Title: WALKER v. GROUP HEALTH SERVICES, INC.

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

WALKER v. GROUP HEALTH SERVICES, INC.  WALKER v. GROUP HEALTH SERVICES, INC. 2001 OK 2 37 P.3d 749 72 OBJ 147 Case Number: 94380 Decided: 01/16/2001 Modified: 04/23/2001 Mandate Issued: 04/26/2001 As Corrected: April 24, 2001 CYNTHIA A. WALKER, an individual, Appellant v. GROUP HEALTH SERVICES, INC., a corporation, d/b/a/ Blue Cross/Blue Shield of Oklahoma; and GHS HEALTH MAINTENANCE ORGANIZATION, INC., d/b/a BlueLincs HMO, Appellees APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY Honorable Carolyn R. Ricks, District Judge ¶0 The appellant, Cynthia A. Walker (Walker/insured) is a dependent insured under the Oklahoma State & Education Employees Group Insurance Plan with coverage through BlueLincs HMO. Walker sued the appellees, Group Health Services, Inc. and GHS Health Maintenance Organization, Inc., d/b/a BlueLincs HMO (collectively, insurer/HMO), for breach of the implied covenant of good faith and fair dealing in denying payment of medical expenses. Walker sought compensatory and punitive damages. The insurer filed a motion to dismiss for lack of subject matter jurisdiction because Walker had not exhausted the administrative procedures imposed by the State and Education Employees Group Insurance Act, 74 O.S. 1991 §1301, et seq. The trial judge, Honorable Carolyn R. Ricks, sustained the motion dismissing the cause on jurisdictional grounds. We hold that: 1) consistent with Cannon v. Lane, 1993 OK 40, ¶14, 867 P.2d 1235 , a state employee may sue a health maintenance organization for bad faith breach of the insurance contract; and 2) because pursuant to 74 O.S. Supp. 1999 §1303 (6) and OAC 360:1-5-1 (1997) the jurisdiction of the Grievance Panel is limited to matters involving the allowance and payments of claims, eligibility for coverage and provision of services, claims for breach of good faith are not subject to administrative exhaustion requirements. Therefore, under the facts presented - where the insured has received payment for disputed medical expenses - the exhaustion requirements of 74 O.S. Supp. 1999 §1306 (6) are inapplicable to a bad faith suit. REVERSED AND REMANDED. Steven S. Mansell, Mark A. Engel, Steven S. Ashmore, Oklahoma City, Oklahoma, for Appellant Harvey D. Ellis, Kevin D. Gordon, Tamela R. Hughlett, Oklahoma City, Oklahoma, for Appellees, Paul C. Duncan, for Amicus Curiae Kathy Austin, Oklahoma City, Oklahoma, Oklahoma State & Education Employees Group Insurance Board. KAUGER, J.: ¶1 We retained this cause to determine: 1) whether a health maintenance organization (HMO) 1Chief among the managed care delivery systems are health maintenance organizations (HMOs) similar to the insurer here. HMOs, like other risk-bearing organizations, endeavor to control costs. They do so by making coverage determinations, comparing requested services against contractual provisions. Pegram v. Herdrich, this note, supra. These new entities inject an intermediary between doctor and patient in setting medical care charges and in making payments. At the same time, the insurance industry offers administrative services to employers and contracts with doctors for services at set rates. Billions of dollars flow through these structures, generating equally large difficulties of governance and daily tensions between the quality and quantity of services provided. Corporate Health Ins., Inc. v. Texas Dept. of Ins., 215 F.3d 526, 530 (5th Cir. 2000), reh'g & reh'g en banc denied (July 27, 2000). may be liable to a state employee for bad faith breach of an insurance contract; and 2) whether, when an insured has received payment for disputed medical expenses, the requirements for exhaustion of administrative remedies of 74 O.S. Supp. 1999 §1306(6)2Because the present statutory scheme is identical to the 1996 version except to the extent that there is a difference in numbering within the section itself, references are to the current provisions of the statute. and OAC 360:1-5-1(1997)3 extend to claims for bad faith.4 Consistent with Cannon v. Lane, 1993 OK 40, ¶14, 867 P.2d 1235 , we hold that a state employee may sue a health maintenance organization for bad faith breach of the insurance contract. Therefore, claims for bad faith are not subject to administrative exhaustion requirements. Although matters involving the allowance and payment of claims, eligibility for coverage and provision of services are within the initial consideration of the Grievance Panel pursuant to 74 O.S. Supp. 1999 §1303(6) and OAC 360:1-5-1 (1997), its province does not extend to issues concerning bad faith breach of an insurance contract. Under the facts presented, where the insured has received payment for contested medical services, we determine that the exhaustion requirements of 74 O.S. Supp. 1999 §1306(6) do not apply to an action for breach of good faith.5 FACTS ¶2 Appellant, Cynthia Walker, alleges that the appellees, Group Health