Health Administration Responsibility Project
Contract Theories of HMO liability

• Action is specifically allowed under ERISA 502(a)(1)(B) and equitable relief under ERISA 502(a)(3)(B)(i).
• Hughes v. Blue Cross of Northern Cal.
  BC didn't use CLINICAL standard to determine medical necessity.
  Punitives were allowed because: denial was NOT due just to poor judgement, but to a defective review process:

  • fragmentary medical records
  • cursory review of those records
  • purposeful application of a standard of medical necessity below established community standards
  • rooted in established company practice.
  • So in 'conscious disregard' of pt's rights.

  Fox v. HealthNet, Civ.No.219692 (Cal. , Riverside Cty. Sup. Ct., 12/28/93)

  Financial incentives for denying benefits (Marrow transplant for breast Ca)

  $77 million in punitive damages

  Claims:

  • Bad faith
  • Breach of Contract
  • negl. & inten. infliction of emotional distress

  D claimed it was Experimental, but had paid for others.

  Person who denied rx was paid by how much he saved.

• Contractual Care levels: Does the Contract expressly identify a lower level of care than provided by state tort law, or community standards?

• Is "investigational treatment" not covered?
  Specific procedures are not spelled out in the contracts.
  Definition is unilateral, ad hoc, and often self-serving.
  Nothing to prevent HMO classifying appendectomy as experimental.
  No procedure for external appeal.

  Taylor v. Blue Cross,1994.MI.382

  Ambiguity of the term "experimental" is to be construed against the Insurer.
  

  "In light of the medical testimony that HDC-ABMT is an effective form of therapy for breast cancer and that breast cancer patients who earnestly seek the treatment experience better prognoses than those who choose conventional treatments, we find that the trial court did not err in finding that HDC-ABMT is not experimental or research in nature and thus was not excluded by the policy. Accordingly, defendant was required to cover the costs of the treatment."

Factors

• Cal. Civ. Code 1670.5 = Com.Code 2-302 == R.2d Contr. 208
• from Comment (d) of R.2d Contr. 208
  • gross inequality of bargaining power
  • terms unreasonably favorable to stronger party
  • weaker party had no real alternative
  • did not in fact assent to unfair terms
• from Graham v. Scissor-Tail, 28 Cal 3d 807 (1981)
  • Must be contract of Adhesion, and
  • Standardised contract
  • Imposed & Drafted by stronger
  • Weaker can only adhere or reject it.
  • No bargaining possible.
  • Dean Witter Reynolds v. Sup.Ct,211 Cal.App.3d 758 (1989)
  • clause falls outside reasonable expectation of weaker, or
  • is unduly oppressive or unconscionable.
• A & M Produce v. FMC Corp., 135 Cal. App. 3d 473 (1982)
  Procedural Unconscionability, (the bargaining process)

  • Oppression
    inequality of bargaining power
    absence of meaningful choice

    Surprise

    Terms hidden in prolix printed form drafted by stronger
  Substantive Unconscionability,(actual terms of agreement)
  Risks reallocated in unreasonable or unexpected manner.

  Calif. Grocers v. Bank of America, ?? Cal. App. 4th 205 (1994) "shocks the conscience"

• St. Charles v. Kender, 38 Mass. App. Ct. 155 (1995)
  • Doctor didn't return calls for 2 days. Plaintiff had a miscarriage.
  • Plaintiff lost anyway, because of poor pleading.
• Bass v. John Hancock, 10 Cal.3d 792,796 (1974)
• Harper v. Wausau, 56 Cal.App.4th 1079 (1997)
• Main use of this Cause of action is to get discovery of the contract, otherwise often ruled irrelevant.