Table 1. Relevant Legal Claims Involving Managed Care Companies: Leading
Cases

+---------------------+------------------------------------------------+
| Type of Claim       | Leading Cases (\*)                             |
+=====================+================================================+
| Medical liability   | ##### In general                               |
|                     |                                                |
| -   Corporate       | -   [Boyd v Albert Einstein Medical            |
|     liability       |     Center]{.underline} 547 A. 2d 1229 (Pa.    |
|     (direct         |     Super 1988): Under Pa. Law, HMOs are a     |
|     liability for   |     form or health provider and can be         |
|     failure to      |     vicariously liable for the negligent       |
|     select and      |     medical care of network physicians if a    |
|     properly        |     physician is shown to be negligent and if  |
|     oversee staff,  |     an agency relationship is proven. HMOs are |
|     correct quality |     hybrid entities that contract for the      |
|     related         |     provision of health care and thus carry    |
|     problems or use |     the attributes of both health providers    |
|     practice        |     and health insurers under state law.       |
|     standards that  |                                                |
|     are             | -   [Shannon v McNulty]{.underline} 718 A. 2d  |
|     professionally  |     828 (Pa. Super., 1988): PA. Law recognizes |
|     appropriate)    |     HMOs as health providers for medical       |
|                     |     liability purposes and an HMO that         |
| -   vicarious       |     allegedly failed to adequately manage a    |
|     liability       |     member's preterm labor care and oversee    |
|     (liability      |     the performance of its physicians can be   |
|     under various   |     found directly and vicariously liable for  |
|     agency theories |     the quality of care.                       |
|     for the         |                                                |
|     negligence of a | -   [Petrovitch v Share Health Plan of         |
|     network         |     Illinois]{.underline} 719 N.E. 2d 756:     |
|     provider)       |     Under Illinois law, an HMO can be          |
|                     |     vicariously liable where agency is proved  |
|                     |     for the negligence of its network          |
|                     |     physician in a failure to diagnose cancer. |
|                     |                                                |
|                     | ##### Cases                                    |
|                     | brought by ERISA-sponsored health plan members |
|                     |                                                |
|                     | -   [Dukes v U.S. Healthcare]{.underline}      |
|                     |     57 F. 3d 350 (3d Cir., 1995); cert. den.,  |
|                     |     116 S. Ct. 564 (1995): cases involving     |
|                     |     allegations by an ERISA plan member of     |
|                     |     professionally substandard provision of    |
|                     |     covered services in the context of a       |
|                     |     medical emergency constitute medical       |
|                     |     negligence cases governed by state law and |
|                     |     lie outside of ERISA preemption.           |
|                     |                                                |
|                     | -   [Moscovitch v Danbury                      |
|                     |     Hospital]{.underline} 25 F. Supp. 2d 74    |
|                     |     (D. Ct., 1998):\* claims by an ERISA plan  |
|                     |     member related to the reasonableness of    |
|                     |     the medical judgement exercised by health  |
|                     |     plan medical staff in a psychiatric        |
|                     |     hospital discharge case amount to a        |
|                     |     quality of care claim that can be pursued  |
|                     |     under state law.                           |
|                     |                                                |
|                     | -   [Pegram v Herdrich]{.underline}, 120 S.    |
|                     |     Ct. 2143 (2000): Claims challenging the    |
|                     |     professional soundness of the medical      |
|                     |     judgement of managed care physician who    |
|                     |     delayed the performance of diagnostic      |
|                     |     tests are not the types of decisions that  |
|                     |     are considered "fiduciary" under ERISA.    |
|                     |     Thus, even though physician incentive      |
|                     |     plans cannot be challenged as a violation  |
|                     |     of ERISA's fiduciary duty standard,        |
|                     |     medical negligence by an HMO physician     |
|                     |     falls within the purview of state law.     |
|                     |                                                |
|                     | -   [Lazorko v Pennsylvania                    |
|                     |     Hospital]{.underline}, 2000 WL 1886619:\*  |
|                     |     Allegations by an ERISA plan member that   |
|                     |     the physician incentive plan used by an    |
|                     |     HMO was a contributing factor to the       |
|                     |     physician's negligent decision to withhold |
|                     |     medically necessary psychiatric care       |
|                     |     amounts to a direct medical negligence     |
|                     |     claim covered by state law                 |
|                     |                                                |
|                     | -   [In re U.S. Health Care]{.underline} 193   |
|                     |     U.S. Healthcare 193 F. 3d 151 (3d Cir.,    |
|                     |     1999); cert. den. 120 S. Ct. 2687 (2000):  |
|                     |     Claims by an ERISA plan member that an     |
|                     |     HMO's treatment guidelines were            |
