POTENTIAL
EXPOSURE FOR CREDENTIALING, QUALITY ASSURANCE, UTILIZATION MANAGEMENT AND MEDICAL
MALPRACTICE (CON'T)
Brock D. Phillips
After clarifying the theoretical nature of these types of decisions, the Court concluded that Congress could not have intended to expose plans to liability on a claim of breach of fiduciary duty for every such decision. The Court went on to note that malpractice issues are state law matters, with no remarks indicating that such might be considered preempted. While the discussion is dicta, it seems to indicate the court's comfort with the distinction other courts have carved out between malpractice claims [not preempted] and coverage claims [preempted]. This conclusion seems further reinforced by the fact that at the same time that it issued its decision in
Pegram, the U.S. Supreme Court declined review of U.S. Healthcare v. Bauman, a case in which U.S. Healthcare had lost the issues of ERISA preemption of malpractice and vicarious liability claims in the Third Circuit. The court's disinclination to hear the case suggests it is untroubled by the strong recent trend to deny ERISA preemption in cases alleging negligence or malpractice against a plan (as opposed to a coverage dispute).
5. Direct Liability of Plan for Failure to Properly Credential Panel Providers
Darling v. Charleston Community Memorial Hospital established the principle that a hospital can be directly liable for negligent failure to properly credential members of the medical staff. In brief, the theory requires a hospital to conduct an appropriate "due diligence" on the credentials and abilities of an applicant for new or renewed membership. Where serious shortcomings of the physician would have been revealed by appropriate and conscientious credentialing, the institution may be liable for any patient harm caused by the substandard clinician who slipped through the credentialing process. Elam
v. College Park Hospital.
The application of this same standard to managed care plans has been adopted by a number of courts and should come as no surprise. Two decisions which support this theory of liability include Harrell
v. Total Health Care Inc. ; and McClellan v. Health Maintenance Organization of Pennsylvania .
While it is probably obvious that liability for negligent credentialing should apply to a staff model HMO, the application of this standard to an IPA style managed care plan is more controversial. It is early to predict a clear trend in this regard but there is a serious risk that courts will hold even IPA style plans liable for negligent credentialing, particularly when marketing materials extol the high quality of a plan's providers and either state outright or imply that the plan is selective on the basis of quality in the staffing of its panel members.
6. 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.
In some instances, the matter is being addressed by state statute. Texas has enacted an HMO Liability Law, which includes a number of elements, including prohibiting HMO's from penalizing physicians for advocating medically necessary treatment, requiring independent review of certain adverse coverage decisions. The law includes a provision that authorizes patient lawsuits against managed care entities under a theory of vicarious liability for negligent treatment decisions. In the case of Corporate Health Insurance Inc., et al.,
v. The Texas Department of Insurance, et al. supra, (see discussion above), various managed care entities challenged the Texas HMO liability law on the grounds its various components are preempted by ERISA. In June of 2000 the Fifth Circuit held most of the elements of the law are not preempted by ERISA, although it did find the independent review element to be preempted. Other circuits have found independent review statutes not preempted and the matter has not be addressed by the U.S. Supreme Court.
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
