The relation of appearance and reality is a fundamental question of western philosophy.
There is no dispute as to the reality of this case. Petitioner Wilhelmina Bradford suffered a significant injury to her foot resulting in its partial amputation because of the negligence of Dr. Steven Bennett, a podiatrist whom she had chosen for her treatment. She was able to see Dr. Bennett because he participated as a specialty care provider in the network of Respondent Jai Medical Systems Managed Care Organization, Inc. ("Jai MCO"), an entity that contracts with physicians, hospitals, pharmacies, and other providers to provide health care services to individuals and families enrolled in the State Medicaid program. Dr. Bennett was not an employee or agent of Jai MCO.
Ms. Bradford seeks to hold Jai MCO liable for Dr. Bennett's negligence on a theory of apparent agency — essentially, that Jai MCO created the appearance that Dr. Bennett was its employee and that she reasonably relied on that appearance.
A jury found in Ms. Bradford's favor. The Court of Special Appeals reversed that verdict on the basis that the evidence was insufficient to support it. We have reviewed the record and agree with the intermediate appellate court that, even if Ms. Bradford subjectively believed that Dr. Bennett worked for Jai MCO, that belief was not reasonable under the circumstances.
Managed Care Organizations
Under a traditional "fee-for-service" health insurance plan, a patient pays a periodic premium to the insurance company. The patient obtains services from the health care provider of the patient's choice. The insurance company pays all or part of the provider's fee for those services. Although this model allows a patient the freedom to choose a desired provider, it does not encourage efficient use of the health care system as the cost of services may have little impact on patient demand for them and a provider's compensation depends on the quantity, not necessarily the quality, of those services.
The effort to control escalating health care costs during the 1970s led to the creation of managed care organizations ("MCOs"), a phrase that encompasses a variety of organizations designed to provide health care benefits while containing costs.
An HMO typically contains costs by paying a provider a fixed prepaid amount for each member — sometimes referred to as a "capitation" payment — regardless of the services rendered by the provider. It may restrict members to a defined list of providers
A PPO typically contains costs by negotiating lower fees with certain hospitals and physicians in the PPO's network, which are considered "preferred" providers. A member of the PPO pays a smaller fee — known as a co-payment — when the member sees a preferred provider instead of an "out-of-network" provider. Unlike an HMO, the PPO may not require its members to obtain authorization from a primary care physician to access care from other providers. Unlike most HMOs, the PPO may also provide coverage for "out-of network" providers, but charge a higher co-payment or deductible.
There are, of course, other variations. A common theme, however, is that an MCO exerts greater influence over its members' health care decisions — often dictating from whom and how its members receive medical services — than does a traditional fee-for-service health insurance plan.
Jai Medical Systems Managed Care Organization
Jai MCO is an MCO similar in structure and operation to an HMO. It was formed in 1996 by Hollis Seunarine, M.D., in response to changes in Maryland law that required Medicaid patients be enrolled in MCOs.
Jai MCO does not employ its own health care providers; rather, it enters into contracts with physician groups, pharmacies, hospitals, and others to participate in its network and to provide health care services to its members. The health care providers that participate in its network are not precluded from belonging to other networks. Under Jai MCO's plan, a member selects a primary care provider — a physician who attends to most of the member's health care needs — from Jai MCO's network. If the member needs specialty care, the member accesses those services by obtaining a referral from the primary care provider to one of the more than 3,000 specialists in the Baltimore metropolitan area who participate in Jai MCO's network. The network also includes various hospitals, pharmacies, and medical laboratories. Jai MCO operates under the name "Jai Medical Systems."
Among the physicians who participate in Jai MCO's network are those employed by a professional association that was also created by Dr. Seunarine and that is formally known as Hollis Seunarine, M.D., P.A. ("Seunarine P.A."). Seunarine P.A. employs primary care physicians, internists, and pediatricians who work at its four medical centers in Baltimore City. Three of those centers are named "Jai Medical Center" and one of them is called the "Eutaw Medical Center."