Services, Inc. and GHS Health Maintenance Organization d/b/a BlueLincs HMO (collectively, insurer/HMO),6 contracted with the State of Oklahoma to provide insurance coverage to state employees and their dependents. The appellant, Cynthia A. Walker (Walker/insured), was a member of the HMO as a dependent of her husband under the State and Education Employees Group Insurance Act [Group Insurance Act], 74 O.S. 1991 §1301, et seq. Walker is an employee of an elementary school. ¶3 On November 12, 1996, Walker became ill and lost consciousness at work. The school principal called an ambulance which transported Walker to the emergency room.7Except to the extent that the instant cause becomes the settled law of the case, the parties are entitled to introduce additional evidence, supplement the pleadings and expand the issues on remand. Parker v. Elam, 1992 OK 32, ¶13, 829 P.2d 677 . See also, Robert L. Wheeler, Inc. v. Scott, 1991 OK 95, ¶8, 818 P.2d 475 . Because Walker's primary physician had not authorized the treatment and because the HMO determined that the services were not rendered for an emergency or life-threatening condition, the insurer denied benefits. ¶4 Walker wrote the HMO on April 27, 1997, requesting that it reconsider her claim for benefits. Under the provisions of the HMO's member handbook, the insurer should have responded within 30 days.8 However, the record indicates that it was more than three months later, on August 14, 1997, when the HMO upheld the original denial. In that letter, Walker was told that she could appeal the decision in writing to the BlueLincs Grievance Committee pursuant to her member services manual. Although Walker indicates that the denial was appealed, there is nothing in the record to demonstrate that she actually completed the HMO's internal grievance procedures, and she readily admits that she did not institute a grievance pursuant to 74 O.S. Supp. 1999 §1306(6).9 Rather, she hired an attorney who wrote the HMO on September 8, 1997, requesting information necessary to file an appeal with the insurer.10 ¶6 On November 24, 1997, Walker received notification that payment had been made for the contested medical expenses. Thereafter, on June 10, 1998, in her first amended petition, Walker filed suit in district court for breach of the implied covenant of good faith and fair dealing. Alleging that Walker had not exhausted administrative procedures imposed by the insurance contract and by the Group Insurance Act, the HMO filed a suggestion for dismissal and/or motion to dismiss for lack of subject matter jurisdiction on July 30, 1999. The trial judge, Honorable Carolyn R. Ricks, sustained the motion on February 16, 2000, dismissing the cause on jurisdictional grounds. We retained the cause on March 19, 2000. The amicus curiae, ¶7 Although managed care systems have been with us for many years, the systems, and HMOs in particular, have recently been the subject of legal developments in the nation's courts and legislative bodies. Just this session, the United States Supreme Court was presented with three cases dealing with HMOs. In Pegram v. Herdrich, 2000 WL 743301 (June 12, 2000), ___ U.S. ___, ___ S.Ct. ___, ___ L.Ed.2d ___ (2000), the Supreme Court held that mixed treatment and eligibility decisions made by HMO physicians were not fiduciary decisions under the Employee Retirement Income Security Act of 1974 (ERISA). In so doing, it upheld dismissal of a federal suit against the HMO but did not bar state law claims of malpractice.13 The Court also determined that patients could not use federal law to sue HMOs for giving doctors a financial incentive to cut treatment costs.14 ¶8 In Pappas v. Asbel, 724 A.2d 889 (Pa. 2000), the Pennsylvania Supreme Court held that ERISA did not preempt state tort law claims brought against an HMO. Pappas alleged that the HMO was negligent in refusing approval of his transfer to a facility specifically identified as necessary to address a neurological emergency resulting in his becoming a quadriplegic. The United States Supreme Court granted certiorari in the cause and remanded it to the Pennsylvania Court for consideration in light of Pegram.15 ¶9 The third cause, United States Healthcare, Inc. v. Bauman, 193 F.3d 151, 163 (3rdCir. 