the vicarious liability claim was thus preempted.
252
In contrast, the U.S. Court of Appeals for the 10th Circuit has held that ERISA does not preempt a vicarious liability claim against an HMO for the actions of a physician, if the HMO has held out the doctor as its agent.4 In addition, several lower courts have held in recent years that HMOs can be sued for malpractice. For example, an Illinois appellate court in November 1999 explicitly rejected the reasoning of the 7th Circuit and concluded that ERISA did not preempt a medical malpractice claim, based on a theory of vicarious liability, against an HMO that was structured as an Independent Practice Association.5 Similarly, the Pennsylvania Supreme Court ruled in December 1998 that negligence claims against an HMO did not “relate to” an ERISA plan, and thus were not preempted by ERISA.6 Also in Pennsylvania, an appellate court in October 1998 found that an HMO could be sued for vicarious liability in the alleged negligence of its triage nurses.7 And in late 1998, a New York court held that a suit alleging that an HMO was vicariously liable for the negligence of HMO staff members was not preempted by ERISA.8
While some courts have continued to find that ERISA preempts malpractice claims against HMOs, as illustrated in the 7th Circuit’s decision, the trend toward allowing such suits to proceed represents a striking departure from holdings during the 1980s and early 1990s. Those court decisions generally found that ERISA preempted such suits. Today, courts increasingly are permitting patients to sue their HMOs for malpractice, regardless of whether patients have been given that right through legislation. ■ The author expresses his appreciation to Colleen M. Johnson, manager, ADA Contract Analysis Service, for her assistance in preparing this article. This article is informational only and does not constitute legal advice. Dentists must consult with their private attorneys for such advice. 1. Petrovich vs. Share Health Plan of Illinois, 719 N.E.2d 756 (Ill. 1999). 2. Schleier vs. Kaiser Foundation Health Plan of the Mid-Atlantic States, 876 F.2d 174 (D.C. Cir. 1989). 3. Jass vs. Prudential Health Care Plan, 88 F.3d 1482 (7th Cir. 1996). 4. Pacificare of Oklahoma vs. Burrage, 59 F. 3d 151 (10th Cir. 1995). 5. Hinterlong vs. Baldwin, 1999 WL 1000328 (Ill. App. Ct. Nov. 4, 1999). 6. Pappas vs. Asbel, 724 A.2d 889 (Pa. 1998). 7. Shannon vs. McNulty, 718 A.2d 828 (Pa. Super. Ct. 1998). 8. Blaine vs. Community Health Plan, 687 N.Y.S.2d 854 (1998).
JADA, Vol. 131, February 2000 Copyright ©1998-2001 American Dental Association. All rights reserved.
AND THE LAW
Holding
HMOs
Responsible
A
recent decision of the Illinois Supreme Court significantly expands the liability exposure of health maintenance organizations in Illinois and reflects a trend toward holding HMOs legally responsible for medical malpractice. In Petrovich vs. Share Health Plan of Illinois,1 the state’s high court held that an HMO could be held liable for the actions of an independent contractor physician. This decision was announced only about a month after Illinois enacted legislation that places greater restrictions on HMOs, but does not grant patients the right to sue them for malpractice. In the Petrovich case, Inga Petrovich was a member of Share Health Plan. Mrs. Petrovich selected a primary care physician, or PCP, and consulted with that physician about pain in her mouth, tongue, throat and face, along with other symptoms. The PCP referred Mrs. Petrovich to a neurologist and to an ear, nose and throat specialist, or ENT. The ENT recommended that Mrs. Petrovich receive either a magnetic resonance imaging test or a computed tomographic scan. According to Mrs. Petrovich’s deposition, the PCP informed her that Share would not allow the new tests recomBY PETER M. SFIKAS, J.D. 250
mended by the ENT. However, the PCP later ordered an MRI, but the MRI did not image the area that the ENT had requested. Mrs. Petrovich testified that the PCP told her the MRI was normal. But she continued to experience pain, so the PCP again referred her to the ENT, who performed multiple biopsies and discovered that she had squamous cell carcinoma in the base of her tongue and in surrounding tissues of her pharynx. Mrs. Petrovich later underwent surgery and received radiation and rehabilitation therapies. Mrs. Petrovich, now deceased, sued Share, the PCP and others. In the lawsuit, she alleged that both the PCP and the ENT were negligent, and that Share was vicariously liable for their negligence. If Share were found vicariously liable, that would mean the HMO was indirectly legally responsible for the acts of the PCP and ENT. The trial court held that Share could not be held vicariously liable for the negligence of independent contractor physicians, but an appellate court reversed that ruling and returned the case to the trial court for further proceedings. Share appealed that decision to the Illinois Supreme Court, which found there should be a trial to determine whether Share was vicariously liable. In its analysis, the Illinois Supreme Court noted that the Share member handbook described the physicians as “your Share physician,” “Share
JADA, Vol. 131, February 2000 Copyright ©1998-2001 American Dental Association. All rights reserved.
