Patel v. HealthPlus, Inc.

CATHELL, Judge. In this case, a physician had a contractual relationship with a Health Maintenance Organization HMO that required him to perform services for the HMO’s members. In return, he was to receive certain fees from the HMO that were to be paid ²⁵⁴ pursuant to the terms of the contract. Disputes arose as to whether he was being, or had been, paid the correct sums in the manner contractually required.

He initiated suit in the District Court against the HMO for sums due for services rendered to one of the HMO’s subscribers. He won. He then sued the HMO again in the District Court for sums due for services rendered to another one of the HMO’s subscribers. While that was pending, he initiated another suit in the District Court against the HMO for sums due for services rendered yet another of the HMO’s subscribers.

All of the subsequent actions or potential actions could have been filed at the time of the initial action. The HMO instituted a declaratory judgment action in the circuit court asking that court to declare that the fees claimed in the subsequent two cases, as well as numerous other cases, were uncollectible because the doctrine of res judicata applied. The circuit court agreed and declared that the maintenance of the subsequent suits was barred. Kanaiyalal J. Patel, M.D., is the appellant who appeals from the granting of motions for summary judgment and for dismissal in favor of HealthPlus, Inc. (HealthPlus), appellee, a health maintenance organization (HMO), and Sandra Sheppard (Sheppard), a HealthPlus employee. 1 In the first of the actions mentioned above, appellant recovered fees owed to him by appellee for services he rendered pursuant to the same contract at issue in the subsequent two cases and in the declaratory judgment action.

Appellant presents three questions: I. Did the Circuit Court know and understand the material provisions of the “contract” allegedly before it and did the Circuit Court know if this was the same “contract” before the District Court in Civil No. 5-23594-94 (the V.S. case)? ²⁵⁵ II. Does the Doctrine of Res Judicata apply to preclude the 270 alleged claims against HealthPlus and two additional cases filed by Dr. Patel?

III

Does the Doctrine of Res Judicata preclude Dr. Patel’s counterclaims in Civil No. CAL 95-02017 and was the dismissal thereof and the two additional cases proper? Questions two and three are actually the same question, i.e., did the trial court properly apply the principles of res judicata in the granting of the motions? Accordingly, we shall later address them simultaneously. Question one alleges no error.

It merely asks this Court if the trial court understood the terms of an agreement. In respect to this question, appellant states in his argument: Before the transaction test can be applied, the transactions or lack thereof must be understood by the trial court on a Motion for Summary Judgment.... In order for the Circuit Court to determine that the “contract[s]” that Judge Kelly ruled on [were] the identical contracts] ... before it ... would require the Circuit Court to demonstrate that it knew this intention to be the case.... Nor is it possible ... to see that the Circuit Court understood what “contract[s]” it determined had been ruled on in the District Court....

The Court of Special Appeals must now determine if the Circuit Court was legally correct .... Neither the District Court decision ... [allegedly creating res judicata ] [n]or the sworn evidence before the Circuit Court ... can be relied upon to determine the intention of the parties under the “contract”.... ... [T]he intention of the Circuit Court ... is not disclosed any further than it was based solely on Alvey v. Alvey, supra, and Rosenstein v. Hynson [157 Md. 626, 147 A. 529 (1029)] supra. That is all that Appellant can ... ²⁵⁶ interpret from a fair reading of the decision. Appellant believes the Circuit Court decision[s] ... are legally wrong.

All we can interpret from a reading of appellant’s first question and the argument in support of it is that appellant’s position is that the circuit court has to be wrong because appellant does not understand what happened. Maryland Rules 8-504(a)(3) and (4) require that questions presented state “the legal propositions involved,” and the brief must contain a “clear concise statement of the facts material to a determination of the questions presented.” Appellant’s first question appears merely to state a disagreement with the result rather than to assign reversible error. Thus, we shall not directly address it because we cannot perceive what it is we are asked to address. It appears, however, that we may answer question one, whatever it may be, as we address questions two and three.

We note that the trial courts’ decisions 2 were based completely on their application of res judicata principles. The second and third questions presented by appellant are: Does the Doctrine of Res Judicata apply to preclude the 270 alleged claims against HealthPlus and two additional cases filed by Dr. Patel? Does the Doctrine of Res Judicata preclude Dr. Patel’s counterclaims in Civil No. CAL 95-02017 and was the dismissal thereof and the two additional cases proper? In order to respond adequately to these questions (really one question), we first note that certain of appellant’s arguments will require us to examine the contractual nature of the tripartite relationship that generally exists when some types of health maintenance organizations are involved.