|                     |     professionally substandard and encouraged  |
|                     |     negligent care that led to the death of a  |
|                     |     newborn infant amounts to a direct medical |
|                     |     negligence claim that can be pursued under |
|                     |     state law.                                 |
|                     |                                                |
|                     | #####                                          |
|                     |                                                |
|                     | ##### Cases brought by Medicaid beneficiaries  |
|                     |                                                |
|                     | -   [Jones v Chicago HMO]{.underline} 2000 WL  |
|                     |     632790 (Ill, 2000): Under Illinois law an  |
|                     |     HMO can be held directly liable for        |
|                     |     failure to oversee the activities of a     |
|                     |     network physician in a Medicaid plan whose |
|                     |     patient load exceeded professionally       |
|                     |     acceptable norms and contributed to the    |
|                     |     physician's failure to timely treat an     |
|                     |     infant.                                    |
|                     |                                                |
|                     | ##### Cases brought by Medicare beneficiaries  |
|                     |                                                |
|                     | -   [Ardary v Aetna Health Plans]{.underline}  |
|                     |     98 F. 3d 496 (9^th^ Cir., 1996): Claims of |
|                     |     medical negligence against a Medicare HMO  |
|                     |     constitute claims under state law and are  |
|                     |     not preempted by Medicare.                 |
+---------------------+------------------------------------------------+
| Americans with      | #####                                          |
| Disabilities Act    | Health care providers as public accommodations |
|                     |                                                |
| -   Accessibility   | -   [Bragdon v Abbott]{.underline} 524 U.S.    |
|     of care         |     624 (1998): Health care providers          |
|                     |     constitute a public accommodation under    |
| -   Quality of care |     the ADA and therefore have a legal         |
|                     |     obligation to reasonably modify their      |
| -   Content of      |     practices to accommodate persons with      |
|     coverage        |     disabilities (in this case, HIV) unless    |
|                     |     they can prove the existence of a direct   |
|                     |     threat.                                    |
|                     |                                                |
|                     | -   [Woolfolk v Duncan]{.underline} 872 F.     |
|                     |     supp. 1381 (E.D. Pa., 1995): Health plan   |
|                     |     network providers constitute a public      |
|                     |     accommodation under the ADA and thus may   |
|                     |     not discriminate in the provision of care  |
|                     |     against persons with disabilities.         |
|                     |                                                |
|                     | ##### Phy                                      |
|                     | sician incentive plans as violative of the ADA |
|                     |                                                |
|                     | -   [Zamora-Quesada v Humana Health            |
|                     |     Plan]{.underline} 34 F. Supp. 2d 433 (W.D. |
|                     |     Tex., 1998): An HMO may be liable under    |
|                     |     the ADA if it is demonstrated that its     |
|                     |     physician incentive plan discouraged       |
|                     |     physicians from serving persons with       |
|                     |     disabilities by failing to adjust for a    |
|                     |     sicker caseload or acted as an incentive   |
|                     |     for the withholding of medically necessary |
|                     |     care.                                      |
|                     |                                                |
|                     | #####                                          |
|                     |  The design of insurance contracts and the ADA |
|                     |                                                |
|                     | -   [Doe v Mutual of Omaha]{.underline} 179 F. |
|                     |     3d 557 (1999); cert. den., 528 U.S.        |
|                     |     1106 (1999) The ADA is not violated by     |
|                     |     across the board limits in health          |
|                     |     insurance content design, even where the   |
|                     |     limits target particular disabilities (in  |
|                     |     this case, lesser coverage for AIDS and    |
|                     |     AIDS-related conditions)                   |
+---------------------+------------------------------------------------+
| Insurance coverage  | ##### In general                               |
| and utilization     |                                                |
| management          | -   [Wickline v State of                       |
| liability           |     California]{.underline} 239 Cal. Rptr. 810 |
|                     |     (Cal. App., 1986); pet. for rev. dismissed |
| -   Bad faith       |     741 P. 2d 613 (Cal., 1987): Under          |
|     breach of       |     California law, a health insurer can be    |
|     contract        |     held liable for the negligent design or    |
|                     |     administration of a utilization management |
| -   Fraud           |     scheme. However, the insurer's negligence  |
|                     |     will not excuse a health professional from |
| -   Breach of good  |     liability where the professional           |
|     faith and fair  |     negligently fails to intervene when the    |
|     dealing         |     insurer withholds or terminates coverage   |
