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Petrovich v. Share Health Plan of Illinois

September 30, 1999

WILLIAM PETROVICH, ADM'R OF THE ESTATE OF INGA PETROVICH, ET AL., APPELLEES, V. SHARE HEALTH PLAN OF ILLINOIS, INC., APPELLANT.


The opinion of the court was delivered by: Justice Bilandic

Agenda 14-May 1999.

The plaintiff brought this medical malpractice action against a physician and others for their alleged negligence in failing to diagnose her oral cancer in a timely manner. The plaintiff also named her health maintenance organization (HMO) as a defendant. The central issue here is whether the plaintiff's HMO may be held vicariously liable for the negligence of its independent-contractor physicians under agency law. The plaintiff contends that the HMO is vicariously liable under both the doctrines of apparent authority and implied authority.

The circuit court of Cook County awarded summary judgment in favor of the HMO, Share Health Plan of Illinois, Inc. (Share), and against the plaintiff, Inga Petrovich, as well as her husband and coplaintiff, Vukasin Petrovich. The circuit court held that Share cannot be held vicariously liable for the negligence of its physicians who are independent contractors. The plaintiffs appealed to the appellate court pursuant to Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)). The appellate court reversed and remanded for further proceedings. 296 Ill. App. 3d 849. We allowed Share's petition for leave to appeal (177 Ill. 2d R. 315) and now affirm the judgment of the appellate court. We hold that the plaintiff has presented sufficient evidence to entitle her to a trial on whether Share is vicariously liable under the doctrines of apparent and implied authority.

Four amicus curiae briefs were filed with the permission of this court. See 155 Ill. 2d R. 345. The Illinois Association of Health Maintenance Organizations filed a brief in support of Share. The Illinois Hospital & Healthsystems Association and the Metropolitan Chicago Healthcare Council filed a joint brief in support of Share. The Illinois Trial Lawyers Association filed a brief in support of the plaintiff. The Illinois State Medical Society, a physicians group, also filed a brief in support of the plaintiff.

The plaintiff died during the pendency of this appeal. Substituted in her place as appellee is William Petrovich, the administrator of her estate. For ease of Discussion, we refer to both the plaintiff and appellee as "plaintiff."

FACTS

In 1989, plaintiff's employer, the Chicago Federation of Musicians, provided health care coverage to all of its employees by selecting Share and enrolling its employees therein. Share is an HMO and pays only for medical care that is obtained within its network of physicians. In order to qualify for benefits, a Share member must select from the network a primary care physician who will provide that member's overall care and authorize referrals when necessary. Share gives its members a list of participating physicians from which to choose. Share has about 500 primary care physicians covering Share's service area, which includes the counties of Cook, Du Page, Lake, McHenry and Will. Plaintiff selected Dr. Marie Kowalski from Share's list, and began seeing Dr. Kowalski as her primary care physician in August of 1989. Dr. Kowalski was employed at a satellite facility of Illinois Masonic Medical Center (Illinois Masonic), which had a contract with Share to provide medical services to Share members.

In September of 1990, plaintiff saw Dr. Kowalski because she was experiencing persistent pain in the right sides of her mouth, tongue, throat and face. Plaintiff also complained of a foul mucus in her mouth. Dr. Kowalski referred plaintiff to two other physicians who had contracts with Share: Dr. Slavick, a neurologist, and Dr. Friedman, an ear, nose and throat specialist.

Plaintiff informed Dr. Friedman of her pain. Dr. Friedman observed redness or marked erythema alongside plaintiff's gums on the right side of her mouth. He recommended that plaintiff have a magnetic resonance imaging (MRI) test or a computed tomography (CT) scan performed on the base of her skull. According to plaintiff's testimony at her evidence deposition, Dr. Kowalski informed her that Share would not allow new tests as recommended by Dr. Friedman. Plaintiff did not consult with Share about the test refusals because she was not aware of Share's grievance procedure. Dr. Kowalski gave Dr. Friedman a copy of an old MRI test result at that time. The record offers no further information about this old MRI test.

Nonetheless, Dr. Kowalski later ordered an updated MRI of plaintiff's brain, which was performed on October 31, 1990. Inconsistent with Dr. Friedman's directions, however, this MRI failed to image the right base of the tongue area where redness existed. Plaintiff and Dr. Kowalski discussed the results of this MRI test on November 19, 1990, during a follow-up visit. Plaintiff testified that Dr. Kowalski told her that the MRI revealed no abnormality.

