Pennsylvania sets stage for more HMO liability

Physician quality more important than ever

A recent Pennsylvania appeals court ruling could lead to more malpractice lawsuits against HMOs when physicians in their networks are negligent.

An Oct. 5, 1998, decision in Shannon v. McNulty, MD, and HealthAmerica Pennsylvania said Pittsburgh-based HMO HealthAmerica Pennsylvania could be sued for medical malpractice because it had corporate liability in the death of the premature son of Mario Shannon and Sheena Shannon.

"That has substantial implications for managed care companies," says Charles Artz, a health care law attorney and principal of Artz and Associates in Harrisburg, PA. Artz primarily represents physicians.

The decision means HMOs have a responsibility to recruit and ensure the quality of physicians who contract with them because they may be held responsible if the physicians are negligent, Artz says, adding that this is a huge change from current malpractice decisions.

Pennsylvania courts in 1991 had opened the doors for hospitals to be held responsible under corporate liability in the case of Thompson v. Nason Hospital. In this case, the court said the injured party does not have to establish the negligence of a third party because the hospital owes nondelegable duty directly to the patient.1

The appeals court referred to the HealthAmerica decision, using the same four general areas of corporate liability. (See related story, p. 179.)

The Oct. 5 decision also held HealthAmerica responsible under vicarious liability because Shannon had called the HMO’s nurse employees on a telephone triage line for medical guidance, and they gave her bad advice. This part of the decision could affect all managed care organizations (MCOs) that have nurses on call or medical triage lines.

The HMO was hit twice by the decision, Artz says.

"Employers can be held liable for vicarious liability where they are responsible for their employees," he explains. "But corporate liability means they’re liable for what their independent contractors do."

The HealthAmerica decision could cause some profound changes in how HMOs deal with physicians, and some of these changes might be positive.

"I believe this ruling will make HMOs work with physicians on quality parameters. Utilization is part of quality," says Marc Schneiderman, MD, past president of the Pennsylvania Academy of Family Physicians in Harrisburg and president of the Allegheny Chapter of the Pennsylvania Academy of Family Physicians.

"No HMO wants patient care sacrificed," Schneiderman says. "But on a personal level, the HMOs are constantly bringing numbers to physicians saying that we over-refer, overutilize tests."

When HMOs show a physician these utilization numbers, the implication is that the physician should try to change his or her utilization patterns because the patterns are outside the norm in comparison to other physicians, Schneiderman says.

"When I ask them to show me the charts and show me where I can cut costs, they never do," he adds.

HMOs may be willing to delegate more risk to physicians if their liability stakes are higher, says Richard H. Sanders, a partner with Vedder, Price, Kaufman & Kammholz, a law firm with Chicago and New York offices.

"Insurers were trying to have it both ways: saying, We’re not delivering care, so we’re not liable,’ and still they were denying care to save money," Sanders says.

Sanders says he believes the HealthAmerica decision might give physicians increased leverage in HMO contracts to take back some responsibility for utilization management.

HMOs may find themselves increasingly at medical risk, as well as financial risk, and this could drive changes, Schneiderman says. "I think now their conferences with physicians will focus less on strict utilization and more on appropriate utilization for patients," he adds.

Another repercussion could be that HMOs will become more stringent in their physician credentialing.

"When corporate liability was imposed against hospitals, the hospitals began to look more closely at the guidance and advice of malpractice defense attorneys to work more efficiently at medical staff credentialing," Artz says. "The number of negative credentialing decisions increased, and I think you will see a similar result in the context of what MCOs euphemistically call deselection."

Sanders says this may be a result, but not necessarily a negative one as long as physicians are involved in the credentialing process. "The key for physicians is they’d rather be in a process where they have some say, and they’d rather be credentialed by themselves than by some insurance company," Sanders says.

So the question is: Will the Pennsylvania court decision become part of a nationwide trend, or is it a fluke?

"Other states certainly could go in that direction," Artz says.

He predicts the decision will be upheld by the Pennsylvania Supreme Court. "Our Supreme Court is the one who imposed corporate responsibility on hospitals," he says. "Do I think the court will impose corporate liability on HMOs? You betcha."


1. Mario L. Shannon and Sheena Evans Shannon, individually and as co-administrators of the estate of Evan Jon Shannon, appellants v. Larry P. McNulty, MD, and HealthAmerica Pennsylvania Inc., appellees; No. 940 Pittsburgh, Superior Court of Pennsylvania (Oct. 5, 1998).