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Preparing the HMO case.

Since HMOs may be defined as either hearth care providers or insurers) attorneys must carefully select liability theories and pleadings.

The growth of "managed" health care in the United States in recent years has been explosive. At present, almost half of all Americans who have health insurance receive their benefits through some form of health maintenance organization (HMO).(1)

Increasing litigation against HMOs has generally mirrored this growth, but regulatory statutes are new, they differ from state to state, and case law has yet to establish firm precedents. In this dynamic environment, attorneys who want to win cases have to learn more about how HMOs operate and how liability theories, pleadings, and discovery techniques must be targeted.

Problems arise because of the hybrid nature of an HMO. It is neither 100 percent a "health care provider" nor 100 percent an "insurer." Statutes governing HMO operations are often found in both sections of state law.(2) Statutes dealing with deceptive and unfair trade practices may also apply to an HMO case.

Medical negligence law is usually pertinent, but so are laws that govern how insurance companies do business. A plaintiff attorney must decide which areas of law are most pertinent to the issue at hand. To do this, the attorney should first study the organization and operations of the specific HMO.

Generally, there are three types of HMOs: the staff model, the direct contract model, and the group model.

In the staff model, the HMO owns and operates its own facilities. The doctors are employees of the health maintenance organization who receive bonuses and incentives linked to the profits, revenues, and goals of the organization.

In the direct contract model, the HMO maintains a network of health care providers by contracting with doctors. Fixed or percentage fees are often established on the basis of the number of subscribers the doctor sees. This is known in the industry as capitation.

In the group model, the HMO contracts with a physician group that, in turn, pays individual doctors' fees. This relatively complex model may involve, for example, a contract between the HMO and an individual practice association (IPA).

HMOs most frequently operate under the direct contract model. Within this structure, a group of primary care physicians serve as "gateway" doctors to coordinate the health care services and treatment provided to HMO members.

HMOs try to limit costs of providing health care in two ways:

* by designing and administering a plan that limits benefits, uses strict underwriting techniques or eligibility screening, and controls the quality of care, and

* by aggressively applying direct cost containment measures that reduce service options, shift patient care to less expensive locations, and minimize the frequency of treatment.

The primary technique to limit costs and improve profits is called "utilization review," a medical jargon term referring to concurrent review of a patient's needs.

For outpatient care, utilization review is accomplished when the "gateway" health care provider submits all referrals for diagnostic tests or further consultations to the HMO for approval. Specially trained nurses or doctors employed by the HMO approve or disapprove these referrals on the basis of appropriateness and necessity.

It is important for attorneys to be familiar with this procedure, because the typical HMO contract does not spell out what utilization review is. The person seeking health care knows only that certain tests and specialized treatments were denied.

For inpatient care, HMOs normally require that registered nurses or medical directors on the HMO staff conduct utilization review. Decisions, such as plans for the patient's discharge from the hospital, are made on the basis of appropriate and necessary care.

HMOs also try to control costs by linking physicians' payments with the organization's goals. For example, the HMO may pay doctors through a risk-based or profit-sharing system. If earnings increase as a result of the doctors' or the hospitals' cost-cutting efforts, the doctors and hospitals receive a share of the profits in addition to standard payments.

Some HMOs set goals for doctors or hospitals. That is, the organization may establish a desired limit for the number of patients admitted to a hospital or their length of stay. These measures encourage the use of outpatient procedures as alternatives to hospitalization. Some HMOs have been known to withhold 30 percent to 50 percent of care providers' fees until the end of the year to determine if goals have been met.

HMOs often use third-party peer reviews to evaluate treatment in controversial cases. The review essentially determines exactly what treatment the patient should or should not get.

When HMO staff or consultants review proposed treatment plans, they use standardized predetermined criteria. For example, diagnostic related groupings (DRGs) are normally consulted to determine treatment for a particular diagnosis. Some of these "standardized" criteria are actually developed by independent companies that then market the criteria to the HMO industry. Two of these companies are Milliman & Robinson and Interqual.

HMOs also develop and use their own quality review reports and databases to monitor the utilization patterns of physicians and hospitals. This questionable data may be used to force changes, for example, by threatening to drop a provider from the HMO list.

An attorney representing a client who has had an adverse experience with a health maintenance organization should remain sensitive to the ways that economic coercion can lead to liability.

Analyzing the case

The attorney must first obtain all information available from the client This should include

* where and how the HMO plan was purchased,

* who provided it to the client,

* what the client was told about the plan before signing up,

* a complete history of the client's dealings with the HMO,

* a clear description of the current dispute or problem, and

* the names and job titles of all HMO staff the client has dealt with related to the problem.

The attorney must carefully review the HMO contract and all papers that were provided with the client's contract. These secondary documents can be important to developing the case.

For example, one of my recent clients was given an HMO contract containing a page entitled Member's Bill of Rights and Responsibilities. This document proclaimed, in part, that

[M]embers have a right to:

* Considerate, courteous and dignified treatment by all Plan providers, and a reasonable response to a request for services, evaluation and/or referral for specialty care.

* Be informed of the health services covered and available to them, or excluded from coverage, including a clear explanation of how to obtain services and applicable copayments.

* Expect quality care, receive preventive health services and know the identity and professional status of individuals providing services to them.

* Participate in decisions involving their health care, and to give informed consent for any procedure after receiving information about risk, length of inactivity, and choices of alternative treatment plans available.

Members have the responsibility to:

* Provide accurate and complete information about their health.

* Ask any question and seek any clarification necessary to adequately understand their illness and/or treatment.

* Follow the recommended and mutually agreed upon treatment plan.

My client, who suffered from RSD (reflex sympathetic dystrophy), was aggressive in pursuing her rights and responsibilities even before conferring with an attorney. She sought explanations regarding diagnostic tests and treatment, and she tried to participate in decisions about her care. She joined support groups, provided medical information, and demanded prompt responses.

The HMO simply ignored her. Of course, the way it ignored her "rights" ultimately became a vital part of her case.

The attorney should become familiar with decisions made in similar cases in various states.(3) In Florida, for example, an appellate court ruling in Pasteur Health Plan v. Salazar indicates how appellate courts may treat HMOs:

This contract also bears the hallmark of

a contract of adhesion . . . meaning a

standardized contract, which, imposed

and drafted by the party of superior

bargaining strength [insurer], relegates

to the subscribing party [insured] only

the opportunity to adhere to the

contract or reject it.... No Florida court has

specifically found that a health maintenance

organization contract is a contract of

adhesion; however, HMO contracts are sufficiently

analogous to health insurance contracts to

make that finding.(4)

Depending on the facts of the case, an action against an HMO may be based on a number of alternative theories. These include the following:

* respondeat superior/agency/apparent or ostensible agency;(5)

* fraud/misrepresentation, or fraud in the inducement;(6)

* breach of contract(7) (state wrongful death acts may provide for wrongful death as a result of breach of contract);

* liability based on negligent care of the patient as third-party beneficiary of the contract between the HMO and the doctors;(8)

* direct negligence of the HMO "when medically inappropriate decisions result from defects in design or implementation of cost containment mechanisms";(9)

* violation of state bad faith/deceptive and unfair trade practices acts/consumer fraud law;(10) and

* violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

After analyzing the HMO's business practices, the available precedent, and the alternative liability theories, the attorney must decide whether or not to bring the case as a medical malpractice claim. Malpractice plaintiffs often face damages caps and other procedural hurdles, as well as a more difficult burden of proof and more stringent discovery rules.

Improper care--misdiagnosis and/or mistreatment--is the gravamen of a medical malpractice claim.(11) If counsel does not want the claim to be characterized as a malpractice case, he or she should try to show that the HMO's utilization review experts were not involved in the actual diagnosis or treatment.