LAW physicians” and “our staff.” The handbook, which was provided to Mrs. Petrovich, also referred to physicians’ offices as “Your Share physician’s office,” and stated that “all of the Share staff and Medical Offices look forward to serving you.” While agreements involving Share, the physicians in this case and the hospital stated that the physicians were independent contractors, Mrs. Petrovich did not receive copies of those agreements. A subscriber certificate contained in Share’s benefits contract stated that Share’s physicians were independent contractors. Mrs. Petrovich testified that she did not recall receiving the subscriber certificate. Share countered that it customarily provided those certificates to members, but did not know whether a certificate had been given to Mrs. Petrovich. The court noted that at the time she received treatment, Mrs. Petrovich believed that her physicians were Share employees. As the Illinois Supreme Court observed, entities generally are not liable for the actions of independent contractors. However, entities can become vicariously liable for those actions if it appears that the independent contractor was acting as the entity’s agent. Under the doctrine of apparent authority, an entity will be bound by the authority that it appears to give an independent contractor, if a third party reasonably relied on that appearance and was consequently harmed. The court concluded that the apparent authority doctrine could be used to impose vicarious liability on HMOs. To do so,
a patient must prove: dthat the HMO held itself out as the provider of health care, without informing the patient that the care is given by independent contractors; dthat the patient justifiably relied on the HMO’s conduct by looking to the HMO for health care services, rather than to a specific physician. In this case, the Illinois court concluded that the agreements involving Share, the physicians and a hospital failed to establish that Share did not hold out the physicians as its agents, since there was no reason that Mrs. Petrovich should have known about those agreements.
The court concluded that the apparent authority doctrine could be used to impose vicarious liability on HMOs. The court held also that Mrs. Petrovich’s statements that she believed the physicians were Share employees, along with Share’s statements in its handbook, supported the conclusion that Share held itself out to Mrs. Petrovich as the provider of her health care. The court observed that Share had contracted with Mrs. Petrovich’s employer to become her sole provider of health care; Mrs. Petrovich’s reliance on Share was “literally compelled.” The Illinois Supreme Court also considered whether the doctrine of implied authority applied in this case. The court observed that implied authority could be shown if the alleged agent, in this case the physicians, lost the right to control
the way they performed their work. The court found that where “an HMO effectively controls a physician’s exercise of medical judgment, and that judgment is exercised negligently, the HMO cannot be allowed to claim that the physician is solely responsible for the harm that results.” A physician’s status as an independent contractor, the court held, could be “negated,” at least as it applies to patients, if the HMO exercised sufficient control over the physician. Here, the court held, evidence of Share’s capitation method of compensation, Share’s “quality assurance review,” Share’s referral system and Share’s requirement that its primary care physicians act as gatekeepers, along with the handling of Mrs. Petrovich’s treatment, supported an argument that Share controlled the manner in which its independent contractor physicians performed their work. As noted earlier, the Illinois Supreme Court did not hold that Share was liable in this case. Rather, it held that an HMO could be found vicariously liable for the negligence of independent contractor physicians, and that the plaintiff in this case, the administrator of Mrs. Petrovich’s estate, was entitled to a trial on whether Share was vicariously liable here. The Illinois ruling is not the first of this nature. For example, the U.S. Court of Appeals for the District of Columbia Circuit has held that an HMO was vicariously liable for the negligence of a consulting physician who was an independent contractor.2 However, health plans faced with such suits often have raised the
JADA, Vol. 131, February 2000 Copyright ©1998-2001 American Dental Association. All rights reserved.
