Managed care organizations can be held liable for physicians' care

Managed care organizations need to be aware that the actions of their providers can cost their reputation and their bottom line

The following article was originally published on the Credentialing Resource Center on October 30, 2017.

Legal cases have significantly affected how health plans operate with regard to their credentialing practices. There are several ways in which managed care organizations can be held liable for their actions or for the actions of their providers related to the care received by members.

Take for example the 1998 court case, Boyd v. Albert Einstein Medical Center, Health Maintenance Organization of Pennsylvania, Dr. Rosenthal, Dr. Dornstein and Dr. Cohen (Surgeon) 547 A.2d 1229. Chardella Boyd  underwent a breast biopsy during which the chest wall was perforated, causing a hemothorax, and requiring two days of hospitalization. Over the next several weeks, the patient experienced chest pain and other symptoms that were treated by both her surgeon and primary care physicians. Her condition worsened, and Mrs. Boyd subsequently died as a result of a myocardial infarction.

A Pennsylvania Superior Court found that the health maintenance organizatoin (HMO) was negligent for not overseeing the physicians and hospital that were acting as its agents (or employees) when providing medical care. This was based on the theory of ostensible or apparent agency, meaning that the HMO was responsible or liable for another because of the appearance of control. This decision was based on the fact that the HMO advertised that it evaluated physician competency and based on documents it provided to its members, in which it identified itself as the care provider and guaranteed the quality of care.

Another example is Harrell v. Total Health Care, Inc. 781 S.W. 2d 58 (Mo. 1989). Sara Westbrook Harrell underwent a surgical procedure and, due to complications, required further surgery. The physician, hospital, and Total Health Care were named in a lawsuit. It was discovered that the doctor had prior lawsuits and quality complaints on his record, including complaints to the state medical board; however, no privilege actions were taken by the hospital. It was proven that the HMO had not performed reasonable inquiries into the doctor’s competence, which would have uncovered the malpractice claims history.

This case determined that an HMO owes a duty to the patient to conduct a reasonable investigation of a physician’s credentials and reputation in the community. The corporate responsibility doctrine applies to managed care providers. Although it was ultimately held by the Missouri Supreme Court that Total Health Care was immune from liability due to an unrelated statute, it did uphold the theory of corporate liability.