In stating appellant’s arguments and in later addressing the res judicata issue, we are concerned primarily with the nature of the contract between appellant, a physician, and the HMO, not in whether fee computations were accurately made or procedures adequately followed or even understood. If there is one ²⁵⁷ general contract between appellant and appellee as to fees, certain res judicata principles may apply. If the arrangement is a series of contracts between appellant and appellant’s patients, other principles may apply. With respect to the relationship among appellant, Health-Plus, and Sheppard, appellant argues that HealthPlus is an HMO that “arranges health benefits” for its members by contracting with private practicing physicians.

Dr. Patel does not disagree that HealthPlus arranged for him to provide services to HealthPlus patients, but he asserts strongly that he still makes his own professional determination about each person referred being his patient in return for accepting what HealthPlus would pay for that service. Dr. Patel states that each patient is referred by a primary physician, not by himself. Thus, there is no series of transactions with the HealthPlus patients. Each patient is referred to Dr. Patel for different reasons and each is treated according to his or her needs.

This is not a mere series of transactions between HealthPlus and Dr. Patel. ... There never was an expectation that the physician provider had to sue HealthPlus over every breach of contract at one time if a claim could not be resolved. This Court can well understand the reluctance of some physician providers to take action against HealthPlus or any other HMO or insurance company when they are receiving a large percentage of their patients on referral from such an organization. [Emphasis added.] As is apparent, appellant contends that each visit with a patient who was a member of the HMO was a separate “transaction,” i.e., a separate contractual arrangement. In order, therefore, to address appellant’s arguments and answer the questions presented, we must establish what a ²⁵⁸ health maintenance organization, in a general sense, is. 3 We must also examine the contract between the parties in the context of HMO/physicians, HMO/subscribers, and physician/patient relationships.

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, 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 ²⁵⁹ 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. 4 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 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 ²⁶⁰ for a fixed fee which is paid by the subscribers to the HMO. The HMO then (if it is not a “staff model,” as appellee is not) 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, ie., 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. It is through this relationship that “for profit” HMOs hope to achieve success. Because many members will utilize services at a cost of less than the fee the subscriber pays to the HMO and a significant number will utilize no services at all, and because the HMO is able to obtain medical services at lower rates due to its ability to direct volume and control eosts through its ability to impose treatment limitations and lower fees on providers, ie., physicians, the HMO hopes that it can produce a profit after the cost of administering the program.

Thus, there may be constant pressure to keep some costs, ie., the fees it pays providers, down and pressure to keep subscriber fees at the maximum level that will not result in a loss of subscribers. Its arrangements with providers, therefore, might be characterized as inherently contentious, and even litigious, because of the ebb and flow of cost-cutting pressures inherent in the business arrangement and the conflict between a physician’s judgment in respect to treatment and an HMO’s efforts to control treatment options. The cutting of costs and the increase in fees go in different directions under different contracts. The member who pays the increased fees has no reason to object to the HMO’s cost-cutting, and the provider has no reason to object to the HMO’s increasing of fees.

While, at a glance, it appears to be a triangular relationship with the HMO at the apex, it is really two-sided — right ²⁶¹ (member) and left (provider) both meet at the apex (HMO) but with no contractual base line between the subscriber and the provider. 5 It is clear that there are two distinct and separate types of contractual agreements necessary or extant in this relationship — the HMO-Subscriber Contract and the HMO-Provider Contract. The HMO-Subscriber contract can also involve parties other than subscribers. Often, employers, both private and public, agree to bear a portion of a subscriber’s (its employees’) fees, and the' HMO agrees to offer memberships to all of the employees of that particular employer. Different employers may negotiate different subscriber contracts with the HMO.

Consequently, it may be possible for HMOs to have numerous different subscriber contracts with their members who work for different participating employers. In this way, and in other ways as well, there may be different classes of subscribers. On the “provider” side of the relationship, an HMO may contract for doctors, specialists, primary care physicians, referrer and referee physicians, etc. The number and variety of these contracts depends only upon the various types of services desired to be provided the HMO’s subscribers. The more and varied the services necessary to enable the HMO to achieve its desired membership size, the more and varied the nature of its staff physicians (in a Staff model) or the more and varied the nature of the various providers with whom the HMO contracts.

It generates revenue by increased membership. It reduces service costs by suggesting treatment options and by negotiating with providers to furnish services at the lowest possible cost. If revenues exceed costs, the HMO, as is generally the case in many businesses, has a profit— ²⁶² otherwise it has a loss. 6 Both the HMO and the physician are providing medical services. The medical services are provided to the subscribers.

