The Florida Legislature Expands HMO Immunity with Medical Malpractice “Reform”
By Theodore J. Leopold, Esq.
Last summer the Florida Legislature agreed to so-called medical malpractice “reform” with the passage of Chapter 2003-416. The legislation has garnered significant attention because of the new limitations it set for the recovery for non-economic damages in medical negligence cases. It generally provides that a plaintiff may recover no more than $500,000 in non-economic damages for a practitioner’s malpractice. This cap can be pierced only in cases where medical negligence resulted in death, a “permanent vegetative state,” or a “catastrophic” injury such as paralysis, or blindness. In these cases, a plaintiff may recover up to $1 million.
The law’s true colors are also evident in its very generous new grant of immunity to HMOs. Specifically, the law provides that an HMO cannot be held vicariously liable under an actual or apparent agency theory for a health provider’s negligence unless that provider is an HMO employee. This change is critical. HMOs routinely arrange and coordinate care for their members with third party providers who are not HMO employees. For example, HMOs often enter into provider contracts that designate a physicians’ group as “independent” contractors. Moreover, HMOs have the sole discretion to authorize coverage for the provision of medical services to their members. It is in this regard that HMOs have inserted themselves into the practice of medicine. Nonetheless, as an element of its so-called medical malpractice “reform,” the legislature has seen fit to statutorily absolve HMOs of any liability for the medical negligence of third party providers.
This move is a not-so-subtle attempt to overrule the Florida Supreme Court’s decision in Villazon v. Prudential Healthcare Plan, Inc., 843 So.2d 842. In that case, the court held that under Florida common law HMOs could be held vicariously for the medical negligence of a third party provider. The court also ruled that whether a third party was an HMO agent was a question of fact to be answered “depending on the totality of the circumstances.” This was bad news for HMOs, of course, because it tended to create a jury issue.
HMOs seem to have better luck with the Florida legislature, though, whom they’ve been able to convince that protecting them from seriously injured and positively furious consumers is a matter of vital public importance. This is not the first time it has happened. Even though HMOs are undeniably insurers, they have managed to wrangle themselves exemptions from many provisions of the Florida Insurance Code -- most critically Fla. Stat. §§ 624.155 and 626.9541, which permit insureds to sue their insurers in tort for bad faith. Now, under the guise of a bill that is supposed to protect patients and aid doctors, HMOs have secured yet another ground of undeserved immunity.
There is no doubt that the new law will limit HMOs’ liability and thereby increase their already growing profits. If upheld, it will almost certainly preclude medical malpractice suits against HMOs for the negligence of a non-employee provider. This is especially troubling given that HMOs are already extremely difficult to hold accountable for their tortious conduct because of the preemptive effect of the Employee Retirement Income Security Act of 1974 (“ERISA”).
ERISA applies to all private, employee-based benefit plans, including health care plans provided by HMOs, and has been held to preempt any claim “relating to any employee benefit plan.” Stern v. IBM Corp., 326 F.3d 1367, 1370 (11th Cir. 2003); see also 29 U.S.C. §1144(a). This construction has been applied to preempt virtually all state law causes of action, including fraud, misrepresentation, and breach of contract claims. See Variety Children’s Hosp., Inc. v. Century Medical Health Plan, Inc., 57 F.3d 1040, 1042 (11th Cir. 1995)(holding that ERISA preempts “state law claims of fraud and misrepresentation [that] are based upon the failure of a covered plan to pay benefits”); Swerhun v. Guardian Life Ins. Co., 979 F.2d 195, 198 (11th Cir. 1992) (“We have consistently held that ERISA preempts state law breach of contract claims.”).
One notable exception to this general rule has been claims for medical negligence. Courts throughout the country have held that ERISA does not preempt actions against HMOs based on the negligent provision of medical services to member patients. In Villazon, the Florida Supreme Court recognized that this exception encompasses allegations of both direct and vicarious liability. Villazon, 843 So.2d at 848.
With its statutory attempt to overrule Villazon, the Florida legislature has taken a significant step in the wrong direction. It has cast its vote with the corporate, profit-centered interests of big insurance over the rights and interests of injured patients. HMO members in Florida can only hope that this law is undone or overturned by wiser legislators or judges.
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