Erisa Preemption of Medical Malpractice Claims: Can Managed Care Organizations Avoid Vicarious Liability?

• Publication year: 1999
• Citation: Vol. 22 No. 03

SEATTLE UNIVERSITY LAW REVIEWVolume 22, No. 4SPRING 1999

COMMENTS

ERISA Preemption of Medical Malpractice Claims: Can Managed Care Organizations Avoid Vicarious Liability?

J. Bradley Buckhalter(fn*)

I. Introduction

Joe Peterson, a friend of a friend, comes into your office one sunny afternoon to ask for your help in filing a lawsuit against his doctor for the problems arising out of his back surgery last fall. As Mr. Peterson tells his story, you begin to think that he might have a decent case.

Mr. Peterson suffered from chronic back pain for years before his surgery. Although Mr. Peterson's pain often made it difficult for him to work, his employers did not offer health benefits that would cover the necessary surgery. That changed last spring, when Mr. Peterson began working for ABC Corporation. ABC offered a comprehensive benefits package, including health insurance that covered Mr. Peterson's back surgery. The company that provided ABC's health plan, Consolidated Health Care, is a managed care organization (MCO) that provides healthcare directly to patients through its employee physicians and medical facilities. Mr. Peterson scheduled his surgery with Dr. Jones, one of Consolidated's employee physicians.

After undergoing surgery, Mr. Peterson found that his back pain drastically increased. Eventually, he found that he could work only for short periods of time. The pain forced Mr. Peterson to quit his job at ABC and he applied for and received disability benefits. He has not worked for six months.

After reviewing Mr. Peterson's medical records, you agree to accept his case. You file a medical malpractice action in county court, alleging that Dr. Jones failed to meet the standard of care in negligently performing Mr. Peterson's back surgery. You also name Consolidated Health Care as a codefendant, alleging that Dr. Jones was Consolidated's agent and that Consolidated is vicariously liable for Dr. Jones' negligence.

Shortly after filing the action against Dr. Jones and Consolidated, you receive in the mail a copy of Consolidated's notice removing Mr. Peterson's case to federal court. When you speak to Consolidated's counsel on the phone later that day, she informs you that Consolidated provided ABC's health coverage under an ERISA(fn1)-governed employee benefit plan. Under ERISA, she says, Consolidated can remove Mr. Peterson's claim to federal court and try the case before a federal judge, rather than a state court jury. What's more, she tells you, ERISA not only provides for federal court jurisdiction, but also preempts any claims that relate to an ERISA-governed employee benefit plan. You see what she's driving at even before she brings her point home: because Consolidated provides ABC's health coverage under an ERISA-governed employee benefit plan, Joe's claim against Consolidated relates to that benefit plan; therefore, ERISA preempts Joe's claim.

You hang up the telephone in a daze. You counted on a state court medical malpractice trial before a state court jury. You've never even been in the federal courthouse, much less argued before a federal judge. You look out the window into a gray day and wonder how you got yourself into this. More to the point, you wonder how you will get yourself, and your client, out.

This Comment addresses the dilemma in which practitioners, such as the one above, find themselves when faced with an ERISA preemption defense to a claim they thought was run-of-the-mill medical malpractice. As little as two years ago Consolidated's counsel may have been at least partly correct in arguing that ERISA preempted Mr. Peterson's claim. However, the Supreme Court decided a pair of ERISA preemption cases during its 1997 term(fn2) that may limit an ERISA preemption defense by an MCO. Under those decisions, medical malpractice claims alleging vicarious liability of MCOs for the negligence of an affiliated physician should no longer insulate MCOs from tort liability.

Section II of this Comment begins by briefly discussing the theory of respondeat superior and the vicarious liability of MCOs for the negligence of affiliated physicians.(fn3) Next, the section presents an overview of ERISA, focusing on ERISA's preemption of laws that impact employee benefit plans, particularly medical malpractice claims brought against MCOs seeking to hold them vicariously liable for an affiliated physician's negligence. Section III applies current ERISA preemption doctrine to a situation such as Peterson's, in which a plaintiff attempts to hold an MCO vicariously liable for an affiliated physician's negligence. Section IV concludes that, given the current state of ERISA preemption doctrine, MCOs should no longer be able to raise a successful ERISA preemption defense to a straightforward medical malpractice claim based on the MCO's vicarious liability for affiliated physician malpractice.