1999), involved claims of inadequate care offered to an infant immediately following birth. The Third Circuit determined that federal law did not bar state law tort claims relating to quality of care although lawsuits concerning erroneously withheld benefits were preempted. Without comment, the United States Supreme Court denied certiorari16 in the cause on the same day that Pappas was remanded. ¶10 The 106th Congress has struggled with bills providing limited new patient protections, including a restricted right to sue HMOs. Although the Senate voted to incorporate proposed House guarantees on June 22, 2000, it has since indefinitely postponed consideration of the measure.17 Most recently, the President has advised the nation of orders he is issuing to the United States Department of Labor to promulgate rules providing a fair and unbiased process for patients to appeal when coverage is denied or delayed.18 ¶11 The Oklahoma Legislature passed the Managed Health Care Reform and Accountability Act (Managed Health Care Act), 36 O.S. Supp. 2000 §6591, et seq.19 on April 24, 2000, which became law on April 28th after being signed by the Governor.20 Although all parties agree that the legislation is inapplicable here,21 it is instructive to note that the Managed Health Care Act imposes a duty on HMOs to exercise ordinary care when making health care treatment decisions and imposes liability for damages caused to an HMO member by the duty's breach.22 Here, issues of provision of care are not presented making the Managed Health Care Act applicable. Nevertheless, where the Managed Health Care Act applies, HMOs may be sued once the enrollee has exhausted appeal and review processes available under the insurer's plan and those provided by the Oklahoma Managed Care External Review Act, 63 O.S. Supp. 2000 §2528.1 et seq.23 I. ¶12 CONSISTENT WITH CANNON V. LANE, A STATE EMPLOYEE MAY MAINTAIN A CAUSE OF ACTION FOR BAD FAITH AGAINST A HEALTH MAINTENANCE ORGANIZATION. ¶13 Walker relies on Cannon v. Lane, 1993 OK 40, ¶14, 867 P.2d 1235 for the proposition that state employees may bring bad faith actions against their HMOs. Although the insurer does not assert that Walker's cause of action is abrogated by the Group Insurance Act, it does argue that the review process mandated in 74 O.S. Supp. 1999 §1306(6) militates against recognition of bad faith actions in the context of contracts negotiated under the Act. We disagree. ¶14 Cannon, like the situation here, involved a state employee's suit against an HMO for bad faith. Both the HMO in Cannon and the insurer here contracted with the state to provide medical care to state employees and their dependents. The issue in Cannon was whether the HMO was an insurance company within the meaning of the Uniform Arbitration Act, 15 O.S. §801 et seq. In Cannon, we discussed the similarities between HMOs and health insurance organizations finding that the contract between the employer, the State of Oklahoma and the HMO was a contract with reference to insurance. Determining that the HMO qualified as an insurance company under the Act, the Court held that the insurance contract was expressly excluded from the statutory provisions and invalidated the portion of the subscriber agreement purporting to bind the HMO member to compulsory arbitration. ¶15 We recognize that the Group Insurance Act and the exhaustion requirements of 74 O.S. Supp. 1999 §1306(6) were not at issue in Cannon. Nevertheless, this Court issued a writ prohibiting the trial court from enforcing the arbitration order, and the insured state employee was allowed to proceed with the bad faith action. The net result of Cannon was a recognition that state employees may bring tort actions against their HMOs.24 Consistent with that determination, we hold that a state employee may sue a health maintenance organization for bad faith breach of the insurance contract.25 ¶16 PURSUANT TO 74 O.S. Supp. 1999 §1303(6) AND OAC 360:1-5-1 (1997), THE AUTHORITY OF THE GRIEVANCE PANEL IS LIMITED TO MATTERS INVOLVING THE ALLOWANCE AND PAYMENT OF CLAIMS, ELIGIBILITY FOR COVERAGE AND PROVISION OF SERVICES. CLAIMS FOR BAD FAITH ARE NOT SUBJECT TO ADMINISTRATIVE EXHAUSTION REQUIREMENTS. THEREFORE, UNDER THE FACTS PRESENTED - WHERE THE INSURED HAS RECEIVED PAYMENT FOR DISPUTED MEDICAL EXPENSES - THE EXHAUSTION REQUIREMENTS OF §1306(6) DO NOT APPLY TO A BAD FAITH SUIT. ¶17 The insured contends that the exclusive grievance procedures contained in the Group Insurance Act are inapplicable to a tort action for bad faith breach of an insurance contract. Additionally, Walker maintains that because she has already been paid her insurance benefits, exhaustion would be futile. The HMO asserts that the mandatory exhaustion requirements of 74 O.S. Supp. 1999 §1306(6) are broad enough to encompass tort actions. Because Walker did not pursue administrative remedies, the insurer argues that the district court "lacked jurisdiction." ¶18 The insurer relies on Lincoln Income Life Ins. Co. v. Wood, 1976 OK 140, ¶6, 556 P.2d 1976 both for the proposition that administrative exhaustion is required before a state employee may make a claim against its insurer in district court and in support of the argument that the statutory exhaustion procedures are adequate to encompass claims for bad faith. In Lincoln, a state employee filed an action in district court to recover medical expenses and for damage to her reputation. The employee alleged that the insurer's agent assured her that her medical expenses would be covered under the group plan. After refusing to dismiss the cause, the trial court certified the question of whether exhaustion of administrative remedies was a prerequisite to proceeding in district court. The