Opinion ID: 2602374
Heading Depth: 1
Heading Rank: 2

Heading: legal developments concerning health maintenance organizations and the health insurance industry.

Text: ¶ 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, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (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, 555 Pa. 342, 724 A.2d 889 (1998), 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, In re United States Healthcare, Inc., 193 F.3d 151, 163 (3rd Cir. 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 certiorari [16] 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]
¶ 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]