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Barry F. Rosen: Decision protects health plans

In its June decision in Bradford v. JAI Medical Systems Managed Care Organization Inc., Maryland’s Court of Appeals extended legal protections for health plans against malpractice claims in Maryland. The court did so by categorically holding that health plans — such as the Medicaid managed care organization involved in this case — are not vicariously liable for malpractice committed against their enrollees by health care practitioners participating in the HMOs.

The facts

The case arose when Bradford, an enrollee of JAI Medical Systems, sued JAI for alleged negligent care received from a surgeon in JAI’s network. Bradford’s primary care physician had referred her to a surgeon for removal of a bunion on her foot. But after that operation, the surgeon missed the development of gangrene in her foot. Amputation resulted.

Bradford sued JAI on an “apparent agency” theory. That is, Bradford contended that even though JAI and the surgeon had an independent contractor relationship only, JAI should still be vicariously liable for the surgeon’s malpractice.

She asserted that JAI implicitly represented to her that the surgeon was an agent or employee of JAI, and therefore she relied justifiably on the skill and care of the surgeon.

Bradford claimed that JAI made this representation by, among other things, (1) including the surgeon in JAI’s provider directory; (2) advertising the high quality of practitioners in its network; (3) requiring enrollees to use only specialists within its network; and (4) hiring some of the physicians in its network for administrative roles at JAI, such as medical director.

Bradford also noted that Maryland law charges Medicaid managed care organizations with the primary responsibility for providing health care services to their enrollees, even if those organizations delegate this responsibility to a network of providers.

The decision

The Court of Appeals rejected Bradford’s argument. The court offered three reasons why she could not justifiably believe that JAI had authority over the surgeon’s performance.

First, because JAI had over 4,000 providers in its network, it is objectively implausible to believe that every provider would be an employee of JAI merely by being in that network. Moreover, the network directory included a number of institutional providers that were obviously not agents or employees of JAI, such as Wal-Mart and Rite Aid.

Second, the JAI enrollee handbook, which explains JAI’s operations to all enrollees, did not contain any representation that JAI oversees services performed by JAI’s network of providers.

Third, the surgery was performed at a hospital not in JAI’s provider network, suggesting that the surgeon was not acting as an employee of JAI in performing the surgery.

The court contrasted this case with a prior case holding a hospital liable for services of its independent contractor pathologist serving the hospital’s emergency department. The court explained that in the prior case, the hospital and the emergency department were almost indistinguishable physically and administratively, such that a reasonable person would believe that the pathologist was a hospital employee.

In light of the above, the court ended the case against JAI.

Conclusion

The Court of Appeals has handed a significant victory to managed care organizations, insurers, health plans and plan administrators in Maryland. Maryland’s highest court has now said, for the first time, that a health plan is not responsible for the quality of services performed by a provider simply because the health plan includes the provider in its network and requires patients to use in-network providers. A health plan must say, do or fail to do something more.

In that regard, health plans and health plan administrators should remain cautious about how they articulate their role to enrollees, especially when they promote new quality improvement initiatives and health care delivery system innovations.

Health plans should not merely rely on a “common sense” or “common knowledge” that health plans and their network providers are distinct. Instead, through disclaimers and careful wording, health plans and plan administrators should distinguish between the role of the health plan and the role of network providers.

Barry F. Rosen is chairman and CEO of the law firm of Gordon Feinblatt LLC and heads the firm’s Health Care Practice Group. He can be reached at 410-576-4224 or [email protected] Jonathan E. Montgomery is an associate in the firm’s Health Care Practice Group, and he can be reached at 410-576-4088 or [email protected]