Dr. Seunarine named both the MCO and the professional association's medical centers after his son, Jai Seunarine, who works for both entities. Jai MCO's administrative offices are located in the professional association's Jai Medical Center on York Road in Baltimore City. The management and administrative staff of Jai MCO and Seunarine P.A. also overlap. For example, Dr. Seunarine is both the executive medical director of Jai MCO and is a primary care provider employed by Seunarine P.A. with an office address listed at one of the Jai Medical Centers. His son, Jai Seunarine, is the chief executive officer of Jai MCO and the administrator of Seunarine P.A. Thus, although they are separate legal entities, Jai MCO and Seunarine P.A. are closely related and operate under very similar names.
Ms. Bradford Joins Jai MCO
At the time of the events in 2008 that led to this litigation, Ms. Bradford was a 54-year-old widow with an eighth-grade education and the mother of two adult children. Eligible for benefits under the State Medicaid program, she had been a member of Jai MCO since 1997. As a member, she received various materials, including a member handbook and a provider directory that lists providers in the Jai MCO network, including approximately 4,000 primary care providers, specialists, hospitals, and pharmacies. According to Ms. Bradford, she reviewed the member handbook and the provider directory when she first enrolled in Jai MCO in 1997, and received an updated provider directory periodically.
The member handbook is based on a template developed by DHMH that incorporates information that the MCO is required by regulation to provide to its members. See COMAR 10.09.66.02. Among other things, the member handbook sets forth general information such as member rights and responsibilities, provides a notice of the MCO's privacy practices concerning disclosure of medical information, lists the basic benefits provided to members enrolled through the Medicaid program, identifies other services available through the State of Maryland, and lists services not offered by either Jai MCO or the State (e.g., cosmetic surgery, non-prescription drugs).
The provider directory contains four pages listing approximately 80 primary care providers. Some, but not all, of the primary care providers worked out of Jai Medical Centers. The only "primary care centers" listed in the directory are the four operated by Seunarine P.A.
Among the 38 specialists in podiatry listed in the Jai MCO network was Dr. Steven Bennett, who began participating in the Jai MCO network in February 2006. The directory listed an address for him on Pennsylvania Avenue in Baltimore City, where he operated a private office called Penn North Foot Care.
In accordance with the design of a managed care organization, Ms. Bradford was assigned to a primary care provider in the Jai MCO network. For more than a decade, her primary care provider was Dr. Peter Chiang. Dr. Chiang was employed by Seunarine P.A. and saw Ms. Bradford at the Eutaw Medical Center.
Ms. Bradford Seeks Treatment for a Painful Bunion
In 2008, Ms. Bradford began to experience foot pain as a result of a bunion on her right foot. On July 7, 2008, she went to the Eutaw Medical Center to get a referral from Dr. Chiang for a podiatrist. During the appointment, Ms. Bradford requested a referral specifically for Dr. Bennett. Apparently, the planned appointment did not occur and she later asked for and obtained a second referral for Dr. Bennett, this time from Dr. Kevin Carr, another primary care provider at the Eutaw Medical Center.
Neither of the physicians who complied with her request for a referral to Dr. Bennett told her that Dr. Bennett was Jai MCO's employee; her primary care physician, Dr. Chiang, simply informed her that "[Dr. Bennett] takes Jai Medical Assistance." According to Ms. Bradford, she nonetheless believed that Dr. Bennett worked for Jai MCO because she had previously seen him at the Eutaw Medical Center, although she admitted that there were no signs regarding Dr. Bennett at that location.
Ms. Bradford first met Dr. Bennett on July 17, 2008, at his private office. Dr. Bennett examined her foot and recommended surgery to remove the bunion. On July 30, 2008, Dr. Bennett performed the operation at Bon Secours Hospital. Ms. Bradford was discharged from the hospital on the same day.
On August 5, 2008, Ms. Bradford returned to Dr. Bennett's office for her first follow-up visit. During the visit, Dr. Bennett conducted a cursory examination of
Dr. Bennett sent Ms. Bradford to Bon Secours Hospital, where she remained for three days while she underwent various tests. Ms. Bradford was then transported to Mercy Medical Center, where doctors amputated a portion of her foot and performed a bypass on her right leg. She was discharged on August 26, 2008. Ms. Bradford must now live with permanent injuries — a partially amputated foot and a scar that runs from her right thigh to her ankle as a result of the bypass.
On May 8, 2009, Ms. Bradford filed this action in the Circuit Court for Baltimore City against Dr. Bennett and Bon Secours Hospital.
