Riemer v. Columbia Medical Plan, Inc.

CourtCourt of Appeals of Maryland
Citation747 A.2d 677,358 Md. 222
Docket NumberNo. 90,90
Decision Date10 March 2000

747 A.2d 677
358 Md. 222

Victor G. RIEMER et al.

No. 90, Sept. Term, 1999.

Court of Appeals of Maryland.

March 10, 2000.

747 A.2d 679
F. Paul Bland, Jr. of Trial Lawyers for Public Justice, Washington, DC (Bruce M. Plaxen of Plaxen & Adler, P.A., Columbia; Robert K. Jenner of Greenberg & Bederman, Silver Spring; Kieron F. Quinn of The Law Office of Kieron F. Quinn, Baltimore; and Bryant L. Welch of Bryant L. Welch, J.D., Ph.D. & Assoc., Potomac), all on brief, for appellants

Ralph S. Tyler (George Beall and Maura L. DeMouy of Hogan & Hartson L.L.P., on brief), Baltimore, for appellee.


747 A.2d 678

Appellants, Victor G. Riemer, Stephen Marx, and Janet Marx, are subscribers (or members) of Columbia Medical Plan, Inc. (CMP),1 appellee, a health maintenance organization (HMO). In their complaint, appellants allege that provisions in the contract between CMP and its members, which purport to give CMP the right to recover the cost of health care from third-party tortfeasors, are in direct violation of several provisions of the Maryland Health Maintenance Organization Act, Maryland Code (1982, 1996 Repl.Vol., 1999 Cum. Supp.), Title 19, subtitle 7, of the Health-General Article.2

This cause of action began with members of CMP receiving health care benefits from CMP for injuries arising out of accidents due to negligent third parties. In the instances described, the members received medical benefits from CMP, then later received financial settlements arising out of their accident claims from the third parties. CMP then sought reimbursement and/or subrogation recovery from the subscribers' proceeds of their settlements for the health care benefits it had provided. On April 3, 1995, appellant Victor Riemer received a sum of $10,000.00 to resolve a claim arising from an automobile accident. CMP asserted a lien against this recovery, and Mr. Riemer paid $829.50 to CMP on June 20, 1995. Similarly, appellants Stephen

747 A.2d 680
and Janet Marx received $18,000.00 to settle their tort claims arising from a car accident involving their son, and CMP asserted a lien against this recovery in excess of $2,600.00

On July 15, 1996, appellants, on their own behalf and on the behalf of a putative class of similarly situated persons, filed a complaint in the Circuit Court for Howard County against appellee. In their complaint, appellants allege that appellee's general policy of pursuing its members for subrogation whenever they recover funds from a third party in a tort action is illegal and improper under sections 19-701(f)(3) and 19-710(o) of the Health-General Article. They brought three causes of action: unjust enrichment/money had and received; negligent misrepresentation; and a request for a declaratory judgment that appellee breached its contractual, statutory, and common law obligations to appellants by claiming improperly a subrogation interest in and a lien against third-party settlement recoveries by appellants.

On August 15, 1996, appellee removed this case to the United States District Court for the District of Maryland. Appellee contended that appellants' state law challenges to the CMP plan provisions were preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. (1994 & Supp.1998), and that the provisions of the Maryland HMO Act were thus void and without effect. On December 24, 1997, the federal court held that the CMP plan provisions were preempted with respect to all persons who were members of CMP by virtue of employee benefit plans governed by the ERISA. However, the court also held that there was no federal jurisdiction over those class members who were not members of the CMP through an ERISA health plan, and remanded their claims to the Circuit Court for Howard County.3

Upon remand, appellee moved for the circuit court to stay all proceedings pending the outcome of the federal appeal dealing with the ERISA preemption. The circuit court denied the motion. Both parties then moved for summary judgment. On March 24, 1999, the circuit court granted appellee's motion for summary judgment on all claims. Appellants appealed to the Court of Special Appeals. On our own initiative, we granted review prior to argument in the Court of Special Appeals. Appellant presents three issues to this Court:

I. Did the circuit court err by holding that the [appellee] HMO was permitted to pursue its members for compensation after they received a payment from a third party tortfeasor, when Md.Code Ann., Health-Gen. § 19-701(f)(3) expressly forbids HMO's from receiving any compensation except for premiums, deductibles or co-payments.
II. Did the circuit court err by holding that the [appellee] HMO was permitted to pursue its members for "subrogation," which is the right to recover monies spent to pay the debt of another, when Md.Code Ann., Health-Gen. § 19-710(o) provides that HMO members owe no money (and thus have no debt) for covered medical care that they receive from the HMO?
III. Did the circuit court err by finding that interpreting §§ 19-701(f)(3) and 19-710(o) to mean what they say would be "illogical, unreasonable, and inconsistent with common sense," because interpreting those provisions to mean what they say would contradict the circuit court's own policy preferences?

