Walker v. Group Health Services, Inc.

• Decision Date: 16 January 2001
• Docket Number: No. 94,380.,94,380.
• Citation: 37 P.3d 749
• Parties: Cynthia A. WALKER, an individual, Appellant, v. GROUP HEALTH SERVICES, INC., a corporation, d/b/a/ Blue Cross/Blue Shield of Oklahoma; and GHS Health Maintenance Organization, Inc., d/b/a BlueLincs HMO, Appellees.
• Court: Oklahoma Supreme Court

37 P.3d 749

Cynthia A. WALKER, an individual, Appellant, v. GROUP HEALTH SERVICES, INC., a corporation, d/b/a/ Blue Cross/Blue Shield of Oklahoma; and GHS Health Maintenance Organization, Inc., d/b/a BlueLincs HMO, Appellees.

No. 94,380.

Supreme Court of Oklahoma.

January 16, 2001.

As Corrected on Denial of Rehearing April 23, 2001.

Steven S. Mansell, Mark A. Engel, Steven S. Ashmore, Oklahoma City, OK, for Appellant.

Harvey D. Ellis, Kevin D. Gordon, Tamela R. Hughlett, Oklahoma City, OK, for Appellees.

Paul C. Duncan, Kathy Austin, Oklahoma City, OK, for Amicus Curiae, Oklahoma State & Education Employees Group Insurance Board.

KAUGER, J.:

¶ 1 We retained this cause to determine: 1) whether a health maintenance organization (HMO)¹ may be liable to a state employee for bad faith breach of an insurance contract; and 2) whether, when an insured has received payment for disputed medical expenses, the requirements for exhaustion of administrative remedies of 74 O.S. Supp.1999 § 1306(6)² and OAC 360:1-5-1 (1997)³ extend to claims for bad faith.⁴ Consistent with Cannon v. Lane, 1993 OK 40, ¶ 14, 867 P.2d 1235, we hold that a state employee may sue a health maintenance organization for bad faith breach of the insurance contract. Therefore, claims for bad faith are not subject to administrative exhaustion requirements. Although matters involving the allowance and payment of claims, eligibility for coverage and provision of services are within the initial consideration of the Grievance Panel pursuant to 74 O.S. Supp.1999 § 1303(6) and OAC 360:1-5-1 (1997), its province does not extend to issues concerning bad faith breach of an insurance contract. Under the facts presented, where the insured has received payment for contested medical services, we determine that the exhaustion requirements of 74 O.S. Supp. 1999 § 1306(6) do not apply to an action for breach of good faith.⁵

FACTS

¶ 2 Appellant Cynthia Walker, alleges that the appellees, Group Health Services, Inc. and GHS Health Maintenance Organization d/b/a/ BlueLincs HMO (collectively, insurer/HMO),⁶ contracted with the State of Oklahoma to provide insurance coverage to state employees and their dependents. The appellant, Cynthia A. Walker (Walker/insured), was a member of the HMO as a dependent of her husband under the State and Education Employees Group Insurance Act [Group Insurance Act], 74 O.S.1991 § 1301, et seq. Walker is an employee of an elementary school.

¶ 3 On November 12, 1996, Walker became ill and lost consciousness at work. The school principal called an ambulance which transported Walker to the emergency room.⁷ Because Walker's primary physician had not authorized the treatment and because the HMO determined that the services were not rendered for an emergency or life-threatening condition, the insurer denied benefits.

¶ 4 Walker wrote the HMO on April 27, 1997, requesting that it reconsider her claim for benefits. Under the provisions of the HMO's member handbook, the insurer should have responded within 30 days.⁸ However, the record indicates that it was more than three months later, on August 14, 1997, when the HMO upheld the original denial. In that letter, Walker was told that she could appeal the decision in writing to the BlueLincs Grievance Committee pursuant to her member services manual. Although Walker indicates that the denial was appealed, there is nothing in the record to demonstrate that she actually completed the HMO's internal grievance procedures, and she readily admits that she did not institute a grievance pursuant to 74 O.S. Supp.1999 § 1306(6).⁹ Rather, she hired an attorney who wrote the HMO on September 8, 1997, requesting information necessary to file an appeal with the insurer.¹⁰

¶ 5 In the interim between the HMO's denial of Walker's claim and the involvement of her attorney, Walker was sued by the medical providers. The providers prevailed, and Walker's paycheck was garnished. Finally, the provider's judgment was satisfied fully in connection with Walker's attempt to buy a home.