251
LAW defense that a claim of vicarious liability was preempted by the Employee Mr. Sfikas is ADA Retirement general counsel and Income Secuan adjunct professor rity Act, or of law at Loyola University of Chicago ERISA, a fedSchool of Law. He eral law that has lectured and written on legal regulates emissues and is a fellow ployee benefit of the American Colplans. lege of Trial Lawyers. Address reprint This requests to Mr. defense was Sfikas at the ADA, 211 E. Chicago Ave., accepted by Chicago, Ill. 60611. the U.S. Court of Appeals for the 7th Circuit. The appeals court held that a claim under Illinois law of vicarious liability against a health plan for the actions of a physician who, according to the court, appeared to be an independent contractor was preempted by ERISA.3 The 7th Circuit reasoned that, since ERISA preempts state laws that relate to employee benefit plans covered by ERISA, and since an employee benefit plan would have to be examined to determine the relationship between the physician and the health plan, the vicarious liability claim was thus preempted.
252
In contrast, the U.S. Court of Appeals for the 10th Circuit has held that ERISA does not preempt a vicarious liability claim against an HMO for the actions of a physician, if the HMO has held out the doctor as its agent.4 In addition, several lower courts have held in recent years that HMOs can be sued for malpractice. For example, an Illinois appellate court in November 1999 explicitly rejected the reasoning of the 7th Circuit and concluded that ERISA did not preempt a medical malpractice claim, based on a theory of vicarious liability, against an HMO that was structured as an Independent Practice Association.5 Similarly, the Pennsylvania Supreme Court ruled in December 1998 that negligence claims against an HMO did not “relate to” an ERISA plan, and thus were not preempted by ERISA.6 Also in Pennsylvania, an appellate court in October 1998 found that an HMO could be sued for vicarious liability in the alleged negligence of its triage nurses.7 And in late 1998, a New York court held that a suit alleging that an HMO was vicariously liable for the negligence of HMO staff members was not preempted by ERISA.8
While some courts have continued to find that ERISA preempts malpractice claims against HMOs, as illustrated in the 7th Circuit’s decision, the trend toward allowing such suits to proceed represents a striking departure from holdings during the 1980s and early 1990s. Those court decisions generally found that ERISA preempted such suits. Today, courts increasingly are permitting patients to sue their HMOs for malpractice, regardless of whether patients have been given that right through legislation. ■ The author expresses his appreciation to Colleen M. Johnson, manager, ADA Contract Analysis Service, for her assistance in preparing this article. This article is informational only and does not constitute legal advice. Dentists must consult with their private attorneys for such advice. 1. Petrovich vs. Share Health Plan of Illinois, 719 N.E.2d 756 (Ill. 1999). 2. Schleier vs. Kaiser Foundation Health Plan of the Mid-Atlantic States, 876 F.2d 174 (D.C. Cir. 1989). 3. Jass vs. Prudential Health Care Plan, 88 F.3d 1482 (7th Cir. 1996). 4. Pacificare of Oklahoma vs. Burrage, 59 F. 3d 151 (10th Cir. 1995). 5. Hinterlong vs. Baldwin, 1999 WL 1000328 (Ill. App. Ct. Nov. 4, 1999). 6. Pappas vs. Asbel, 724 A.2d 889 (Pa. 1998). 7. Shannon vs. McNulty, 718 A.2d 828 (Pa. Super. Ct. 1998). 8. Blaine vs. Community Health Plan, 687 N.Y.S.2d 854 (1998).
JADA, Vol. 131, February 2000 Copyright ©1998-2001 American Dental Association. All rights reserved.