Dr. Bennett failed to respond to Ms. Bradford's complaint. The Circuit Court entered an order of default against Dr. Bennett on July 15, 2010, and a default judgment on November 10, 2010. Assessment of damages was to be determined at trial.
The remaining defendants each filed motions for summary judgment prior to trial. Jai MCO's motion asserted that it was a health insurer that did not employ Dr. Bennett — or any physicians. The Circuit Court denied the summary judgment motions and the case proceeded to trial.
The trial took place from February 22 to February 24, 2011. At the close of Ms. Bradford's evidence, the defendants moved for judgment, incorporating arguments made in their motions for summary judgment. The trial judge reserved ruling on those motions, and the defense presented its case. At the close of all the evidence, the defendants renewed their motions for judgment. The trial judge granted Bon Secours' motion for judgment, but denied the motions of Jai MCO and Seunarine P.A.
The jury awarded $64,000 for economic damages and medical expenses, and $3,000,000 for non-economic damages. The jury further found that Jai MCO, but not Seunarine P.A., was liable under the theory of apparent agency. The Circuit Court granted a motion for remittitur based on the statutory cap on non-economic damages that reduced the total damages to $714,000. The court denied Jai MCO's motion for judgment notwithstanding the verdict and for a new trial. Jai MCO appealed.
The Court of Special Appeals reversed, holding that the Circuit Court should have granted Jai MCO's motion for judgment notwithstanding the verdict. 209 Md.App. 68, 57 A.3d 1068 (2012). Ms. Bradford filed a petition for a writ of certiorari in this Court, which we granted to determine whether an MCO may be held liable for the negligence of a physician in its network under the theory of apparent agency and, if so, whether there was sufficient evidence to support the jury verdict in this case.
Ms. Bradford concedes that Dr. Bennett was not an employee of Jai MCO and that no actual agency relationship existed between Dr. Bennett and Jai MCO. She nevertheless argues that Jai MCO could be found liable for Dr. Bennett's negligence under the theory of apparent agency.
Standard of Review
In reviewing a trial court's denial of a motion for judgment notwithstanding the verdict, an appellate court considers whether there is "any evidence adduced, however slight ... from which reasonable jurors, applying the appropriate standard of proof, could find in favor of the plaintiff on the claims presented." Exxon Mobil Corp. v. Albright, 433 Md. 303, 333, 71 A.3d 30 (2013) (citations omitted). In doing so, the court considers "the evidence and the reasonable inferences to be drawn from it in the light most favorable to the non-moving party." Id. Whether a particular theory of liability may apply and the appropriate standard of proof under that theory are necessarily legal questions on which the reviewing court is not required to accord any deference to the trial court.
In this case, the trial court's judgment was based on the jury's conclusion that Dr. Bennett was the apparent agent of Jai MCO. The existence of an agency relationship is ordinarily a question of fact for the jury. But a theory of apparent agency also depends on whether a plaintiff's subjective belief that an agency relationship existed was justifiable or reasonable — in this case, whether a physician in an MCO's network may be the MCO's apparent agent. A threshold legal question is whether the theory of apparent agency can apply in this context. If so, a second legal question is whether, applying the deferential standard of review described above, the facts of this case allow application of that theory to uphold the judgment.
Whether an MCO may be vicariously liable for the negligence of a network physician under a theory of apparent agency
As a general rule, one who engages an independent contractor is not vicariously
This Court has applied the theory of apparent agency to uphold a judgment against a hospital for the negligence of an independent-contractor physician with whom it contracted to staff the hospital's emergency room. In Mehlman v. Powell, 281 Md. 269, 378 A.2d 1121 (1977), the patient, who was suffering shortness of breath and other discomfort, went to the emergency room of a hospital, where he was treated by a physician who, with other physicians, had contracted to operate the emergency room as independent contractors. The physician misread the patient's electrocardiogram and, as a result, failed to realize that the patient was in imminent danger of heart failure due to a pulmonary embolism. 281 Md. at 271, 378 A.2d 1121. The patient was sent home and died two days later due to the pulmonary embolism. His survivors sued both the doctor and the hospital for medical malpractice and obtained a judgment against them.