Lincoln court held that the statutory grievance procedure was sufficiently broad to determine the dispute concerning policy coverage and any representations made by the insurer's agent. The opinion does not comment on the insured's claim relating to her injured reputation. ¶19 We agree with the HMO that when coverage issues are the core of a claim, the Group Insurance Act and our decision in Lincoln require exhaustion of administrative remedies. However, one material fact distinguishes this cause from Lincoln. Here, the insured has received payment for the contested medical expenses. Lincoln applies to situations in which medical claims are unpaid. Nothing in the opinion mandates that bad faith issues must be subjected to the administrative review process. ¶20 A. Because it is unclear under 74 O.S. Supp. 1999 §1306(6) which issues are encompassed within the term "other matters," the statute is ambiguous and subject to construction. ¶21 The Legislature created the Group Insurance Board to administer and manage group insurance and flexible benefit plans for state employees and retirees. The Board has extensive responsibilities, including: 1) controlling the offered benefits; 2) determining the eligibility of employees and dependents for coverage; 3) overseeing the competitive bid process; 4) contracting with qualified HMOs; 5) hiring a claims manager; 6) instituting a claims process; and 7) overseeing payroll deductions.26 ¶22 Most important here, is the Board's duty to establish a grievance procedure and panel (Grievance Panel) to hold hearings regarding complaints of insured employees. Title 74 O.S. Supp. 1999 §1306(6) provides in pertinent part: "The State and Education Employees Group Insurance Board . . . shall have the following powers and duties: . . . 6. The establishment of a grievance procedure by which a three-member grievance panel shall act as an appeals body for complaints by insured employees regarding the allowance and payment of claims, eligibility, and other matters. . . . The grievance procedure provided by this paragraph shall be the exclusive remedy available to insured employees having complaints against the insurer. Such grievance procedure shall be subject to the Oklahoma Administrative Procedures Act, Section 250 et seq. of Title 75 of the Oklahoma Statutes including provisions thereof for review of agency decisions by the district court. . . ." [Emphasis added.] ¶23 The HMO stresses that the highlighted language is clear and unambiguous and that it is not subject to judicial interpretation.27 It argues that the Legislature's use of the mandatory term, "shall", makes it clear that all controversies between an insured and the insurer must be presented to the Grievance Panel before they may be appealed to the district court. The insurer emphasizes that the statutory language referring to the resolution of complaints involving the payment of claims, eligibility and "other matters" is sufficiently broad to cover allegations of bad faith. ¶24 In determining whether a statute applies to a given set of facts, we focus on legislative intent28 which controls statutory interpretation.29 Intent is ascertained from the whole act in light of its general purpose and objective30 considering relevant provisions together to give full force and effect to each.31 The Court presumes that the Legislature expressed its intent and that it intended what it expressed.32 Statutes are interpreted to attain that purpose and end33 championing the broad public policy purposes underlying them.34 Only where the legislative intent cannot be ascertained from the statutory language, i.e. in cases of ambiguity or conflict, are rules of statutory construction employed.35 ¶26 B. Through adoption of OAC 360: 1-5-1 (1997), the Insurance Board has limited the issues subject to administrative review. The matters falling within the province of the Grievance Panel include allowance and payment of claims, eligibility and provision of services. Bad faith claims do not fall within the province of the Grievance Panel. ¶27 The Legislature may delegate rule making authority to agencies, boards and commissions to facilitate the administration of legislative policy pursuant to the Administrative Procedures Act, 75 O.S. 1991 §250 et seq. ¶28 The agency rule tracks the language of §1306(6) in relation to the "allowance and payment of claims" and "eligibility." However, in place of the ambiguous term "other matters", the administrative rule uses the phrase "provision of services" - indicating an eligible member's entitlement to medical attention. Through the adoption of OAC 360:1-5-1 (1997), the Insurance Board construed the term "other matters" narrowly giving a specific definition to the generalized legislative reference, "other matters". The Insurance Board's utilization of the more specific term - provision of services - reflects no intent for tort claims to fall within the province of the Grievance Panel. ¶29 Statutory construction by agencies