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Jones v. Chicago HMO Ltd. of Illinois

November 12, 1998





Given the expanding role of managed health care the issues raised in this medical negligence lawsuit were bound to reach the courts.

Sheila Jones (Jones), individually and as mother of Shawndale Jones (Shawndale), presents three separate legal theories in her effort to hold Chicago HMO liable for the negligent acts of one of its contract doctors. The trial court granted summary judgment to the defendant, rejecting all three theories. We agree there was no fact issue meriting a trial on two of those theories, but we find summary judgment was erroneously granted on a third.

Jones' second amended complaint against Chicago HMO consists of three counts. Count I is entitled "Institutional Negligence," another way of referring to independent corporate negligence. Count II is entitled "Vicarious Liability," and contends Chicago HMO, as principal, is liable for the negligent acts of its agent, Dr. Robert A. Jordan (Dr. Jordan). Count III, referred to as "Contract Liability," contends Chicago HMO breached its contractual obligations to the plaintiff.

Thus far, two Illinois decisions have dealt with the question of whether a health maintenance organization (HMO) may be held liable for the negligence of a contract physician.

The first was Raglin v. HMO Illinois, Inc., 230 Ill. App. 3d 642, 595 N.E.2d 153 (1992). The second was Petrovich v. Share Health Plan, 296 Ill. App. 3d 849, 696 N.E.2d 356 (1998), pet. for leave to appeal granted No. 85726 (October 6, 1998).

Both cases observed that a potential exists for HMOs to be held liable for medical malpractice under more than one theory. Raglin held, and Petrovich agreed, the theories include: "(1) vicarious liability on the basis of respondeat superior or ostensible agency; (2) corporate negligence based upon negligent selection and negligent control of the physician; and (3) corporate negligence based upon the corporation's independent acts of negligence, e.g., in the management of utilization control systems. Contract law might also be utilized to hold HMOs liable for malpractice based on breach of contract or breach of warranty." Raglin, 230 Ill. App. 3d at 646.

Accord Petrovich, 296 Ill. App. 3d at 855.

Raglin cited an article in the American Bar Association's Tort and Insurance Law Journal as the sole support for its summary of available theories. Petrovich cited Raglin. The only issues actually decided in those cases had to do with vicarious liability. Until now, no Illinois medical malpractice case has dealt with claims of HMO independent corporate negligence and breach of contract with covered patients.

Raglin and Petrovich stand for the proposition that while HMOs are not immune from civil prosecution for malpractice, some recognized legal theory must be satisfied before liability can attach.

With that background, we turn to the facts necessary for consideration of the issues in this case.


There are two contracts to examine in this case. One is the 1990 "AGREEMENT FOR FURNISHING HEALTH SERVICES" between Chicago HMO and the Illinois Department of Public Aid (IDPA) to provide health care services to Medicaid recipients ("Beneficiaries"). Jones, a Medicaid recipient, and her children fall under the agreement's definition of beneficiaries.

The second contract is the 1990 agreement between Chicago HMO and Dr. Jordan, the pediatrician charged with negligence in this case.

The preamble to the agreement between Chicago HMO and IDPA said: "[Chicago HMO] meets the State Plan definition of an HMO, namely that [Chicago HMO] *** is organized primarily for the purpose of providing health care services ***." The preamble continued: "[Chicago HMO] warrants that it is able to provide the medical care and services required under this Agreement in accordance with prevailing community standards, and is able to provide these services promptly, efficiently, and economically ***."

Article V of this agreement also described Chicago HMO's duties. In Article V, section (b), Chicago HMO agreed to "*** provide or arrange to have provided all covered services to all Beneficiaries under this Agreement." In Article V, section (m), Chicago HMO further agreed to "*** provide all Beneficiaries with medical care consistent with prevailing community standards ***" and to implement a quality control program in compliance with federal regulations. In Article V, section (n), Chicago HMO agreed to afford each Beneficiary a primary care physician (PCP) to supervise and coordinate medical care. Section (n) of the agreement provided: "There shall be at least one full-time equivalent, board eligible physician to every 1,200 [Beneficiaries], including one full-time equivalent, board certified primary care physician for each 2,000 [Beneficiaries]. *** There shall be *** one pediatrician for each 2,000 [Beneficiaries] under age 17."