II. Background

A. Vicarious Liability of Managed Care Organizations

Although plaintiffs may attempt to hold MCOs liable for their healthcare-related injuries under numerous theories,(fn4) those who wish to hold an MCO liable for an affiliated physician's negligence generally proceed under one of two theories: respondeat superior or apparent/ostensible agency.(fn5) The employment relationship between the MCO and the affiliated physician dictates which theory the plaintiff chooses.

1. Respondeat Superior

Under the doctrine of respondeat superior, an employer will face liability for the negligence of an employee acting within the scope of his or her employment.(fn6) A plaintiff may prevail on a respondeat superior theory alleging that an MCO is vicariously liable for an affiliated physician's negligence in two situations.(fn7)

First, a plaintiff may attempt to hold an MCO vicariously liable for an affiliated physician's negligence under a respondeat superior theory where the MCO directly employs the physician.(fn8) Where the MCO directly employs the physician, the physician becomes part of the MCO's staff and a traditional employer-employee relationship exists.(fn9) Because an employer-employee relationship exists, the respondeat superior theory readily applies.

Second, a plaintiff may attempt to hold an MCO vicariously liable for an affiliated physician's negligence under a respondeat superior theory even if the MCO does not directly employ the physician.(fn10) To prevail on such a claim, the plaintiff must prove that the MCO occupied a position that allowed it to exercise control over the affiliated physician.(fn11) The more control that the MCO exercised over the affiliated physician, the more likely that the MCO will face liability under the respondeat superior theory.(fn12)

2. Apparent/Ostensible Agency

Even if the plaintiff cannot establish an employment relationship between the defendant MCO and the affiliated physician, he or she may still attempt to hold the MCO liable under an apparent, or ostensible, agency theory. Under such a theory, an MCO will face liability for the negligence of a nonemployee affiliated physician if: "(1) the MCO creates the appearance that the physician is in its employ or that it is actually providing healthcare services (as opposed to merely facilitating the provision of such services by others); and (2) a patient reasonably and detrimentally relies on that appearance."(fn13) Stated another way, a court will generally find that apparent or ostensible agency exists when (1) an MCO holds out the affiliated physician as its employee, and (2) a patient looks to the MCO, rather than the individual physician, for medical care.(fn14)

B. ERISA Preemption

1. ERISA Preemption Generally

Congress enacted ERISA in 1974 to establish uniform federal regulation of private employee benefit plans, including both pension and employee welfare plans.(fn15) ERISA defines "employee welfare plan" as "any 'plan, fund, or program' maintained for the purpose of providing medical or other health benefits for employees or their beneficiaries 'through the purchase of insurance or otherwise.' "(fn16)

Congress took several steps to ensure exclusive federal regulation of benefit plans. First, Congress included in the text of ERISA two preemption provisions that apply when state law claims impact an ERISA-governed employee benefit plan. One of the preemption provisions, which operates through the complete preemption doctrine, is in reality a provision for exclusive federal court jurisdiction over ERISA claims rather than a true "preemption" doctrine.(fn17) The other preemption provision, often referred to as "the defense of 'conflict preemption,'"(fn18) preempts state law that "relate[s] to any employee benefit plan" governed by ERISA.(fn19) Second, in its attempt to ensure exclusive federal regulation of benefit plans, Congress limited the remedies available to plaintiffs bringing claims for ERISA violations. The limited remedies appear in ERISA's civil enforcement provision, which provides solely equitable, rather than legal, remedies.(fn20)

a. Complete Preemption

To understand the doctrine of complete preemption, one must first understand the rudiments of federal question jurisdiction, the well-pleaded complaint rule, and the removal of a federal case or claim from state to federal court.(fn21)

Federal question jurisdiction exists when a case arises "under the Constitution, laws, or treaties of the United...