On appeal, the hospital argued that it was entitled to a directed verdict because the emergency room was operated by an independent contractor. Mehlman, 281 Md. at 272, 378 A.2d 1121. To determine whether the hospital could be held liable for the malpractice of an independent-contractor physician, the Court applied the concept of apparent agency as described in Restatement (Second) of Agency § 267, which states:
281 Md. at 273, 378 A.2d 1121.
In subsequent cases, appellate courts in Maryland have relied on the discussion of apparent agency in Mehlman to assess the potential liability of hospitals for the negligence of independent-contractor physicians.
As applied by Maryland courts, the doctrine of apparent agency can be expressed in three elements:
See Chevron U.S.A., Inc. v. Lesch, 319 Md. 25, 34-35, 570 A.2d 840 (1990); see also Klein v. Weiss, 284 Md. 36, 61, 395 A.2d 126 (1978) ("Apparent authority results from certain acts or manifestations by the alleged principal to a third party leading the third party to believe that an agent had authority to act."); Parker v. Junior Press Printing Service, Inc., 266 Md. 721, 727-28, 296 A.2d 377 (1972) ("Succinctly stated, apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.").
As is evident, the doctrine of apparent agency has both subjective and objective elements: 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 relied on that belief in seeking medical care from the apparent agent. But the plaintiff must also show that the apparent principal created or contributed to the appearance of the agency relationship and that the plaintiff's subjective belief was "justifiable" or "reasonable" under the circumstances — an objective test. See Reserve Ins. Co. v. Duckett, 240 Md. 591, 600-01, 214 A.2d 754 (1965) ("It must be reasonable for the third person dealing with the alleged agent to believe that the agent has authority to act."); Chevron, 319 Md. at 35, 570 A.2d 840 (explaining that, in order to recover under the theory of apparent agency, the plaintiffs must show that their belief "was objectively reasonable under all of the circumstances"); Progressive Cas. Ins. Co. v. Ehrhardt, 69 Md.App. 431, 440-41, 518 A.2d 151 (1986) ("Under this doctrine [of apparent agency], the crucial factor is reasonable reliance by a third party on the principal's conduct.").
As outlined above, MCOs come in many flavors. Some are HMOs that may actually employ the physicians who serve their members.
Whether Jai MCO may be found vicariously liable in this case
The question in this case is whether a jury could reasonably conclude that the criteria of the Restatement § 267 for apparent agency were satisfied — that Jai MCO made representations that suggested that Dr. Bennett was its agent, that Ms. Bradford subjectively believed that Dr. Bennett was Jai MCO's agent and relied on that belief in seeking services from him, and that her belief was reasonable under the circumstances. One of these criteria is subjective, the other are two objective. We begin with the subjective element.
Ms. Bradford's Subjective Belief
Ms. Bradford testified that she believed that Dr. Bennett was an employee of Jai MCO for two reasons — first, she had previously seen him at Eutaw Medical Center, one of the medical centers operated by Seunarine P.A., and second, she believed that Jai MCO employed the physicians, including Dr. Bennett, who accepted her Jai MCO card — i.e., who were in Jai MCO's network. Although Jai MCO introduced evidence suggesting that her sighting of Dr. Bennett at the Eutaw Medical Center was inaccurate, a jury could accept her version and reasonably conclude that Ms. Bradford believed that Dr. Bennett was an employee of Jai MCO and relied on that belief in seeking treatment. Thus, she presented sufficient evidence to satisfy the subjective element of apparent agency under the Restatement § 267. Linking that belief to representations made or adopted by Jai MCO, however, is another matter.
Jai MCO's Representations Concerning its Relationship with Dr. Bennett
The only representations by Jai MCO concerning its relationship with Dr. Bennett that appear in the record are the listing of Dr. Bennett in the provider directory, the referral forms that permitted Ms. Bradford to see Dr. Bennett through Jai MCO under the Medicaid program, and some general passages concerning providers in the member handbook.
As indicated above, the provider directory lists nearly 4,000 specialty providers, many associated with Johns Hopkins Hospital and other institutions throughout the Baltimore metropolitan area, as part of Jai MCO's network and also lists various hospitals, pharmacies, and other entities as participating in Jai MCO's network. It does not identify any of these providers as an agent or employee of Jai MCO.
