MCO Not Liable Under Apparent Agency for Negligent Specialist

A woman was enrolled in a Managed Care Organization (MCO), an entity that contracted with physicians, hospitals, pharmacies, and other providers to provide health care services to individuals and families enrolled in Maryland’s Medicaid program. She began to experience foot pain as a result of a bunion on her right foot. Her primary care provider referred her to a podiatrist, who was a specialist who participated in the woman’s MCO as an independent contractor. The podiatrist was not an employee or agent of the MCO. All of the woman’s visits to the podiatrist were at his private clinic, not an MCO clinic.


At her first appointment, the podiatrist examined her foot and recommended surgery to remove the bunion. He performed the operation at a hospital which was not part of the MCO's network. She was discharged from the hospital on the same day. A week later, she returned to the podiatrist’s private clinic for a follow up visit. During the visit, the podiatrist conducted a cursory examination of her foot, partially unwrapped the bandage, and instructed her to come back for another follow-up visit. Five days later, during her next visit to the podiatrist’s private clinic, a nurse unwrapped the bandage on her foot and discovered that she had developed gangrene.


The podiatrist sent her to the hospital where the surgery was performed. She remained for three days while she underwent various tests. She was then transported to another hospital, where doctors amputated a portion of her foot and performed a bypass on her right leg. She was discharged two weeks after the gangrene was discovered.


The woman sued the podiatrist and the MCO. She sought to hold the MCO liable for the podiatrist's negligence on a theory of apparent agency. Her complaint alleged that the MCO created the appearance that the podiatrist was its employee and that she reasonably relied on that appearance. The podiatrist failed to respond to the complaint. The Baltimore City Circuit Court entered an order of default against the podiatrist. Assessment of damages was to be determined at trial.


As a result of the default judgment, the podiatrist’s liability was not at issue at the trial. At the conclusion of the trial, the jury was asked to determine only the amount of damages, and whether the MCO was also liable under the theory that the podiatrist was its apparent agent. The trial court entered judgment on a jury verdict in favor of the woman for the statutory maximum available damages and denied the managed care organization’s motion for judgment notwithstanding the verdict. The Court of Special Appeals reversed.


The Court of Appeals of Maryland affirmed the Court of Special Appeals. The court held that the woman's subjective belief that the podiatrist was the managed care organization 's employee was not objectively reasonable, as necessary for the managed care organization to be liable on a theory of apparent agency.


The court explained that the doctrine of apparent agency had three elements: (1) whether the apparent principal created, or acquiesced in, the appearance that an agency relationship existed; (2) whether the plaintiff believed that an agency relationship existed and relied on that belief in seeking the services of the apparent agent; and (3) whether the plaintiff's belief and reliance were reasonable. The third element had both subjective and objective elements as applied in medical malpractice context. A plaintiff must show that the plaintiff subjectively believed that an employment or agency relationship existed between the apparent principal and the apparent agent and that the plaintiff's subjective belief was “justifiable” or “reasonable” under the circumstances.


The court held that the woman presented sufficient evidence of her subjective belief that the podiatrist was an employee of the MCO. She testified that she had previously observed the presence of the podiatrist at one of the medical centers operated by a professional association created by the same physician who created the MCO. She also testified that she believed that the MCO employed all of the physicians, including podiatrist in question, who accepted her MCO member card.


The court held that the woman failed to present sufficient evidence that her subjective belief that the podiatrist was the MCO's employee was objectively reasonable. The only representations by the MCO about its relationship with the podiatrist that appeared in the record were the listing of the podiatrist in provider network, the referral forms that permitted the woman to see him through the MCO, and general passages concerning providers in the MCO member handbook. The provider directory did not identify providers as agents or employees of the MCO. The treatment by the podiatrist occurred at his private office and at a hospital that was not part of the MCO's network.


The Court of Appeals of Maryland affirmed the appellate court’s reversal of the trial court’s judgment against the managed care organization and denial of its motion for judgment notwithstanding the verdict.


See: Bradford v. Jai Medical Systems Managed Care Organizations, Inc., 2014 WL 2766672 (Md., June 19, 2014)(not designated for publication).


See also Medical Law Perspectives, December 2013 Report: Thicker Than Water: Liability When Blood Clots Cause Injury or Death