Plaintiff's pain persisted. In April or May of 1991, Dr. Kowalski again referred plaintiff to Dr. Friedman. This was plaintiff's third visit to Dr. Friedman. Dr. Friedman examined plaintiff and observed that plaintiff's tongue was tender. Also, plaintiff reported that she had a foul odor in her mouth and was experiencing discomfort. On June 7, 1991, Dr. Friedman performed multiple biopsies on the right side of the base of plaintiff's tongue and surrounding tissues. The biopsy results revealed squamous cell carcinoma, a cancer, in the base of plaintiff's tongue and the surrounding tissues of the pharynx. Later that month, Dr. Friedman operated on plaintiff to remove the cancer. He removed part of the base of plaintiff's tongue, and portions of her palate, pharynx and jaw bone. After the surgery, plaintiff underwent radiation treatments and rehabilitation.

Plaintiff subsequently brought this medical malpractice action against Share, Dr. Kowalski and others. Dr. Friedman was not named a party defendant. Plaintiff's complaint, though, alleges that both Drs. Kowalski and Friedman were negligent in failing to diagnose plaintiff's cancer in a timely manner, and that Share is vicariously liable for their negligence under agency principles. Share filed a motion for summary judgment, arguing that it cannot be held liable for the negligence of Drs. Kowalski or Friedman because they were acting as independent contractors in their treatment of plaintiff, not as Share's agents. Plaintiff countered that Share is not entitled to summary judgment because Drs. Kowalski and Friedman were Share's agents. The parties submitted various depositions, affidavits and exhibits in support of their respective positions.

Share is a for-profit corporation. At all relevant times, Share was organized as an "independent practice association-model" HMO under the Illinois Health Maintenance Organization Act (Ill. Rev. Stat. 1991, ch. 111½, par. 1401 et seq.). This means that Share is a financing entity that arranges and pays for health care by contracting with independent medical groups and practitioners. See Ill. Rev. Stat. 1991, ch. 111½, par. 1402(7). Share does not employ physicians directly, nor does it own, operate, maintain or supervise the offices where medical care is provided to its members. Rather, Share contracts with independent medical groups and physicians that have the facilities, equipment and professional skills necessary to render medical care. Physicians desiring to join Share's network are required to complete an application procedure and meet with Share's approval.

Share utilizes a method of compensation called "capitation" to pay its medical groups. Share also maintains a "quality assurance program." Share's capitation method of compensation and "quality assurance program" are more fully described later in this opinion.

Share provides a member handbook to each of its members, including plaintiff. The handbook states to its members that Share will provide "all your healthcare needs" and "comprehensive high quality services." The handbook also states that the primary care physician is "your health care manager" and "makes the decisions" about the member's care. The handbook further states that Share is a "good partner in sickness and in health." Unlike the master agreements and benefits contract discussed below, the member handbook which plaintiff received does not contain any provision that identifies Share physicians as independent contractors or nonemployees of Share. Rather, the handbook describes the physicians as "your Share physician," "Share physicians" and "our staff." Furthermore, Share refers to the physicians' offices as "Your Share physician's office" and states: "All of the Share staff and Medical Offices look forward to serving you ***."

Plaintiff confirmed that she received the member handbook. Plaintiff did not read the handbook in its entirety, but read portions of it as she needed the information. She relied on the information contained in the handbook while Drs. Kowalski and Friedman treated her.

The record also contains a "Health Care Services Master Agreement," entered into by Share and Illinois Masonic. Dr. Kowalski is a signatory of this agreement. The agreement states, "It is understood and agreed that [Illinois Masonic] and [primary care physicians] are independent contractors and not employees or agents of SHARE." A separate agreement between Share and Dr. Friedman contains similar language. Plaintiff did not receive these agreements.

Share's primary care physicians, under their agreements with Share, are required to approve patients' medical requests and make referrals to specialists. These physicians use Share's standard referral forms to indicate their approval of the referral. Dr. Kowalski testified at an evidence deposition that she did not feel constrained by Share in making medical decisions regarding her patients, including whether to order tests or make referrals to specialists.

