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Health Plans Shielded

A version of this article was published in The Daily Record on September 3, 2014.

In its December decision in JAI Medical Systems Managed Care Organization, Inc. v. Bradford, Maryland's intermediate appellate court expanded legal protections for health plans in Maryland when it overturned a jury verdict holding a health plan liable for the negligent medical care of a physician in its network.

A. The Facts

The case arose when an enrollee of JAI Medical Systems Managed Care Organization, Inc. (JAI), a Medicaid managed care organization, sued JAI for negligent care received from a physician in JAI's network. The enrollee's primary care physician referred the enrollee to a surgeon for removal of a bunion on her foot. After the operation, the surgeon negligently missed the development of gangrene in the foot, resulting ultimately in amputation.

The enrollee contended that JAI was liable for the surgeon's negligence under Maryland's "apparent agency" doctrine because JAI represented to the enrollee that the surgeon was an agent or employee of JAI, leading the enrollee to rely justifiably on the skill and care of the surgeon.

The enrollee claimed that JAI made this representation by, among other things, (1) including the surgeon in JAI's provider directory; and (2) requiring enrollees to use only specialists within JAI's network. She also noted that Maryland law charges managed care organizations with the primary responsibility for providing health care services to their enrollees, even if those organizations delegate this responsibility to a network of providers.

B. The Decision

The Court of Special Appeals rejected the enrollee's argument. The court offered two reasons why the enrollee could not justifiably believe that JAI had authority over the surgeon's performance.

First, it is common knowledge that a health plan does not manage the performance of health care services by its network of providers. Rather, a reasonable person would understand that JAI's inclusion of the surgeon in JAI's network meant only that JAI would pay for the surgeon's services. Although Maryland regulations impose some oversight duties on managed care organizations with respect to their provider networks, this oversight involves marketing, billing practices, and the like, rather than performance of health care services themselves.

Second, the JAI enrollee handbook, which explains JAI's operations to all enrollees, did not contain any representation that JAI oversees services performed by JAI's network of providers.

The court contrasted this case from a prior case holding a hospital liable for services of its independent contractor pathologist. The court explained that in the prior case, the hospital advertised itself as a health care provider, and essentially chose a pathologist at the hospital for the patient.

The court therefore overturned the jury's verdict and ended the case against JAI.

C. Conclusion

The court handed a significant victory to managed care organizations, insurers, health plans, and plan administrators in Maryland.
A Maryland appellate court has now said, for the first time, that a health plan is not responsible for the quality of services performed by a provider simply because the health plan includes the provider in its network and requires patients to use in-network providers. A health plan must say, do, or fail to do something more.

In that regard, health plan and health plan administrators should remain cautious about how they articulate their role to enrollees, especially when they promote new quality improvement initiatives and health care delivery system innovations, such as patient centered medical homes. Through disclaimers and careful wording, health plans and plan administrators should keep clear the distinction between their role and the role of health care providers in their networks.


March 21, 2013




Rosen, Barry F.


Health Care