|                     |     in a manner that is inconsistent with      |
|                     |     professional standards.                    |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [McEvoy v Group Health Cooperative of Eau  |
|                     |     Claire]{.underline} 570 N.W. 2d 397 (Wis., |
|                     |     1997): \* Under Wisconsin law an HMO like  |
|                     |     other insurers may be liable for bad faith |
|                     |     breach of contract for a plan's refusal to |
|                     |     authorize out of network services for a    |
|                     |     patient whose mental illness could not be  |
|                     |     competently treated by an in-network       |
|                     |     provider.                                  |
|                     |                                                |
|                     | -   [Wohlers v Bartgis]{.underline} 969 P. 2d  |
|                     |     949 (1999): An insurer who misrepresents   |
|                     |     and misleads members through deceptive     |
|                     |     description of covered services may be     |
|                     |     liable under Nevada law for bad faith      |
|                     |     breach of contract and breach of good      |
|                     |     faith and fair dealing.                    |
+---------------------+------------------------------------------------+
| ERISA               | ##### Breach of fiduciary duty                 |
|                     |                                                |
| -   Coverage design | -   [Pegram v Herdrich:]{.underline} HMOs that |
|     limits          |     build incentive plans into their design do |
|                     |     not breach their fiduciary duty under      |
| -   Claims for      |     ERISA, since the use of incentive plans is |
|     covered         |     simply a matter of plan design; however,   |
|     benefits        |     claims alleging professional medical       |
|                     |     negligence in health care decision-making  |
| -   Breach of       |     by an HMO physician are actionable under   |
|     fiduciary duty  |     state law.                                 |
|                     |                                                |
|                     | -   [Shea v Esensten]{.underline} 208 F. 3d    |
|                     |     712; cert. den. 121 S. Ct. 172 (2000) :    |
|                     |     Failure to disclose the terms of a         |
|                     |     physician incentive plan constitutes a     |
|                     |     breach of fiduciary duty under ERISA where |
|                     |     the information was potentially material   |
|                     |     to a decedent's decision not to seek a     |
|                     |     second opinion regarding the need for      |
|                     |     heart surgery.                             |
|                     |                                                |
|                     | ##### Claims for covered benefits              |
|                     |                                                |
|                     | -   [Andrews Clarke v Fallon Health            |
|                     |     Plan]{.underline} 984 F. Supp. 49 (D.      |
|                     |     Mass, 1998):\* Where the facts of a        |
|                     |     wrongful death action against a health     |
|                     |     plan for the denial of coverage leading to |
|                     |     a suicide on the part of a patient with    |
|                     |     mental illness and an addiction disorder   |
|                     |     show that the action is predicated on the  |
|                     |     denial of coverage rather than the quality |
|                     |     of covered care, state law remedies are    |
|                     |     preempted under ERISA.                     |
|                     |                                                |
|                     | -   [Bedrick v Travelers Insurance             |
|                     |     Co.]{.underline} 93 F 3d 149 (4^th^ Cir.,  |
|                     |     1996): where coverage is denied on medical |
|                     |     necessity grounds, the denial can be       |
|                     |     considered an abuse of discretion under    |
|                     |     ERISA if it lacks an evidentiary basis.    |
|                     |     ERISA provides courts with the power to    |
|                     |     independently construe the terms of a      |
|                     |     coverage agreement when deciding a         |
|                     |     coverage case.                             |
|                     |                                                |
|                     | ##### Coverage design                          |
|                     |                                                |
|                     | -   [Jones v Kodak]{.underline} 169 F. 3d 1287 |
|                     |     (10^th^ Cir., 1999):\* When practice       |
|                     |     guidelines are incorporated directly into  |
|                     |     the terms of the contract, the guidelines  |
|                     |     limit coverage on a conclusive basis and   |
|                     |     as a matter of plan design, and a court is |
|                     |     without the authority to hear a medical    |
|                     |     necessity based challenge.                 |
+---------------------+------------------------------------------------+
| RICO                | -   [Maio v Aetna]{.underline} 221 F 3d 472    |
|                     |     (3d Cir., 2000): Failure to provide        |
|                     |     services in accordance with claims in      |
|                     |     member information materials does not      |
|                     |     constitute a racketeering violation under  |
|                     |     RICO                                       |
+---------------------+------------------------------------------------+

\* Indicates that the case involves a patient with mental illness or
addiction disorder-related condition.

