LIABILITY OF
MANAGED CARE PLANS FOR MEDICAL MALPRACTICE
& CREDENTIALING/QA/UM EXPOSURE
(CONTINUED)
by Brock
D. Phillips
Introduction
Theories
of Malpractice Liability Arising Directly Out of Plan Activities
Indirect
or Vicarious Liability of Plan For Malpractice of Panel Members
End of
ERISA Preemption for Claims of Malpractice
Liability
Under ERISA For Treatment Disincentives or Failure to Disclose Treatment Disincentives
Strategies
to Reduce Liability for Malpractice Claims
Suits
by Providers Against Plans for Wrongful Exclusion Expulsion
3. Indirect or Vicarious
Liability of Plan For Malpractice of Panel Members
Comments above relate to holding a
Plan directly liable for its own conduct, when that conduct can be connected to harm to a
patient. A different basis for liability is the imposition of vicarious liability upon a
Plan for the negligence of Plan providers. Two theories have been accepted in a number of
court decisions as legitimate grounds for imposing vicarious liability upon a Plan. The
first is respondeat superior, the second is ostensible agency.
A. Respondeat Superior Liability for
Actions of Employees
The doctrine of respondeat superior
has long been the basis for holding employers responsible for the misdeeds of their
employees. Its application has traditionally been found in pure employer-employee
relationships. For this reason, this doctrine is directly applicable to the imposition of
liability on a staff model HMO for negligence on the part of its staff physicians or other
health care providers. This is no different than holding a hospital liable for negligence
of nursing personnel or other employees.
The doctrine of respondeat superior
does not have an equally obvious application to an IPA model managed care plan. Whether
the courts will directly impose liability on an IPA type plan may depend on the particular
facts of any individual case. An example of such a case is Dunn v. Praiss in which
a New Jersey appellate court held an HMO liable for the alleged negligence of a urologist.
The court found that the urologist, although not a full time employee of the HMO, was an
agent of the HMO because it paid him on a per-capita, not fee-for-service basis; he
generally provided services to HMO members on the HMO's premises; he was not free to
accept or reject referral patients; additional referrals were at the HMO's option, and HMO
literature listed him as affiliated with the HMO. The court grounded its ruling on both
respondeat superior and agency law.
In Schleier v. Kaiser Foundation
Health Plan, the D.C. circuit court held that Kaiser was liable for the actions of an
independent contractor consultant after considering five factors, these being: (1) Kaiser
selected the consultant to care for the plaintiff; (2) Kaiser paid wages to the
consultant; (3) Kaiser had the power to discharge the consultant; (4) Kaiser had the power
to control the consultant's conduct through its primary care physician; and (5) the work
of the consultant was part of Kaiser's regular business.
The Dunn and Schleier
cases probably foreshadow how other courts will approach questions of respondeat superior
liability for IPA model managed care plans. It seems probable that the greater the Plan's
control over the practitioner, the more likely a court will find that the Plan is liable
for actions of the practitioner under respondeat superior.
B. Ostensible Agency Liability for
Actions of Physician Providers
In situations where the employment
link between the Plan and the provider is not sufficiently strong to warrant the
imposition of liability on the basis of respondeat superior, courts have imposed liability
on the Plan by invoking the doctrine of ostensible agency. Under ostensible agency, a
principal may be held liable for the actions of one not an employee or agent, when the
principal intentionally, or by want of ordinary care, caused a third person to believe
that another is its agent, even though such is not legally the case.
Courts have been divided about
whether they will apply the doctrine of ostensible agency to impose liability on an IPA
model Plan for the misdeeds of Plan physicians. In Decker vs Saini a Michigan court
applied the doctrine to find Plan liability for the actions of both a member physician and
a non-member consultant. The court noted that the purpose of the doctrine of ostensible
agency is:
to impose liability on a principal
who has put an otherwise non-agent into a position of apparent authority which elicits
reasonable reliance from an unwitting third party.
In finding ostensible agency
liability under the facts before it, the Decker court considered that, (1) the patient
reasonably believed that both doctors were the agents of the HMO; (2) the HMO made these
representations; and (3) the patient's reliance was not negligent.
Other court decisions permitting
liability actions against managed care plans on the theory of ostensible agency include: Boyd
v. Albert Einstein Medical Center; McClellan v. HMO of Pennsylvania; and Sloan
v. Metropolitan Health Council, Inc.
One of the few cases to reject the
notion that ostensible agency could be used to impose liability on an IPA type managed
care plan is Raglin v. HMO Illinois. An Illinois district court judge later
commented that Raglin does not preclude a cause of action against an HMO under
Illinois law for the negligence of its independent physicians based on ostensible agency;
the question of whether such a cause of action can be sustained against an HMO is simply a
question of proof. The Raglin case appears to be isolated and distinguished by its
own facts. In the summer 1998 a new decision came out in Illinois Petrovich v. Share
Health Plan of Illinois. In this action an Illinois appellate court held that an HMO
could be held vicariously liable under apparent agency principles for the malpractice of
an independent physician. The patient consulted with her primary care physician about pain
in her mouth, throat and face. She was referred to and ENT specialist who wanted to have
an MRI performed. The PCP advised her the HMO would not pay for an MRI, and reminder her
that she had an MRI previously which was negative. Subsequently the PCP agreed that the
patient could have an MRI, the results of which were reported to the patient as negative.
Seven months later the ENT diagnosed the patient with cancer for which she underwent
surgery and radiation.
The patient sued both the PCP and
the ENT, alleging improper failure to timely diagnose her cancer. She sued the HMO on the
theory of vicarious liability under the theory of ostensible agency. The HMO was granted
summary judgment. The court of appeal reversed the trial court, holding that the patient
had raised an issue of fact for the jury to decide whether the HMO created the impression
of apparent agency with regard to its independent panel of physicians.
The appellate court adopted a test
to determine if an HMO may be held vicariously liable for the actions of independent
physicians. That test considers whether:
a. the HMO exercised sufficient
control over the physicians;
b. the HMO held out the physicians
as its agents; and
c. the patient reasonably relied on
representations of the HMO
It is noteworthy that this is the
same appellate court that had ruled the reverse in the Raglin case six years
earlier. In Petrovich the court distinguished Raglin on the grounds that the
HMO in Petrovich (a) conducted a quality assessment program which was designed to
monitor for substandard medical care; and (b) included language on its member handbook
which could be interpreted as holding out its network physicians as agents of the HMO.
A third Illinois case, Jones v.
Chicago HMO Ltd. of Ill., held as a fact question for the jury whether advertising
created ostensible agency between HMO and physician provider. In Jones, the
Illinois appeals court ruled that the doctrine of vicarious liability may be used to hold
an HMO responsible for treatment provided by physicians who are independent contractors
when the HMO solicited Medicaid patients in a door-to-door marketing campaign in which
potential members were told the HMO was superior to Medicaid. Enrollees were led to
believe the plan would provide all their medical care. The enrollee sought pediatric care
from the only HMO pediatrician in her area. She was advised by the pediatrician over the
telephone to give her three month old infant castor oil. The next day the enrollee took
the infant to the emergency room where it was quickly diagnosed with bacterial meningitis,
resulting in permanent brain damage. The court held that the marketing strategy may have
created the appearance that the physician was the HMO’s agent.
Case law to date strongly suggests
that in most jurisdictions, courts are likely to permit plaintiffs to pursue claims
against IPA style managed care plans under the doctrine of ostensible agency when the
facts demonstrate representations to the Plan members about the selective nature of the
Plan's provider panel. Plan counsel should presume that marketing of this type carries
with it a high risk of ostensible agency liability.
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