HMO\'s and Malpractice Legal Basis

HMO's And Malpractice

Legal basis for the immunization of HMOs from being sued for malpractice

Legal basis for the immunization of HMOs from being sued for malpractice

When they first became popular in the 1990s, many antagonists to a 'single payer' nationalized healthcare system boasted that health maintenance organizations (HMOs) were the 'solution' to the spiraling healthcare costs endemic the industry. Theoretically, HMOs offered "affordable monthly premiums and low co-pays" to many consumers but tried to de-incentivize consumers getting unnecessary medical procedures by refusing to cover them (Hawn 2004). However, HMOs often gave the consumer very limited discretion when choosing a doctor. Many patients were upset at having to abandon doctors who had long been their family's general practitioners, because of the demands of their HMO that they remain 'in-network.' Preferred provider organizations (PPO) plans were even more restrictive in terms of limiting consumer choice of doctors -- patients had to remain 'in the network' for all forms of care although they did not need to select a single, primary care physician or obtain referrals for in-network providers. HMO consumers had to obtain referrals to see specialists.

As HMOs began to grow in popularity, highly-publicized cases begin to arise of HMOs refusing to pay for tests that the patients felt were necessary or for procedures their doctors had suggested. HMO also were recorded as failing "to reimburse patients for treatment that should be covered and [to] flat out deny coverage to an eligible policyholder" seemingly on a pretext, such as a minor, undisclosed but irrelevant preexisting condition such as a yeast infection (Hawn 2004). Some physicians began to form Independent Practice Associations (IPA), networks of independent physicians, "who agree to participate in an association to contract with health maintenance organizations" (Armon & Miller 2001). In contrast to HMO-based physicians "IPA physicians do not combine their individual practices. Instead, the IPA physicians retain their practices and work out of their own offices. The original premise underlying the formation of IPAs in the late 1980s was for "physicians to retain control over medical decision-making and to negotiate better fees and contract terms from the HMOs" (Armon & Miller 2001). But these financial benefits were not necessarily passed onto the consumer.

To encourage employers to extend healthcare coverage to their employees through HMOs, Congress gave HMOs "substantial immunities from liability," from malpractice, if they denied care to patients or dropped policy-holders (ERISA, 2004, HARP). This was designed to make HMO fees more affordable, by reducing legal risks. Today, most litigation regarding HMOs is not permitted: "any case 'relating to' an EBP [employee benefits plan] falls under federal jurisdiction and may be removed from state to federal court" (ERISA, 2004, HARP). There is no need for indemnification agreements between physicians and HMOs, in other words -- the HMO theoretically is never personally liable for the actions of member physicians. While an individual can sue or make a claim that his or her benefits were illegally denied, the "decision of the plan administrator may often be reversed only if it was found to have been arbitrary and capricious, a very difficult standard to meet. Even if that is proven, ERISA limits damages… [ensuring] the HMO will not be punished" in a substantive fashion (ERISA, 2004, HARP).

However, some state courts, despite ERISA have held HMOs directly liable for negligent treatment of their members, such as when an HMO refused to grant a patient the 30 days of inpatient psychiatric care his doctor said he required and only covered 10 days. The California court "ruled that an organization, such as the patient's HMO, that substantially shaped the course of patient care could be held liable for the quality of the care actually delivered… a Pennsylvania court also held that an HMO could be held liable for injuries to its members as a result of its hiring incompetent physicians" (HMO malpractice, 2009, Mega Justice). In these instances, the HMO was held directly responsible for denying coverage or the actions of member physicians.