#### Table 2. Relevant Legal Claims Brought Against Medicaid Agencies: Leading Cases

+---------------------+------------------------------------------------+
| Type of Claim       | Leading Cases(\*)                              |
+=====================+================================================+
| Constitutional due  | -   [J.K. v Dillenberg]{.underline} 836 F.     |
| process             |     Supp. 694 (D. Ariz., 1993) :\* Reduction   |
| (beneficiaries)     |     or termination of care to children with    |
|                     |     severe mental illness constitutes the type |
|                     |     of action that triggers constitutional due |
|                     |     process protections under Medicaid,        |
|                     |     including timely and adequate notice and a |
|                     |     pre-termination hearing; HMOs are agents   |
|                     |     of the state and their actions thus        |
|                     |     constitute state action.                   |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [Daniels v Wadley]{.underline} 926 F.      |
|                     |     Supp. 1305 (M.D. Tenn., 1996); vac. in     |
|                     |     part, 145 F. 3d. 1330 (6^th^ Cir., 1997):  |
|                     |     Accord, Dillenberg                         |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [Rodriguez v Chen]{.underline}             |
|                     |     CV-95-Tuc-RMB (D. Ariz., 1996): Accord,    |
|                     |     Dillenberg                                 |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [Perry v Chen]{.underline} CV              |
|                     |     95-140-Tuc-RMB \[reprinted at } CCH        |
|                     |     Medicare/Medicaid Guide para. 44,044:      |
|                     |     Accord, Dillenberg                         |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [Catanzano v Wing]{.underline} 992 F.      |
|                     |     Supp. 593 (S.D. N.Y., 1998): Accord        |
|                     |     Dillenberg (case involves home health      |
|                     |     care)                                      |
+---------------------+------------------------------------------------+
| Constitutional and  | -   [MedCare HMO v Bradley]{.underline} 788 F. |
| statutory due       |     Supp. 1460 (N.D. Ill., 1992): Failure of a |
| process in          |     state agency to give an allegedly          |
| selection and       |     non-performing HMO timely notice and a     |
| de-selection (MCOs) |     pre-contract termination hearing           |
|                     |     constitutes a Constitutional due process   |
|                     |     violation and state may be enjoined from   |
|                     |     allowing members to disenroll.             |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [Medco Behaivoral Care Corp. v Iowa        |
|                     |     Department of Human Services]{.underline}  |
|                     |     553N.W. 2d 356 (1996)[:]{.underline}\*     |
|                     |     State procurement laws are violated when a |
|                     |     state Medicaid agency awards a managed     |
|                     |     care contract to an entity whose           |
|                     |     subsidiary designed the state's RFP.       |
|                     |                                                |
|                     | ```{=html}                                     |
|                     | <!-- -->                                       |
|                     | ```                                            |
|                     | -   [Value Behavioral Health v Ohio Department |
|                     |     of Mental Health]{.underline} 966 F. Supp. |
|                     |     557 (S.D. Ohio, 1997)\* Federal grants and |
|                     |     contract regulations create a federal      |
|                     |     right of action in the case of HMOs who    |
|                     |     allege that a state's competitive          |
|                     |     contracting practices allegedly violate    |
|                     |     federal standards                          |
+---------------------+------------------------------------------------+
| Coverage design     | -   [Rodriguez v City of New York]{.underline} |
|                     |     197 F. 3d 611(2d Cir., 1999); cert. den.   |
|                     |     148 L. Ed. 2d 104 (2000):\* Across the     |
|                     |     board state plan limitations on the range  |
|                     |     of procedures covered under an optional    |
|                     |     class of Medicaid benefits are lawful,     |
|                     |     even where the coverage limitations apply  |
|                     |     to a specific diagnosis (in this case      |
|                     |     mental illness), because states are not    |
|                     |     obligated under federal law to cover all   |
|                     |     medically necessary procedures within a    |
|                     |     covered optional benefit class, as long as |
|                     |     limitations are reasonable; in addition,   |
|                     |     non-discrimination prohibition under       |
|                     |     federal Medicaid law applies only to       |
|                     |     required benefit classes.                  |
+---------------------+------------------------------------------------+
| Administration of   | -   [Frew v Gilbert]{.underline} 109 F. Supp.  |
| managed care        |     2d 579 (E.D. Tex. 2000):\* injunction      |
| obligations         |     against continuing state failure to ensure |
|                     |     adequate access to EPSDT services for      |
|                     |     Texas children, including children         |
|                     |     enrolled in the state's managed care       |
|                     |     system. Children with mental illness       |
|                     |     identified as particularly underserved.    |
+---------------------+------------------------------------------------+
| ADA/Section 504     | -   [Rodriguez v City of New York]{.underline} |
|                     |     197 F. 3d 611(2d Cir., 1999); cert. den.   |
|                     |     148 L. Ed. 2d 104 (2000):\* Across the     |
|                     |     board state plan limitations on a covered  |
|                     |     optional benefit that are tied to a        |
|                     |     specific condition (in this case, mental   |
|                     |     illness) do not violate the ADA, because   |
|                     |     they are part of the plan design and thus  |
|                     |     apply equally to all beneficiaries.        |
+---------------------+------------------------------------------------+
| Practice guidelines | -   [Massachusetts Eye and Ear Infirmary v     |
|                     |     Commissioner, Div. Of Medical              |
|                     |     Assistance]{.underline} 705 N.E. 2d 592    |
|                     |     (Mass., 1999): Because Medicaid prohibits  |
|                     |     arbitrary limitations on covered services, |
|                     |     a state may not use medical practice       |
|                     |     guidelines as irrebuttable evidence of     |
|                     |     coverage and must take individual medical  |
|                     |     circumstances into account.                |
+---------------------+------------------------------------------------+

\* Signifies a case involving mental illness or addiction disorder

#### Table 3. Legal Claims Against Managed Care Organizations by Health Care Providers

+--------------------------+-------------------------------------------+
| Type of Claim            | Case                                      |
+--------------------------+-------------------------------------------+
| Selection and            | -   [Stuart Circle v Aetna Health         |
| de-selection             |     Management]{.underline} 995 F. 2d 500 |
|                          |     (4^th^ Cir., 1993); cert. den. 510    |
|                          |     U.S. 1003 (1993): Virginia "any       |
|                          |     willing provider" statute regulating  |
|                          |     PPO products offered by insurers      |
|                          |     constitutes a law that regulates      |
|                          |     insurance and is not preempted by     |
|                          |     ERISA.                                |
|                          |                                           |
|                          | -   [Washington Physician Services        |
|                          |     Association v Gregoire]{.underline}   |
|                          |     147 F. 3d 1039 (9^th^ Cir., 1998);    |
|                          |     cert. den. 119 S. Ct. 1033 (1999):    |
|                          |     Washington State law prohibiting      |
|                          |     health insurance carriers from        |
|                          |     discriminating among classes of       |
|                          |     qualified health professionals in     |
|                          |     coverage policies constitutes a law   |
|                          |     that regulates insurance and thus is  |
|                          |     not preempted under ERISA in the case |
|                          |     of insured plans.                     |
|                          |                                           |
|                          | -   [Harper v Healthsource of New         |
|                          |     Hampshire]{.underline} 674 A. 2d 962  |
|                          |     (N.H. 1996): while not void for       |
|                          |     public policy, an "at will"           |
|                          |     termination clause in a managed care  |
|                          |     provider contract is unenforceable    |
|                          |     under New Hampshire state insurance   |
|                          |     law requiring minimum fair procedure  |
|                          |     standards in provider selection and   |
|                          |     de-selection.                         |
|                          |                                           |
|                          | -   [Potvin v Metropolitan Life Insurance |
|                          |     Co]{.underline}. 997 P. 2d            |
|                          |     1153 (2000) :In light of the          |
|                          |     substantial power to affect           |
|                          |     livelihood that insurers maintain     |
|                          |     over health professionals, California |
|                          |     common law recognizes a right to fair |
|                          |     procedure and makes invalid as a      |
|                          |     matter of public policy a contract at |
|                          |     will clause.                          |
+--------------------------+-------------------------------------------+
| ADA                      | ###### Zamora-Qu                          |
|                          | esada v Humana Health Plans (see Table 1) |
| -   Discrimination       |                                           |
|     against providers    |                                           |
|     who treat patients   |                                           |
|     with disabilities    |                                           |
|                          |                                           |
| ```{=html}               |                                           |
| <!-- -->                 |                                           |
| ```                      |                                           |
| -   Discrimination       |                                           |
|     against providers    |                                           |
|     with disabilities    |                                           |
+--------------------------+-------------------------------------------+