The referral forms simply document the specific referrals Ms. Bradford requested for Dr. Bennett and contain general instructions for specialists about how to bill Jai MCO for services provided to its members. These forms hardly suggest that a specialist is an employee of the MCO, do not specifically identify Dr. Bennett as an agent or employee of Jai MCO and, in any event, were created after Ms. Bradford asked for a referral to him.
The passages highlighted by Ms. Bradford's counsel in the member handbook
The Reasonableness of Ms. Bradford's Belief
Finally, we turn to the question whether Ms. Bradford's belief that Dr. Bennett worked for Jai MCO could be found to be justifiable or reasonable. We conclude that a jury could not reasonably make such a finding.
The member handbook, provider directory, and referral forms, considered individually or collectively, do not provide a basis for inferring that Dr. Bennett was the agent of Jai MCO. The provider directory itself effectively relieves any reader of the notion that all network participants are employees of Jai MCO. The list of network participants encompasses nearly 4,000 providers listed at various private addresses and at hospitals such as Maryland General Hospital, Bayview Medical Center, and Johns Hopkins Hospital. The sheer number of physicians, the range of hospitals, medical centers and private offices, and the inclusion of entities such as Walmart, Giant Food, and Rite Aid on the list of network providers would preclude any reasonable belief of agency based on those documents. In any event, there is no evidence that Ms. Bradford relied on those documents in concluding that Dr. Bennett was employed by Jai MCO.
Nor could Ms. Bradford's one-time sighting of Dr. Bennett at Eutaw Medical Center, one of several medical centers operated by Seunarine P.A., justify a belief that Dr. Bennett was an employee of Jai MCO. Even if the sighting is considered in light of possible confusion about the meaning of statements in the member handbook — for example, that Jai MCO provides "health care benefits" and that members will be referred only to specialists who "belong" to Jai MCO — it provides no basis for concluding that Dr. Bennett was an employee of Jai MCO.
Finally, the circumstances of Dr. Bennett's treatment of Ms. Bradford — which did not involve representations by Jai MCO — did not suggest that the MCO had an agency relationship with the podiatrist. The initial examination of Ms. Bradford's foot and the post-surgery follow-up visits took place at Dr. Bennett's private office at Penn North Foot Care.
Regardless of whether Ms. Bradford subjectively believed that Dr. Bennett was an employee of Jai MCO and relied on that belief in seeking medical care from Dr. Bennett, we hold that there was insufficient evidence to create a question for the jury because Ms. Bradford's reliance was not justifiable given the actual representations made by Jai MCO concerning its relationship with Dr. Bennett and the other circumstances of this case. We therefore affirm the holding of the Court of Special Appeals that reversed the Circuit Court's denial of Jai MCO's motion for judgment notwithstanding the verdict.
We differ from the intermediate appellate court in a key respect. The Court of Special Appeals relied in part on a "common knowledge" test in concluding that Ms. Bradford's belief that Dr. Bennett was an employee of Jai MCO was not objectively reasonable.
We hesitate to rely on a "common knowledge" theory in this case for several reasons. While MCOs are similar to traditional fee-for-service insurers in that they finance health care services, they are quite diverse and can differ from traditional insurers in several ways, including their relationship with the physicians who serve their members. Indeed, some MCOs — staff-model HMOs — hire salaried physicians to provide health care to their members. It is true that Jai MCO is not a staff-model HMO, but that is a distinct proposition from the notion that it is "common knowledge" that MCOs do not employ physicians. Finally, we observe that, when a court makes reference to "common knowledge" in this context, it is essentially taking judicial notice of decisive facts without supporting its conclusion in the evidentiary record or by reference to any authoritative source.
What happened to Ms. Bradford — the botched operation and the resulting partial amputation of her foot and scarring of her leg — is tragic. The question in this case was whether the MCO that financed that operation on her behalf should be held liable for the negligence of the physician who performed it. Ms. Bradford attempted to establish such liability under a theory of apparent agency. But even if she subjectively believed that Dr. Bennett was an employee of Jai MCO and relied on that belief in seeking medical care from Dr. Bennett, that belief was not objectively reasonable under the facts of this case. There was insufficient evidence for a jury to conclude that Dr. Bennett was the apparent agent of Jai MCO.
P.R. Kongstvedt, Essentials of Managed Health Care 32-33 (6th ed. 2013).
HG § 15-101(e).
A passage concerning specialists and services provided outside the Jai MCO network states: