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Vicarious liability claims against HMOs.

Health maintenance organizations can be held vicariously liable for their physicians' negligence under several long-standing legal theories.

In a tidal wave of change, corporate America has altered the delivery of health care services in the United States through managed health care. Managed care proponents say the system ensures higher quality care at less cost to the patient. But, in practice, patient care has suffered at the expense of increased profits for health maintenance organizations (HMOs) and health care providers.

This reduction in the quality of care has increased the potential for medical negligence. Ironically, when patients are injured by the negligence of managed health care providers, HMOs often deny responsibility, claiming the providers are independent contractors.

Despite these claims, HMOs can be held vicariously liable for their physicians' negligence under several long-standing legal theories: nondelegable duty by contract, nondelegable duty by statute, joint venture, agency, and apparent or ostensible agency.(1)

The starting point in any claim against a health maintenance organization is to consider the question: What are HMOs? The answer is simple. HMOs are licensed health care providers.

HMOs contract with, or on behalf of, a "member" or "subscriber." The contract obligates the HMO to provide health care or health care services to the member and defines the services provided.

HMOs give services to members several ways. They may hire physicians as employees. They may enter into principal/agent agreements with physicians. Or, increasingly, they may enter into contracts with physicians who are labeled independent contractors.

HMOs wield significant authority over the details of how their physicians provide medical care. The organizations credential their physicians and create provider lists, selecting the doctors from whom their members must seek treatment and to whom they must be referred.

The doctors have little ability to negotiate their fees with HMOs; it's "sign up now or be left in the cold." These "contracts of adhesion" prohibit the doctors from seeking additional compensation from their patients, even when the HMO defaults or refuses to pay.(2)

HMOs generally retain the power to overrule doctors' decisions on treatment plans. They also control the health care that members receive by imposing financial penalties on doctors who "overrefer" or "overprescribe."

Member handbooks illustrate the control many HMOs have over the delivery of medical care. To receive the health care promised, these handbooks say, members must select primary care physicians (PCPs) from a list of HMO physicians. To obtain specialty care or to be admitted to the hospital, members must be referred by the PCP. Otherwise, the patients' medical bills (excluding emergency care as defined and approved by the HMO) will not be covered. Even then, the HMO's medical directors often retain the right to overrule recommended care.

Evidence of control can be found in the HMO's contract with its members, the HMO's contract with its health care providers, the member handbook, advertising brochures, physician lists, claims forms, and financial records detailing the method and amount of payments made to health care providers.

Additional evidence can be obtained through depositions of HMO corporate representatives who know about the contract with the members, the contract with the negligent health care provider, the amount and method of payments made to the HMO by or on behalf of the members, the amount and method of payments made to health care providers, and the HMO's advertising and marketing materials. The HMO medical director also may possess a wealth of knowledge concerning these issues.

Once the legal status and structure of the HMO are understood and the extent of its control over members and health care providers is established, one or more of five legal theories of vicarious liability fall into place.

Nondelegable duty by contract

Nondelegable duty by contract is an underused theory of liability in cases against HMOs for their providers' medical negligence. If the duty is nondelegable, the amount of control maintained by an HMO is irrelevant. The HMO can be held vicariously liable pursuant to a nondelegable duty.

This principle holds that an entity that assumes a duty under a contract and then enters into another contract with an independent contractor to perform some or all of that duty is vicariously liable for the negligence of the independent contractors carrying out those duties.(3)

As one court explained--

Holding a particular undertaking to be nondelegable

means that responsibility, i.e., ultimate

liability, for the proper performance of

that undertaking may not be delegated. The

term nondelegable does not preclude delegation

of the actual performance of the task.

"Nondelegable" applies to the liabilities arising

from the delegated duties if breached.(4)

The principle was successfully applied to the health care industry more than three-quarters of a century ago. In the 1922 case of Jenkins v. Charleston General Hospital & Training School, the West Virginia high court ruled that a hospital's contract with an employer to provide "medical and surgical treatment [to] its employees" was nondelegable.(5)

Rejecting the hospital's attempts to insulate itself by labeling the negligent doctor as an independent contractor, the court held--

The defense of injury by an independent contractor

cannot be maintained. The radiologist

was employed and paid by the defendant to

perform work in discharge of its own contract

and undertaking to diagnose and treat the injury.

Farming out work to be done under a

contract never relieves from the obligation of

the contract. A man cannot avoid his contract

by devolving performance thereof upon a


It is no different for an HMO. It contracts with a patient to provide medical care. It then contracts with physicians to provide the care it must provide the patient. It does not matter if the contract contains the phrase "independent contractor." The HMO cannot escape responsibility by delegating its contractual duties.(7)

Thus, when a doctor negligently performs the duties assigned by contract to the HMO--providing health care--liability attaches to the HMO.

Nondelegable duty by statute

"An employer may generally not delegate the manner of performance of duties imposed by... ordinance or statute."(8) For example, the Supreme Court of Alaska has held that as a matter of public policy, where state law and regulations required acute care centers to provide emergency room physicians to the public, a hospital could not delegate this duty to independent contractor physicians.

Thus, a hospital ... may not shield itself from

liability by claiming that it is not responsible

for the results of negligently performed health

care where the law imposes a duty on the hospital

to provide that health care.


It is the hospital's duty to provide the physician,

which it may do through any means at its

disposal. The means employed, however, will

not change the fact that the hospital will be responsible

for the care rendered by physicians

it has a duty to provide.(9)

Because health maintenance organizations are generally highly regulated by state law, plaintiff lawyers should look for statutes governing HMOs that create a duty as health care providers to provide medical care to members.(10)

In Florida, for example, HMOs are required to obtain "Health care Provider Certificates" in order "to ensure that [they] ... deliver high-quality health care to their subscribers."(11) Further, HMO contracts with subscribers are statutorily defined as contracts "to provide comprehensive health care services."(12) These services are in turn defined as "medical... care... and any other care, service, or treatment of disease, or correction of defects for human beings."(13)

Although no case has construed these statutes, it would appear that an HMO operating in Florida must accept the duty to provide comprehensive health care services, which includes providing medical care. And, as with any other such duty imposed by statute, this duty should be deemed nondelegable.

Joint venture

Close examination of the HMO's contracts with its independent contractors may yield evidence sufficient to establish that the two are doing business as joint venturers.(14) Courts have applied this theory to the health care field to find vicarious liability.(15)

The joint venture theory is an excellent way to show a jury how a health maintenance organization establishes financial disincentives to discourage physicians from providing health care services. The joint enterprise of the HMO providing the patients and the doctors providing the care establishes the community of interest underlying the joint venture.

The theory also illustrates how an HMO controls the medical care to its members. For example, a doctor may decide that a patient needs a diagnostic X-ray, but the HMO usually either decides where the test will be performed or requires the patient to choose from a preapproved list of medical facilities.

The joint venture relationship between an HMO and its doctors is perhaps best illustrated by agreements that provide "capitation fees." These are set fees an HMO agrees to pay a doctor per patient regardless of the frequency or cost of care required. These agreements allow the HMO to limit its financial risk to a predetermined figure per patient, at the same time also guaranteeing the doctor a steady monthly income.

If the patient is healthy, the HMO and the doctor both make a profit without rendering care. If the patient becomes seriously ill, however, and requires extensive and expensive medical care, the doctor works at a decreasing hourly rate, and the HMO, by having to pay specialists and hospitals, may spend more than the premium amount paid to provide the care. Thus, both joint venturers experience a loss.


One of the easiest ways to prove vicarious liability is to show that the tortfeasor was the agent or employee of the defendant acting within the course and scope of the agency or employment when the negligent act occurred.

The Restatement (Second) of Agency [sections] 220 lists 10 factors for determining whether a party is an agent or an employee. All 10 factors need not be shown to demonstrate an agency relationship--the single overriding requirement is control.(16)

As previously discussed, control over the practice of medicine is the sine qua non of the managed care industry.

Apparent or ostensible agency

An entity who represents that another is an employee or agent and thereby causes a third party justifiably to rely on the apparent agent's care or skill is liable to the third party for harm caused by the negligence of the apparent agent.(17) Evidence that can help prove an apparent agency relationship in an HMO case includes--

* HMO advertisements referring to the doctors in the plan;

* lists of approved doctors on HMO stationery given to members;

* signs at the doctor's office proclaiming an association with the HMO;

* patient forms at the doctor's office containing the HMO's name or corporate logo;

* a provision in the HMO plan that requires primary care physicians to select specialists for plan members; or

* the fact that the patient was seen at an HMO clinic.(18)

The patient must have relied on the representations of the agent for a claim to be successful.(19)

There are at least four advantages to bringing claims under the legal theories discussed above. They--

* are based on restatement-recognized or established common law principles available in most or all states;

* can fully compensate victims of malpractice committed by uninsured or underinsured doctors;

* can be used in conjunction with comparative fault theories to hold an HMO liable for the negligence of all doctors under contract with it, even if they are not named as defendants;(20) and

* likely will defeat the managed care industry's claims that the Employee Retirement Income Security Act (ERISA) pre-empts lawsuits against HMOs for medical malpractice.(21)

As use of managed care has become widespread in recent years, people have grown frustrated and angry with the delivery of health care in this country. Patients resent the loss of control over medical choices and increased difficulty in getting specialty or emergency care that go along with the managed care system. Doctors, too, have become frustrated as HMOs have increased their control over the practice of medicine.

The climate is ripe for corporate accountability. Health maintenance organizations can and should be held liable for the negligence of their doctors. Using the vicarious liability theories discussed in this article, plaintiff attorneys can ensure justice for clients who have been injured by the malpractice of an HMO doctor.


(1.) State and federal lawmakers have considered HMO liability for medical negligence. In 1997, Texas passed several laws regarding the managed care system and HMO liability. See, e.g., TEX. CIV. PRAC. & REM. CODE ANN. [sections] 88.002(b) (West Supp. 1998) (HMOs are liable for damages caused by their employees, agents, ostensible agents, or those over whom they can or did exercise influence or control resulting in a failure to exercise ordinary care).

Several bills introduced in the 105th Congress eliminate ERISA preemption of lawsuits against HMOs or provide direct claims against HMOs.

For a discussion of direct claims against managed care entities, see, e.g., Thomas William Malone & Deborah Haas Thaler, Managed Health Care:A Plaintiff's Perspective, 32 TORT & INS. L.J. 123 (1996).

(2.) See, e.g., FLA. ADMIN. CODE ANN. r. 59A12.002(9) (1995).

(3.) See generally RESTATEMENT (SECOND) OF AGENCY [sections] 214 (1958).

(4.) Atlantic Coast Dev. Corp. v. Napoleon Steel Contractors, Inc., 385 So. 2d 676. 679 (Fla. Dist. Ct. App. 1980).

(5.) 110 S.E. 560,561 (W. Va. 1922); cf. Bagley v. Insight Comm. Co., 658 N.E.2d 584, 586 (Ind. 1995).

(6.) Jenkins, 110 S.E. 560, 562; accord Jar v. University of Miami, 474 So. 2d 239 (Fla. Dist. Ct. App. 1985), review denied, 484 So. 2d 10 (Fla. 1986); Irving v. Doctors Hosp. of Lake Worth, Inc., 415 So. 2d 55 (Fla. Dist. Ct. App.), review denied, 422 So. 2d 842 (Fla. 1982).

(7.) Cf. Mduba v. Benedictine Hosp., 384 N.Y.S.2d 527, 529 (App. Div. 1976) (holding that emergency room patients "are not bound by secret limitations as are contained in a private contract between the [doctor and] the hospital... [, which] held itself out to the public offering and rendering hospital services").

(8.) Fulton v. Anchor Say. Bank, FSB, 452 S.E.2d 208.214 (Ga. Ct. App. 1994); see also Mastrandrea v. J. Mann, Inc., 128 So. 2d 146, 148 (Fla. Dist. Ct. App.), cert. denied, 433 So. 2d 320 (Fla. 1961); Bagley, 658 N.E.2d 584, 586; cf. RESTATEMENT (SECOND) OF TORTS [sections] 424 (1965).

(9.) Jackson v. Power, 743 P.2d 1376, 1385 (Alaska 1987); cf. Ancata v. Prison Health Servs., Inc., 769 F.2d 700, 705 (11th Cir. 1985).

(10.) See, e.g., 42 U.S.C. [sections] 1395mm(b)(2)(B) & (C) (1994) (including HMOs in the definition of entities eligible to be compensated by Medicare "for the provision of health care services" who "provide[] physicians' services"); MO. REV. STAT. [sections] 538.205 (4) (Supp. 1997) (including HMOs under definition of health care providers).

(11.) FLA. STAT. ch. 641.48 (1993).

(12.) FLA. STAT. ch. 641.19(6) (1993)

(13.) FLA. STAT. ch. 641.19(2) (1993).

(14.) A "joint venture" is generally defined as a business relationship whose parties maintain most or all of the following: a community of interest in the performance of the common purpose; a joint control or right of control; a joint proprietary interest in the subject matter; a right to share in the profits; and a duty to share in any losses. See, e.g., Tanner Cos. v. Superior Court, 696 P.2d 693, 695 (Ariz. 1985); Arango v. Reyka, 507 So. 2d 1211, 1212 (Fla. Dist. Ct. App. 1987).

(15.) See, e.g., Arango, 507 So. 2d 1211, 1211; cf. Suarez Matos v. Ashford Presbyterian Comm. Hosp., 4 F.3d 47, 52 (1st Cir. 1993).

(16.) Schleier v. Kaiser Found. Health Plan of Mid-Atlantic States, Inc., 876 F.2d 174, 177-78 (D.C. Cir. 1989); Arthur v. St. Peters Hosp., 405 A.2d 443, 445 (N.J. Super. Ct. Law Div. 1979); see, e.g., Mduba, 384 N.Y.S.2d 527, 529; RESTATEMENT (SECOND) OF AGENCY [sections] 220 cmt.d (1958).

(17.) RESTATEMENT (SECOND) OF AGENCY [sections] 267 (1958). The RESTATEMENT (SECOND) OF TORTS [sections] 429 (1965) sets forth an arguably looser standard for apparent agency by requiring only a reasonable belief in rather than actual reliance on the representations of agency. See Jackson, 743 P.2d 1376.1380. For simplicity, only the RESTATEMENT (SECOND) OF AGENCY standard is discussed in this article.

(18.) See, e.g., Boyd v. Albert Einstein Med. Ctr., 547 A.2d 1229 (Pa. Super. Ct. 1988); see also McClellan v. Health Maintenance Org., 604 A.2d 1053 (Pa. Super. Ct. 1992).

(19.) See, e.g., Hoffman v. Moore Reg'l Hosp., Inc., 441 S.E.2d 567,570 (N.C. Ct. App.), review denied, 447 S.E.2d 391 (N.C. 1994).

(20.) Cf. United States Sec. Servs. Corp. v. Ramada Inn. Inc.. 665 So. 2d 268 (Fla. Dist. Ct. App. 1995), review denied. 675 So. 2d 121 (Fla. 1996)(holding that hotel possessing nondelegable duty to provide reasonably safe premises is liable for its own percentage of fault and vicariously liable for independent contractor's percentage of fault).

(21.) In Dukes v. U.S. Healthcare, Inc., the Third Circuit rejected an HMO's invocation of ERISA preemption in a medical malpractice claim alleging vicarious liability against the HMO. 57 F.3d 350 (3d Cir.), cert. denied, 516 U.S. 1009 (1995). The court dismissed the HMO's argument that the plaintiffs were seeking to hold the HMO liable for the arguably preempted direct claims of withholding benefits due or to enforce new rights under an ERISA plan. The court determined the plaintiffs were simply "attack[ing] the quality of the benefits they received," id. at 356. and "attempting to assert their already-existing rights under the generally applicable state law of agency and tort." Id. at 358; see also Rice v. Panchal, 65 F.3d 637 (7th Cir. 1995); Pacificare, Inc. v. Burrage, 59 F.3d 151 ( 10th Cir. 1995); In re Estate of Frappier, 678 So. 2d 884, 886-87 (Fla. Dist. App. Ct. 1996).

RELATED ARTICLE: Professional Negligence Section has widespread appeal

Professional negligence cases tend to come with the territory for trial lawyers. Sooner or later, most will handle one. Wit that eventuality in mind, ATLA created the Professional Negligence Section.

"Our section serves both experienced attorneys who concentrate their practice in professional negligence and lawyers who are handling their first negligence case," said Section Chair Charles Baumberger of Miami.

Attorneys practicing in this area litigate medical negligence claims and cases involving negligence in occupations such as dentistry, psychotherapy, ministry, elder care, and accounting.

Baumberger said section members have an enormous networking advantage over other small-firm and sole practitioners. Members across the country work together, exchanging information on litigation strategies nd expert testimony. "We also coordinate activities with ATLA litigation groups that share common interests with our section," he said.

The section also strives to educate its members. Each year at ATLA's Annual Convention, section leaders present programs and panel discussions.

The section is finalizing plans for this year's convention, July 10-14, in Washington, D.C. "Right now, we plan to offer sessions featuring medical doctors who have expertise in specialties frequently involved in medical malpractice cases. For example, this year's topics include neurologic negligence in the emergency room, chest pain in the emergency room, discovery and proof of altered medical records, and discovery and use of hospital manuals and standards," Baumberger said.

Any ATLA member in good standing may join the Professional Negligence Section for $113 annually. Dues include a subscription to the Professional Negligence Law Reporter, an annual membership directory, and a biannual newsletter. Lawyers who have been in practice for 10 years or less may join the section for $28, but they will not receive a subscription to the Law Reporter.

For more information, contact Sections Coordinator Nancy Dugan at (800) 424-2725, ext. 312.

Charles H. Baumberger is a partner with Rossman Baumberger & Reboso in Miami.
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Title Annotation:Medical Negligence
Author:Baumberger, Charles H.
Date:May 1, 1998
Previous Article:Challenging insurance coverage denials under ERISA.
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