A malpractice case may be advantageous, however, if the client's HMO was provided as part of an employee benefit plan, because a malpractice claim may avoid pre-emption under the Employee Retirement Income Security Act (ERISA).(12)

The complaint must be carefully drafted. Attorneys should not allege any facts that would indicate the existence of an ERISA plan or any other basis for federal jurisdiction. This is called the "well-pleaded complaint rule."(13) In my practice, I specifically allege that a case is not subject to ERISA and enumerate various grounds to support that allegation.

Creative discovery

During the discovery phase, the plaintiff attorney should obtain at least the following items:

* the HMO contract and the certificate of coverage;

* any and all documents and correspondence regarding referrals and/or treatment and the approval or the denial of treatment;

* all contracts and agreements between the HMO and the client's doctors and/for hospitals;

* all manuals that deal with the handling of claims, utilization review, and customer service;

* an updated provider list;

* relevant sales, marketing, and advertising materials;

* liability insurance policies, errors and omissions policies, reinsurance agreements;

* grievance/member appeal committee documents;

* personnel directories, organization charts, personnel files of HMO employees;(14)

* utilization review and medical directors' files;

* the industry standard/criteria or protocols regarding utilization review procedures or usual and customary reasonable care or charges; and

* complaint files of other members of the health maintenance organization.

The attorney should not limit discovery to the defendant HMO but should seek information from several sources. The state agency for health care administration typically has a wealth of relevant information. The state department of insurance usually maintains a list of consumer complaints.

It is important to determine the name and job title of everyone involved in decision making. The attorney should also determine the dates when referrals for treatment were received by the HMO, when they were acted on or denied, and the exact basis for the HMO's decision.

Depositions of HMO personnel should be videotaped. Also, a dying client's deposition should be videotaped to preserve the testimony.

When deposing HMO personnel, the attorney should ask about professional background and experience, especially as this pertains to the client's condition. The attorney should ask if they ever met, cared for, treated, or diagnosed the client. The attorney should ask whet source or standard was referred to in denying care and treatment or in making an adverse care or treatment decision.

Perhaps most important, plaintiff attorneys should ask about licensing. State law usually makes it a felony to practice medicine without a license. Aggressive questioning of unlicensed HMO decision makers may yield unexpected benefits as they try to evade the impression that they were, indeed, practicing medicine.

For example, in a recent case that I handled, the HMO medical director was not a licensed doctor in the state. I asked whether he based his decision to deny medical care on his clinical judgment. He said, no, he was not licensed, so he could not exercise clinical judgment.

I then asked if he used any standards for evaluating my client's illness. He said, no, the HMO had no medical books or treatises regarding appropriate care for the condition. My client had sent him medical articles, but he did not review them.

In frustration, I asked what had been the basis for his decision to veto the treating doctor's recommendations. He said his decision was based on the clinical experience of someone else. Since neither he nor any of the utilization review nurses had any experience in treating my client's condition, he deferred, he said, to the gateway doctor.

The director apparently did not get the word that the gateway doctor had informed in deposition that he did not know a thing about my client's condition and deferred to specialists. The case was all but finished.

When pleading a case against an HMO, attorneys should keep in mind that the HMO contract is a contract of adhesion that deals with life, health, and matters of mental solicitude. Because of the type of contract it is, even in a breach of contract action the attorney should make a claim for emotional pain and suffering and the worsening of the client's condition.(15)

Of course, if the HMO's conduct rises to the level of outrage, the attorney should plead and prove a punitive damages case.

HMO litigation is an area of the law that requires careful navigation. But with thoughtfully drafted pleadings and thorough discovery, plaintiff lawyers can succeed for their clients and can send a message to defendants that economy at the expense of patient care will not be tolerated.


(1.) How Good Is Your Health Plan? CONSUMER REP., Aug. 1996, at 29.

