HMO Liability

One of the hottest health-care topics in the past year has been the liability of Health Maintenance Organizations (HMOs). An HMO provides "managed care" to individuals who are its members. Doctors contract with the HMO to treat a certain number of the members for a fixed price. The managed-care system is designed to contain rising health-care costs. In recent years, however, this system has come under scrutiny because it could discourage doctors from providing the best, most comprehensive medical care. In the past, the law has shielded HMOs from liability for the treatment rendered by their doctors. Last year, the Illinois Supreme Court said "no more." The court ruled that an HMO may be held vicariously liable for the negligence of its participating doctors based upon two theories of recovery.

First, an HMO will be held liable if it holds itself out as the provider of health care without telling the patient that the health care it provides is administered by independent contractors. The patient must also be justified in relying upon the HMO's conduct by looking to the HMO to provide health-care services, not to a specific doctor. This is called the "doctrine of apparent agency." In other words, if an HMO gives its patient member the impression that his or her treating doctor is an agent or an employee of the HMO, then it creates an apparent agency. Hospitals have also been held liable for the negligent care of their emergency-room doctors under the same principle, even though the doctors were not employed by the hospital.

Second, an HMO will also be held accountable if it exerts such control over its doctors that their status as independent contractors is negated. This is called the "doctrine of implied authority." An HMO that retains the right to control its doctors will be exposed to liability for professional negligence by those doctors.

In another ground-breaking decision, an Illinois Appellate Court has ruled that patients can sue their doctors for a breach of fiduciary duty (also known as a duty of loyalty) for not disclosing financial incentives from HMOs to limit patient treatment. Similarly, in a federal case, the court determined that a patient can sue his or her HMO for breach of fiduciary duty for failing to disclose the financial incentive scheme that the HMO has with its doctors. Through these decisions, the courts are trying to encourage HMOs to structure their relationships with their doctors in such a way that the doctors are not discouraged from making the best health-care decisions for their patients.

The Illinois legislature has also addressed these problems and, on August 19, 1999, Governor Ryan signed the Managed Care Reform and Patients Rights Act into law. This new legislation is designed to impose stricter obligations on HMOs and insurance companies to the benefit of the patients they serve. The Act requires plan information disclosure and reporting, a guarantee of enrolled access to non-network doctors during a period of transition, anti-gag, anti-retaliation, and other safeguards for the doctor-patient relationship. The Act also provides certain guarantees of access to specialists for members, specific internal and external grievance and review procedures, mandated coverage under certain circumstances, and various other provisions. Congress is considering legislation that may go as far as to provide for a patient's right to sue an HMO for the negligence of its doctors. It is clear that our courts and our state and federal legislators are working to structure managed care so that the incentives fall in favor of the patients.

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