POTENTIAL
EXPOSURE FOR CREDENTIALING, QUALITY ASSURANCE, UTILIZATION MANAGEMENT AND MEDICAL
MALPRACTICE
Brock D. Phillips
The body of case law on the theory of plan malpractice is still relatively small but growing (aside from cases addressing ERISA preemption, see below). However, claims of direct liability for "management" of care by plans are turning up in trial courts and are based on traditional tort principles of duty of care, breach of the duty, and harm flowing from the breach. One of California's major malpractice insurance carriers issued a loss study trend report for 1995. The study found managed care issues of the type outlined above in 7 California cases broken down as follows:
- failure to provide needed treatment (2 cases);
- failure to refer to a more appropriate specialist for treatment (2 cases);
- failure to diagnose conditions because of communications breakdowns related to multiplicity of providers (2 cases); and
- failure to follow up on an abnormal test result (1 case).
The same study cited several non-California civil suits involving claims against managed care plans, including a Georgia case in which an HMO required a family with a sick infant to drive 42 miles to get to a hospital with which the plan had a discounted rate when other facilities were closer. The infant arrested enroute and ultimately suffered partial amputation of all four limbs due to
meningococcemia. A jury awarded $45,000,000 against the HMO and a medical group involved in the incident.
Humana was hit in 1998 by a Kentucky jury for 13 million dollars in damages for failing to provide a requested hysterectomy to a woman with cervical cancer who later died. Reports from the trial indicated Humana wanted to pay for a cheaper, less invasive procedure. A physician testified for the plaintiffs that the denied procedure might have saved the patient's life and said the disputed treatment was medically necessary. The jury deliberated only 2 hours, before awarding $14,000 for the uncompensated procedure and $13 million in punitive damages for bad faith.
When plan policies directly dictate or influence the nature and quality of the care provided, and a malpractice claim arises, the plan will likely find itself named as a defendant along with the physicians who provided the care. Further even if the plaintiff does not name the plan as a defendant, if the providers who are named as defendants believe that plan policies dictated or influenced the care, they may cross claim against the plan as part of their defense.
In some instances, plans have argued that they cannot be sued for medical malpractice because they are not licensed to practice medicine in the states in which they operate. This argument was advanced on several occasions in Texas and inspired the Texas legislature to enact a law specifically stipulating that managed care plans making decisions which effect the availability or quality of medical care can be sued for malpractice by their
insureds. Multiple plans challenged the statute in federal court, claiming it conflicts with ERISA's preemptive sweep. In June of 2000 the 5th Circuit issued its decision in the case, upholding the liability portion of the Texas statute. The court concluded that ERISA does not preempt the state's traditional control over issues like negligence and malpractice and its power to regulate the quality of health care. The court dryly commented that a suit for malpractice against a physician is not preempted by ERISA simply because those services were arranged by an HMO for whom the doctor acted as an agent. It further concluded that the Texas statute does not expose managed care plans to state law claims concerning coverage decisions (which would be preempted by ERISA) but is confined to treatment issues.
In so holding, the 5th Circuit candidly acknowledged, "We have repeatedly struggled with the open-ended character of the preemption provisions of ERISA and
FEHBA." It went on to cite the recent trilogy of Supreme Court cases in which the Supreme Court itself acknowledged there must be more finite limits to the "relate to" clause of ERISA, i.e. Travelers, Dillingham Construction, and
Dubuono. The 5th Circuit observed that the Supreme Court itself now appears to be retreating from its formerly limitless interpretation of the sweep of ERISA preemption.
Finally to this point, the Illinois Supreme Court has approved direct negligence claims against managed care plans in Jones
v. Chicago HMO Ltd. In Jones 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.
Plaintiff sued the HMO on theories of direct negligence, vicarious liability for the conduct of the physician, and breach of contract. An intermediate appellate court upheld plaintiff's right to pursue a claim for vicarious liability, but rejected the possibility of seeking a direct negligence claim against the HMO. The Illinois Supreme Court reversed on the issue of direct liability, expressly authorizing such claims against managed care plans. The court analogized such claims to institutional negligence claims against hospitals and said that HMOs have undertaken a sufficiently expansive role in providing health care services that the same theories should apply to such entities. Specifically in Jones the court felt the plaintiff adequately pleaded a question about whether the plan assigned too many patients to the physician in question for that provider to be able to adequately treat all those under his care. Interestingly, the HMO's medical director had testified that the maximum number of patients that should be assigned to any one primary care physician was 3,500, while the evidence was that the physician in question had 4,500 patients assigned to him by the HMO (and a total case load of over 6,000).
4. End of ERISA Preemption for Claims of Malpractice
Since the U.S. Supreme Court's decision in Pilot Life Insurance Co. v. Dedeaux both federal and state courts have grown accustomed to the notion that claims against insurers and health plans are preempted by ERISA when the coverage is obtained through qualifying employment. This decision constituted a sea change in the evolving law of bad faith since in many states, bad faith claims held the promise of emotional distress and even punitive damages. ERISA had (and still has) no provision for such damages. The only damages recoverable under an ERISA claim are the cost of disputed benefits and attorneys' fees. The Pilot Life decision greatly discouraged claims against health plans over disputed benefits and the carriers saw their inventory of such cases decline significantly.
Managed care plans sued for medical malpractice under state or common law tort theories have been quick to invoke ERISA preemption. The courts were initially inconsistent in their consideration of the question of ERISA preemption of medical malpractice type tort claims against health plans. Through the mid-1990's decisions could be found which supported virtually every possible conclusion.
However, by 2001, it is quite apparent that courts are unlikely to hold that a claim for medical malpractice asserted against a managed care plan is preempted by ERISA. The, courts have distinguished between disputed claims for plan benefits, which are preempted, and claims for ordinary negligence or malpractice, which more and more courts are holding are not preempted by ERISA. Examples of three recent cases which demonstrate this trend follow.