(2.) See, e.g., FLA. STAT. ch. 641.18, 641.201 & 641.30(2) (insurance statutes); FLA. STAT. ch. 766.102(1), 766.106 & 641.19(7) (health care statutes). See also Anne Maltz, Managed Care Reform Act, N.Y.L.J., Dec. 12, 1996, at 1.

(3.) See, e.g., Wilson v. Blue Cross of S. Cal., 271 Cal. Rptr. 876 (Ct. App. 1990); Wickline v. State, 239 Cal. Rptr. 810 (Ct. App. 1986); Hughes v. Blue Cross of N. Cal., 263 Cal. Rptr. 850 (Ct. App. 1989); Fox v. Health Net, No. 219692 (Cal., Riverside County Super. Ct. Dec. 28, 1993).

(4.) 658 So.2d 543,544 (Flat Dist. Ct. App. 1995).

(5.) See, e.g., McClellan v. Health Maintenance Org. of Pa., 604 A.2d 1053, 1057 (Pa. 1992); Raglin v. HMO Ill., Inc., 595 N.E.2d 153, 156 (Ill. App. Ct. 1992); Sloan v. Metropolitan Health Counsel of Indianapolis, Inc., 516 N.E.2d 1104, 1106 (Inc. Ct. App. 1987).

(6.) See, e.g., Health Am. v. Menton, 551 So. 2d 235, 238-39 (Ala. 1989); Pulvers v. Kaiser Found. Health Plan, 160 Cal. Rptr. 392, 393-94 (Ct. App. 1979).

(7.) See, e.g., Fox, No. 219692; Hughes, 263 Cal. Rptr. 850, 876.

(8.) See, e.g., Stelmach v. Physicians Multispecialty Group, No. 53906 (Mo. Ct. App. 1989).

(9.) See, e.g., Wickline, 239 Cal. Rptr. 810; Harrell v. Total Health Care, No. WD 39809 (Mo. Ct. App. 1989).

(10.) See, e.g., FLA. STAT ch. 641.3903 (1996).

(11.) See generally J.B. v. Sacred Heart Hosp. of Pensacola, 635 So.2d 945,948 (Fla. 1994).

(12.) See Ouellette v. Christ Hosp., 942 F. Supp. 1160 (S.D. Ohio 1996) (ERISA does not completely preempt suit alleging an HMO financial arrangement caused hospital's negligence).

(13.) In the following cases, preemption was avoided by careful pleadings: Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995), cert. denied, 116 S. Ct. 564 (1995); Independence HMO, Inc. v. Smith, 733 E Supp. 983, 987-89 (E.D. Pa. 1990); Elsesser v. Hospital of the Philadelphia College of Osteopathic Med., 802 E Supp. 1286, 1290-91 (E.D. Pa. 1992); Kearney v. U.S. Healthcare, Inc., 859 E Supp. 182, 186-87 (E.D. Pa. 1994); Burke v. Smithkline BioScience Lab., 858 E Supp. 1181 (M.D. Fla. 1994).

(14.) See generally North Fla. Reg'l Hosp. v. Douglas, 454 So.2d 759 (Flat Dist. Ct. App. 1984) (allowing discovery of personnel files); Hampton v. City of San Diego, 147 F.R.D. 227, 229 (S.D. Cal. 1993) (allowing discovery of employee evaluation). But see CAC-Ramsay Health Plans, Inc. v. Johnson, 641 So. 2d 434 (Flat Dist. Ct. App. 1994) (prohibiting discovery of employee records).

(15.) See, e.g., Life Investors Ins. v. Johnson, 422 So.2d 32 (Flat Dist. Ct. App. 1982); Vega v. Travelers Indem. Co., 520 So.2d 73 (Flat Dist. Ct. App. 1988).
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Title Annotation:Medical Negligence
Author:Liggio, Jeffrey M.
Date:May 1, 1997
Previous Article:No-fault med mal: no gain for the injured.
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