Another document in the record is Share's benefits contract. The benefits contract contains a subscriber certificate. The subscriber certificate sets forth a member's rights and obligations with respect to Share. Additionally, the subscriber certificate states that Share's physicians are independent contractors and that "SHARE Plan Providers and Enrolling Groups are not agents or employees of SHARE nor is SHARE or any employee of SHARE an agent or employee of SHARE Plan Providers or Enrolling Groups." The certificate elaborates: "The relationship between a SHARE Plan Provider and any Member is that of provider and patient. The SHARE Plan Physician is solely responsible for the medical services provided to any Member. The SHARE Plan Hospital is solely responsible for the Hospital services provided to any Member."

Plaintiff testified that she did not recall receiving the subscriber certificate. In response, Share stated that Share customarily provides members with this information. Share does not claim to know whether Share actually provided plaintiff with this information. Plaintiff acknowledged that she received a "whole stack" of information from Share upon her enrollment.

Plaintiff was not aware of the type of relationship that her physicians had with Share. At the time she received treatment, plaintiff believed that her physicians were employees of Share.

In the circuit court, Share argued that it was entitled to summary judgment because the independent-contractor provision in the benefits contract established, as a matter of law, that Drs. Kowalski and Friedman were not acting as Share's agents in their treatment of plaintiff. The circuit court agreed and entered summary judgment for Share.

The appellate court reversed, holding that a genuine issue of material fact is presented as to whether plaintiff's treating physicians are Share's apparent agents. 296 Ill. App. 3d 849. The appellate court stated that a number of factors support plaintiff's apparent agency claim, including plaintiff's testimony, Share's member handbook, Share's quality assessment program and Share's capitation method of compensation. The appellate court therefore remanded the cause for trial. The appellate court did not address the theory of implied authority.

ANALYSIS

This appeal comes before us amidst great changes to the relationships among physicians, patients and those entities paying for medical care. Traditionally, physicians treated patients on demand, while insurers merely paid the physicians their fee for the services provided. Today, managed care organizations (MCOs) have stepped into the insurer's shoes, and often attempt to reduce the price and quantity of health care services provided to patients through a system of health care cost containment. MCOs may, for example, use prearranged fee structures for compensating physicians. MCOs may also use utilization-review procedures, which are procedures designed to determine whether the use and volume of particular health care services are appropriate. MCOs have developed in response to rapid increases in health care costs.

HMOs, i.e., health maintenance organizations, are a type of MCO. HMOs are subject to both state and federal laws. See generally 215 ILCS 125/1-1 et seq. (West 1998) (containing the Illinois Health Maintenance Organization Act); 42 U.S.C. §300e et seq. (West 1994 & Supp. 1997) (containing the federal Health Maintenance Organization Act of 1973). Under Illinois law, an HMO is defined as "any organization formed under the laws of this or another state to provide or arrange for one or more health care plans under a system which causes any part of the risk of health care delivery to be borne by the organization or its providers." Ill. Rev. Stat. 1991, ch. 111½, par. 1402(9), now 215 ILCS 125/1-2(9) (West 1998). Because HMOs may differ in their structures and the cost-containment practices that they employ, a court must discern the nature of the organization before it, where relevant to the issues. As earlier noted, Share is organized as an independent practice association (IPA)-model HMO. IPA-model HMOs are financing entities that arrange and pay for health care by contracting with independent medical groups and practitioners. See 215 ILCS 125/1-2(7) (West 1998).

This court has never addressed a question of whether an HMO may be held liable for medical malpractice. Share asserts that holding HMOs liable for medical malpractice will cause health care costs to increase and make health care inaccessible to large numbers of people. Share suggests that, with this consideration in mind, this court should impose only narrow, or limited, forms of liability on HMOs. We disagree with Share that the cost-containment role of HMOs entitles them to special consideration. The principle that organizations are accountable for their tortious actions and those of their agents is fundamental to our Justice system. There is no exception to this principle for HMOs. Moreover, HMO accountability is essential to counterbalance the HMO goal of cost-containment. To the extent that HMOs are profit-making entities, accountability is also needed to counterbalance the inherent drive to achieve a large and ever-increasing profit margin. Market forces alone "are insufficient to cure the deleterious [e]ffects of managed care on the health care ...


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