¶ 6 On November 24, 1997, Walker received notification that payment had been made for the contested medical expenses. Thereafter, on June 10, 1998, in her first amended petition, Walker filed suit in district court for breach of the implied covenant of good faith and fair dealing. Alleging that Walker had not exhausted administrative procedures imposed by the insurance contract and by the Group Insurance Act, the HMO filed a suggestion for dismissal and/or motion to dismiss for lack of subject matter jurisdiction on July 30, 1999. The trial judge, Honorable Carolyn R. Ricks, sustained the motion on February 16, 2000, dismissing the cause on jurisdictional grounds. We retained the cause on March 19, 2000. The amicus curiae,¹¹ Oklahoma State & Education Employees Group Insurance Board (Insurance Board/amicus curiae), was allowed to join in the court ordered briefing cycle completed on June 26, 2000.¹²

LEGAL DEVELOPMENTS CONCERNING HEALTH MAINTENANCE ORGANIZATIONS AND THE HEALTH INSURANCE INDUSTRY.

¶ 7 Although managed care systems have been with us for many years, the systems, and HMOs in particular, have recently been the subject of legal developments in the nation's courts and legislative bodies. Just this session, the United States Supreme Court was presented with three cases dealing with HMOs. In Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000), the Supreme Court held that mixed treatment and eligibility decisions made by HMO physicians were not fiduciary decisions under the Employee Retirement Income Security Act of 1974 (ERISA). In so doing, it upheld dismissal of a federal suit against the HMO but did not bar state law claims of malpractice.¹³ The Court also determined that patients could not use federal law to sue HMOs for giving doctors a financial incentive to cut treatment costs.¹⁴ ¶ 8 In Pappas v. Asbel, 555 Pa. 342, 724 A.2d 889 (1998), the Pennsylvania Supreme Court held that ERISA did not preempt state tort law claims brought against an HMO. Pappas alleged that the HMO was negligent in refusing approval of his transfer to a facility specifically identified as necessary to address a neurological emergency resulting in his becoming a quadriplegic. The United States Supreme Court granted certiorari in the cause and remanded it to the Pennsylvania Court for consideration in light of Pegram.¹⁵

¶ 9 The third cause, In re United States Healthcare, Inc., 193 F.3d 151, 163 (3rd Cir. 1999), involved claims of inadequate care offered to an infant immediately following birth. The Third Circuit determined that federal law did not bar state law tort claims relating to quality of care although lawsuits concerning erroneously withheld benefits were preempted. Without comment, the United States Supreme Court denied certiorari¹⁶ in the cause on the same day that Pappas was remanded.

¶ 10 The 106th Congress has struggled with bills providing limited new patient protections, including a restricted right to sue HMOs. Although the Senate voted to incorporate proposed House guarantees on June 22, 2000, it has since indefinitely postponed consideration of the measure.¹⁷ Most recently, the President has advised the nation of orders he is issuing to the United States Department of Labor to promulgate rules providing a fair and unbiased process for patients to appeal when coverage is denied or delayed.¹⁸

¶ 11 The Oklahoma Legislature passed the Managed Health Care Reform and Accountability Act (Managed Health Care Act), 36 O.S. Supp.2000 § 6591, et seq.¹⁹ on April 24, 2000, which became law on April 28th after being signed by the Governor.²⁰ Although all parties agree that the legislation is inapplicable here,²¹ it is instructive to note that the Managed Health Care Act imposes a duty on HMOs to exercise ordinary care when making health care treatment decisions and imposes liability for damages caused to an HMO member by the duty's breach.²² Here, issues of provision of care are not presented making the Managed Health Care Act applicable. Nevertheless, where the Managed Health Care Act applies, HMOs may be sued once the enrollee has exhausted appeal and review processes available under the insurer's plan and those provided by the Oklahoma Managed Care External Review Act, 63 O.S. Supp.2000 § 2528.1 et seq.²³

I.

¶ 12 CONSISTENT WITH CANNON V. LANE, A STATE EMPLOYEE MAY MAINTAIN A CAUSE OF ACTION FOR BAD FAITH AGAINST A HEALTH MAINTENANCE ORGANIZATION.

¶ 13 Walker relies on Cannon v. Lane, 1993 OK 40, ¶ 14, 867 P.2d 1235 for the proposition that state employees may bring bad faith actions against their HMOs. Although the insurer does not assert that Walker's cause of action is abrogated by the Group Insurance Act, it does argue that the review process mandated in 74 O.S. Supp. 1999 § 1306(6) militates against recognition of bad faith actions in the context of contracts negotiated under the Act. We disagree.

¶ 14 Cannon, like the situation here, involved a state employee's suit against an HMO for bad faith. Both the HMO in Cannon and the insurer here contracted with the state to provide medical care to state employees and their dependents. The issue in Cannon was whether the HMO was an insurance company within the meaning of the Uniform Arbitration Act, 15 O.S. § 801 et seq. In Cannon, we discussed the similarities between HMOs and health insurance organizations finding that the contract between the employer, the State of Oklahoma and the HMO was a contract with reference to insurance. Determining that the HMO qualified as an insurance company under the Act, the Court held that the insurance contract was expressly excluded from the statutory provisions and invalidated the portion of the subscriber agreement purporting to bind the HMO member to compulsory arbitration.

¶ 15 We recognize that the Group Insurance Act and the exhaustion requirements of 74 O.S. Supp.1999 § 1306(6) were not at issue in Cannon. Neve...