McEvoy by Finn v. Group Health Co-op. of Eau Claire
| Decision Date | 12 November 1997 |
| Docket Number | No. 96-0908,96-0908 |
| Citation | 570 N.W.2d 397,213 Wis.2d 507 |
| Parties | Angela M. McEVOY, by her Guardian ad Litem Stephanie L. FINN and Susan McEvoy, Plaintiffs-Appellants, v. GROUP HEALTH COOPERATIVE OF EAU CLAIRE, Defendant-Respondent-Petitioner. |
| Court | Wisconsin Supreme Court |
For the defendant-respondent-petitioner there were briefs by Thomas J. Misfeldt, John P. Richie and Misfeldt, Stark, Richie & Wickstrom, Eau Claire and oral argument by John P. Richie.
For the plaintiffs-appellants there was a brief by Matthew A. Biegert, Brian H. Sande and Doar, Drill & Skow, S.C., New Richmond and oral argument by Matthew A. Biegert.
Amicus curiae brief was filed by Edward E. Robinson and Warshafsky, Rotter, Tarnoff, Reinhardt & Bloch, S.C., Milwaukee for the Wisconsin Academy of Trial Lawyers.
Group Health Cooperative of Eau Claire, Inc. (GHC), a health maintenance organization, seeks review of a decision of the court of appeals that reversed the circuit court's 1 entry of summary judgment dismissing Angela and Susan McEvoy's complaint. The court of appeals determined that the tort of bad faith can be applied to health maintenance organizations. GHC asserts that the tort of bad faith pertains only to insurance companies. In addition, GHC argues that its patient-related decisions are subject to the medical malpractice statute, Wis. Stat. ch. 655 (1991-92), 2 which precludes any bad faith tort claims. Because we determine that the common law tort of bad faith applies to all health maintenance organizations making out-of-network benefit decisions and that Wis. Stat. ch. 655 does not preclude the McEvoys' claims, we conclude that the circuit court erred in granting summary judgment. Accordingly, we affirm the decision of the court of appeals.
¶2 In the fall of 1991, 13-year-old Angela McEvoy began to suffer from anorexia nervosa, a potentially fatal eating disorder characterized by an aversion to food. At the time of diagnosis, Dr. Lawrence McFarlane of GHC was Angela's primary care physician. GHC insured Angela as a dependent of her mother, Susan McEvoy, a government employee and health care benefits policyholder. A portion of that policy required GHC to cover up to 70 days of inpatient psychological care.
¶3 GHC is a staff model health maintenance organization (HMO) organized as a cooperative under Wis. Stat. ch. 185. It offers health care services to network participants through staff physicians that operate within GHC's clinics in Eau Claire, Wisconsin. When GHC is unable to care adequately for a network subscriber's health care needs, GHC refers its patients to out-of-network providers. Pursuant to the contractual terms of its subscriber's policy, GHC will pay for that out-of-network care up to the policy's limits.
¶4 After confirming his diagnosis of anorexia, McFarlane approached GHC's administration about referring Angela to the inpatient eating disorder program at the University of Minnesota Hospital ("UMH"). Neither GHC nor its network affiliates had previously treated a patient for anorexia nervosa.
¶5 Dr. Stuart Lancer, GHC's Medical Director, was responsible for GHC's cost containment programs and medical management. His approval was necessary for any staff physician referrals to out-of-network providers. At McFarlane's request, Lancer agreed that GHC would cover the cost of a two-week period of inpatient treatment for Angela at UMH. Lancer subsequently approved continued coverage that totaled an additional four weeks of inpatient care. He never personally met or treated Angela.
¶6 After six weeks of treatment by UMH physicians, Lancer decided to discontinue coverage of Angela's care at UMH. This decision was based on phone calls Lancer or members of his administrative staff had with individuals treating Angela at UMH. As one notation in GHC's records indicated:
SRL [Lancer] OK'ed thru Wed. Jan. 1st 1992 will be Angela's last day. Appt with Lloyd Thrus. (sic) NO MORE EXTENSIONS. SRL doesn't want to talk to them any more. No excuses. Discharge, or no payment.
¶7 Both Angela's treating physician and her psychiatrist at UMH opposed Lancer's decision because Angela had not achieved UMH's established eating disorder treatment goals as of the time of discharge. UMH staff also objected to GHC's alternative treatment choice, placement in a newly-formed, in-network, Eau Claire outpatient group therapy session for compulsive overeaters that met only once a week. At the time of Lancer's termination of coverage order, approximately four weeks of inpatient psychological care benefits remained under Angela's contract with GHC.