Article V, section (q)(3) of the agreement said: "[Chicago HMO] shall remain responsible for the performance of the subcontractor [physicians]." Article IX, section (l) of the agreement said: "The relationship of [Chicago HMO] to the [IDPA] arising out of this Agreement shall be that of an Independent Contractor."

A "MEDICAL SERVICE GROUP AGREEMENT" described the relationship between Chicago HMO and Dr. Jordan:

"The [HMO] and the [physician] are separate and independent entities, and each is an independent contractor. Neither party is the partner, agent or representative of the other; neither shall have any direction or control over the manner in which the other performs its services and functions; each is free to enter into contracts with other entities ***."

This agreement also listed Dr. Jordan's duties in detail. Dr. Jordan would provide to Chicago HMO subscribers specified medical services "*** of good quality and in accordance with accepted medical and hospital standards of the community;" maintain medical records "*** in such form as required by the medical director of [the HMO] and make these records available to the HMO for inspection; and "*** cooperate with and participate in the Quality Assurance and Utilization Review Programs of the [HMO] ***." Additionally, under a "PUBLIC AID AMENDMENT TO THE MEDICAL GROUP SERVICE AGREEMENT," Dr. Jordan agreed "*** to abide by any conditions imposed by the [HMO] as part of the [HMO's] agreement with the [IDPA]."

According to Dr. Jordan, Chicago HMO contract physicians would use their own medical judgment to decide on an HMO subscriber's course of treatment. However, under the agreement, this medical judgment was subject to review: if Chicago HMO disagreed with the physician about the medical necessity of certain treatment, an independent review physician, jointly selected by the subscriber, the contract physician, and Chicago HMO would determine medical necessity.

In his deposition, Dr. Jordan testified Chicago HMO representatives would periodically visit his office to conduct audits. Chicago HMO's medical director (or "Vice President of Medical Affairs") Mitchell Trubitt (Trubitt) acknowledged in his deposition, "Part of our [Chicago HMO's] job is to review the quality of care given." Trubitt described Chicago HMO's "Total Quality Management Program" as "a new generation of our quality management program." Trubitt said, "*** the concept is that there is a more organized way of reviewing quality issues, of identifying potential issues and creating interventions to allow improvement." If a physician did not comply with the Conclusions of Chicago HMO's auditors, Trubitt said Chicago HMO could cancel the physician's contract.

Dr. Jordan testified Chicago HMO collected and allocated subscriber fees into different pools. Under the agreement, Chicago HMO would pay for Dr. Jordan's services from one of these pools by a monthly capitation system. The agreement detailed this system in an appendix: Dr. Jordan would receive a specified dollar amount for specified demographic groups per month, regardless of the services he rendered. For example, for each female patient under two years old, Dr. Jordan would receive $34.19 per month whether or not he treated these patients.

Dr. Jordan received additional compensation through a "medical incentive fund." Trubitt described the incentive fund in his deposition as a fund containing "premium revenues" which covered: "Inpatient hospital costs. And other items such as home health costs, durable medical equipment costs. There are a variety of items that were allocated to that fund." When a patient required hospitalization, Chicago HMO would pay those costs from this fund. Trubitt testified physicians would receive 60% of the remaining, unused balance of the fund at the end of each year.

Dr. Jordan testified he was the PCP for 3,000 Chicago HMO subscribers and he contracted with 20 other HMOs to provide medical care for 1,500 other patients. Trubitt testified Federal regulations limit HMO pediatricians to 3,500 patients. In 1990, Chicago HMO's records indicated Dr. Jordan was PCP for 4,527 Chicago HMO subscribers.

Jones testified in her deposition she did not pursue Chicago HMO to provide her medical care. Instead, in 1986, she received a house call in Park Forest from a Chicago HMO representative. According to Jones, the Chicago HMO representative: "*** was telling me what it [managed care] was all about, that [Chicago] HMO is better than a regular medical card and everything so I am just listening to him and signing my name and stuff on the papers. * * *I asked him what kind of benefits you get out of it and stuff, and he was telling me that it is better than a regular [Medicaid] card."

The "HMO ENROLLMENT UNDERSTANDING" signed by Jones in 1987 provided, "I [Jones] understand that all my medical care will be provided through the Health ...

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