charged with the law's enforcement is given persuasive effect especially when made shortly after the statute's enactment. ¶30 C. The Legislature has acquiesced in the Insurance Board's narrow interpretation of 74 O.S. Supp. 1999 §1306(6). ¶31 In limiting the nature of the claims falling within its primary jurisdiction to those involving allowance and payment of claims, eligibility and provision of services, ¶34 D. Under the facts presented, where the insured has received payment for contested medical services, we determine that the exhaustion requirements of 74 O.S. Supp. 1999 §1306(6) are inapplicable to actions for bad faith. ¶35 Our determination that the Grievance Panel has no authority to determine actions in bad faith does not end the inquiry into the necessity of exhaustion of administrative remedies. On November 24, 1997, the HMO paid the contested medical expenses. Nevertheless, the insurer contends that payment is insufficient to support a finding of liability under the contract. It argues that even if the Grievance Panel cannot award damages consistent with a bad faith claim, exhaustion of the administrative process is necessary to determine liability. Without this determination, the insurer asserts, there is no basis for a bad faith claim. Walker counters that pursuing administrative remedies to achieve a goal she has already acquired - payment for her medical expenses - would be so futile as to be excluded from the general requirement that exhaustion of administrative remedies are a prerequisite for resort to the courts. Under the facts presented, we agree. ¶36 The HMO finds support for the necessity of exhausting the underlying coverage issue before the Grievance Panel in the doctrine of primary jurisdiction. ¶37 Essentially, the HMO asserts that only the Grievance Panel has the authority to determine liability for the medical expenses incurred and that such a finding is a pre-requisite to Walker's bad faith action. Under the insurer's analysis, Walker cannot proceed in district court because the Grievance Panel has not made a coverage determination. In making the argument, the HMO insists that payment of the medical expenses should not be construed as an admission of liability. We agree that the mere payment of the disputed medical expenses is insufficient for a determination of contractual liability. After receiving the letter from Walker's attorney, the insurer may well have decided that settling the cause would be preferable to incurring further expenses in its defense. ¶38 Generally, exhaustion of administrative remedies is a prerequisite to resort to the courts. ¶40 Under Lincoln Income Life Ins. Co. v. Wood, it is unquestioned that the Grievance Panel has exclusive initial authority to determine an insured's right to receive payment for contested medical expenses. Nevertheless, Walker has no claim which would make the administrative remedy appropriate to resolution of the bad faith action. Having previously received payment for her insurance claim, she has nothing to litigate before the Grievance Panel. Pursuant to our reasoning in Lone Star, supra, the inability of the Insurance Board to award the relief sought makes the exhaustion doctrine inapplicable. Our determination that Walker's bad faith action is not cognizable by the Grievance Panel coupled with the fact that she has previously been paid for her medical expenses prohibits invocation of the exhaustion of remedies doctrine. ¶41 If in the course of post-remand proceedings the trial court should conclude that the controversy over the amount of benefits due the insured remains unsettled and be requested that the doctrine of primary jurisdiction be invoked to allow some issues in this case, which are within the agency's authority and expertise, to be resolved there, today's pronouncement would pose no barrier to the lower court's exercise of sound discretion in its ordered deference to an agency's determination of some issues that are within the limits of the latter's statutory powers. CONCLUSION ¶42 Our determination that exhaustion is excused in the instant cause should not be read to undermine the primary authority of the Grievance Panel to address causes when payment for medical expenses remain at issue. In such situations, the holding of Lincoln Income Life Ins. Co. v. Wood, 1976 OK 140, ¶6, 556 P.2d 602 applies - state employees with outstanding medical claims must exhaust the applicable administrative remedies before proceeding in district court. Nevertheless, exhaustion of administrative procedures is inapplicable here because: 1) the authorized administrative remedy is inadequate to vindicate a bad faith claim for breach of the insurance contract; 2) exhaustion of administrative remedies is a remedial rather than a jurisdictional concept; and 3) resort to the administrative remedy was rendered useless by the voluntary payment of insurance proceeds settling the amount in controversy. REVERSED AND REMANDED. ¶43 ALL JUSTICES CONCUR. FOOT