II. History of HMOs

In order to address the issues presented in the case sub judice, we must first establish a basic definition of a health maintenance organization (HMO). The Court of Special Appeals took great lengths in defining

747 A.2d 681
an HMO in Patel v. HealthPlus, Inc., 112 Md.App. 251, 258-60, 684 A.2d 904, 908-09 (1996):4
HMO is a generic term for prepaid health coverage plans that provide medical services to a relatively large population at a fixed rate. There are five salient characteristics of HMOs.
1) HMOs assume the contractual responsibilities for providing health care services to subscribers (subscribers and members are used interchangeably).
2) HMOs are closed health care systems, providing services only to a defined and enrolled clientele.
3) Members are voluntarily enrolled.
4) Payment [by the members] for care is fixed and periodic.
5) HMOs assume financial risk, which may level either to a loss or a gain.
Health Maintenance Organization[s], [An] Analysis of the HMO Industry in Maryland, Research Division, Department of Legislative Reference, Legislative Report Service, November 1986.
There are several models of HMOs in respect to the manner of providing health services to members. They include generally: (1) Staff Models—the HMO employs salaried health care professionals to provide health care services; (2) Group Practice Model—the HMO contracts with a private practice group to provide health services to members; (3) Independent Practice Association—physicians create the HMO as an association of physicians or individual physicians to provide health care to members usually on a fee for service basis (the fees are fixed and the individual physician bears the risk of loss if the cost of the service exceeds the fee schedule) but sometimes on a capitation basis (a fee of X amount per applicable member of the HMO); and (4) Network Model—the HMO contracts with one or more physicians or group practices.
Shickich defines [an] HMO as "`an organization which brings together a comprehensive range of medical services in a single organization.'" Barbara A. Shickich, Legal Characteristics of the Health Maintenance Organization, in Healthcare Facilities Law § 16.4 (Anne M. Dellinger ed., 1991) (footnote and citation omitted). She describes three characteristics of [an] HMO:

(1) It is an organized system for the delivery of health care which brings together health care providers.

(2) Such an arrangement makes available basic health care which the enrolled group [the members or subscribers] might reasonably require....

(3) The payments [to the HMO] will be made on a prepayment basis, whether by the individual enrollee[] ... [or in his behalf by others, i.e., employers].

Id. (footnote omitted).

As Shickich notes, [an] HMO is a vertical system of health care that brings together the providers, i.e., the physicians, dentists, etc., who provide medical services, and the subscribers, i.e., the members of the HMO or HMOs, who receive the medical services. [An] HMO

747 A.2d 682
is a facilitator. It arranges for medical services. In doing so, it enters into two or more basic contractual relationships. First, it agrees (contracts) to provide medical services, either through its employee physicians or through providers under other contracts, to its subscribers for a fixed fee which is paid by the subscribers to the HMO. The HMO then... enters into a separate contract or contracts with physicians (or dentists, etc.) for the physicians to provide the medical services the HMO has agreed to provide to its members under their separate subscriber contracts. Apparently, it is through its bulk buying power, i.e., its power to direct its members, that it is able to procure medical services at or below otherwise prevailing rates. Additionally, it is presumed, by at least "for-profit" HMOs, that large numbers of subscribers will not need medical services or that the medical services provided to subscribers will cost less than the membership fees received. [Footnotes omitted.]

An HMO thus can be described as "an organization that contracts to produce or to arrange to buy a specific list of health services for a specified population of members in exchange for a specified sum per person, paid periodically in advance." Alan Somers, What You and Your Physician Client Need to Know About Managed Care Contracts, Prac. Law., Apr. 1996, at 22. These basic descriptions are important as an HMO is defined in great part by the nature of how it receives compensation, which is at the...

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