¶8 On December 31, 1991, Angela was discharged back into the care of GHC's network providers. Upon discharge she weighed 95 pounds. Lancer had no further involvement with Angela's care within the GHC network beyond occasionally receiving unsolicited copies of progress notes. Angela relapsed almost immediately. On February 27, 1992, GHC readmitted Angela to UMH's inpatient eating disorder program. At the time of readmission, she weighed 74 pounds.
¶9 GHC's coverage of Angela's inpatient psychological care at UMH terminated in late March, 1992. Upon termination of that financial coverage, Lancer's involvement in Angela's case ended. Angela remained at UMH and continued treatment at her own personal expense. 3
¶10 Angela and her mother commenced an action against GHC in the circuit court of Eau Claire County, alleging that GHC "in breach of the policy, and in bad faith, denied and threatened to deny Angela McEvoy coverage for her treatment and failed to authorize appropriate treatment." They demanded compensatory and punitive damages. GHC moved for summary judgment, arguing for dismissal of the suit on the grounds that the McEvoys' action was actually one for medical malpractice governed by Wis. Stat. ch. 655. The plaintiffs, in opposing the motion, pointed to the dual nature of GHC as both a health care provider and an insurer and argued for application of the tort of bad faith.
¶11 The circuit court granted GHC's motion for summary judgment, dismissing the McEvoys' complaint. The circuit court decided that application of the tort of bad faith to HMOs would be an "unwarranted extension of the bad faith doctrine." The circuit court then concluded that Lancer's decision to order Angela's discharge was a medical decision properly pursued under medical malpractice law.
¶12 The court of appeals reversed the circuit court's grant of summary judgment. In rejecting the circuit court's view of ch. 655 preclusion, the court of appeals determined that Lancer's medical background did not mean that all challenges to his insurance coverage decisions amounted to medical malpractice claims. Instead, the court of appeals characterized Lancer's actions as administrative insurance coverage decisions properly subject to a bad faith tort claim that should survive summary judgment. GHC petitioned this court for review.
¶13 When reviewing a grant of summary judgment we independently apply the same methodology as the circuit court. See State ex rel. Auchinleck v. Town of LaGrange, 200 Wis.2d 585, 591-92, 547 N.W.2d 587 (1996). Where there are no material facts in dispute, we must determine whether the movant is entitled to judgment as a matter of law. See id. at 592, 547 N.W.2d 587. In this case, we must determine whether the common law tort of bad faith applies to HMOs. We also must interpret the scope of application of Wis. Stat. ch. 655. Both inquiries present a question of law that we determine de novo. See First Nat. Leasing Corp. v. City of Madison, 81 Wis.2d 205, 208, 260 N.W.2d 251 (1977); State v. Eichman, 155 Wis.2d 552, 560, 456 N.W.2d 143 (1990).
¶14 The question of whether HMOs can be sued by subscribers under the common law tort of bad faith traditionally applied to insurance companies is a question of first impression for this court and one that has not received significant discussion in other jurisdictions. 4 To properly resolve this issue we must consider the rationale underlying our previous adoption of the common law tort of bad faith, the nature and purpose of HMOs, the legislature's pronouncements concerning the regulation and organization of HMOs, and the policy implications behind labeling HMOs as insurers under bad faith tort. These considerations convince us that for purposes of the application of the common law doctrine of bad faith, HMOs making out-of-network benefit decisions are insurers.
¶15 This court explicitly adopted the common law tort of bad faith as applied to first party claims under insurance contracts in Anderson v. Continental Ins. Co., 85 Wis.2d 675, 686, 271 N.W.2d 368 (1978); see also Duir v. John Alden Life Ins. Co., 573 F.Supp. 1002 (W.D.Wis.1983). Our adoption of this doctrine recognized that "bad faith conduct by one party to a contract toward another is a tort separate and apart from a breach of contract per se" and that separate damages may be recovered for this tort. Anderson, 85 Wis.2d at 686, 271 N.W.2d 368. The rationale underlying a bad faith cause of action is to encourage fair treatment of the insured and penalize unfair and corrupt insurance practices. By ensuring that the policyholder achieves the benefits of his or her bargain with the insurer, a bad faith cause of action helps to redress a bargaining power imbalance between parties to an insurance contract. See Craft v. Economy Fire & Casualty Co., 572 F.2d 565, 569 (7th Cir.1978)(applying bad faith tort to remedy imbalance in bargaining power); Grand Sheet Metal Prod. Co. v. Protection Mutual Ins. Co., 34 Conn.Supp. 46, 375 A.2d 428, 430 (1977)(applying bad faith tort to protect insured vulnerable at time of claim).
¶16 Next we consider the nature and purpose of HMOs. HMOs are modern health care entities that cover over 52.5 million Americans. See Trends...
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