The members contract with the HMO. The doctor contracts with the HMO. In membership contracts without copay provisions, the members are never obligated to pay the doctor for any portion of his services. The issues in the case at bar do not involve copayments.

The contracts between the HMO and the doctor, as in the case at bar, require the doctor to accept the fees agreed upon between him/her and the HMO as full payment, subject, of course, to any adjustment provisions contained in the contract. Due to the importance of the product, i.e., health care services, that both the HMOs and the providers are offering, both federal and state governmental regulation has evolved. In the case sub judice, we will be basically concerned with State regulations. The term “benefit package” is statutorily defined as a set of health care services to be provided to a member of a health maintenance organization under a contract [the HMO-Subscriber contract] that entitles the member to the health care services, whether the services are provided: (1) Directly by a health maintenance organization [Staff model]; or (2) Through a contract or arrangement with another person [the HMO’s contract(s) with outside providers]. ²⁶³ McLCode (1982, 1996 Repl.Vol.), § 19-701(b) of the Health-General Article. 7 In the case at bar, we are concerned only with subsection (2) above.

Section 19-701(f)(5) provides that non-staff model HMOs that contract with physicians for services for their members do so, as relevant to the case sub judice, (ii) Under arrangements with ... physicians ... on ... individual practice basis, under which [the physician]: 1. Is compensated for its [his/her] services primarily on the basis of an aggregate fixed sum or on a per capita basis; and 2. Is provided with an effective incentive to avoid unnecessary inpatient use, whether the individual physician members of the group are paid on a fee-for-service or other basis. Section 19-712(a)(3) provides, in part, that an HMO may utilize either its employees to provide health care services to members or may utilize “licensed providers ... who are under contract with ... the health maintenance organization.” It is clear that appellant was a provider pursuant to a contract with appellee.

Nevertheless, he argues that “the custom and trade in the business and the expectations of the parties was that each claim for each patient was a separate and distinct [contract] that would be resolved separately.” He notes that in this case, “there was no single transaction or series of related’ or connected transactions.” Appellant seemingly argues that there was not one contract between himself and appellee but that each patient he saw constituted a separate contract with that patient who he could sue in addition to being able to sue appellee for payment under the primary contract. We shall later note statutory prohibitions to such arrangements. The parties do not direct our attention to any Maryland case that construes the nature of contracts between ²⁶⁴ HMOs and providers in the context of a fee dispute. We have found none.

Moreover, neither party refers us to any foreign cases on the subject. Likewise, we have found none. The few cases that involve HMOs relate to malpractice liability, negligence, and other matters. The cases include Sanus/New York Life Health Plan, Inc. v. Dube-Seybold-Sutherland Management, Inc., 837 S.W.2d 191 (Tex.Ct.App.1992), involving capitation fees. 8 In it, the Court held that when the means of determining the amount of fees due are under the control of the HMO, a requirement of fair dealing applies.

The Court resolved the issue under traditional contract interpretations. Whether a fair dealing requirement applies is not relevant here due to the posture of the case on appeal. 9 This case revolves around the application of res judicata principles. ²⁶⁵ The Supreme Court of New Hampshire, when reviewing the termination of a provider’s contract, rejected a trial court’s characterization of the arrangement between an HMO and a provider as an employer-employee relationship in Harper v. Healthsource New Hampshire, 140 N.H. 770 , 674 A.2d 962 (1996). Appellant, in the case at bar, was terminated by appellee because he was convicted of a federal felony and because he lost his license to practice in Maryland. Although appellee asserted in its brief that appellant is motivated by his desire, now that his license has been restored, to be reinstated as a provider by the appellee, appellant does not, in this case, challenge his prior termination or appellee’s refusal to reinstate him.

Thus, Harper is directly pertinent not for its discussion of public policy 10 issues but for its comments on the nature of the relationship. We acknowledge the comprehensive statutory enactments in Maryland evidencing the Legislature’s extensive public policy concerns. Due to the posture of this case, public policy concerns are not determinative, and we hereafter address such concerns only peripherally. See also Raglin v. HMO Illinois, 230 Ill.App.3d 642 , 172 Ill.Dec. 90 , 595 N.E.2d 153 (1992) (characterizing providers as independent contractors); Olaf v. Christie Clinic Ass’n & Personal Care HMO, 200 Ill.App.3d 191 , 146 Ill.Dec. 647 , 558 N.E.2d 610 (1990) (concerning the relationship between the provider and the HMO’s members in a physician-patient context); ²⁶⁶ Freedman v. Kaiser Found.

Health Plan, 849 P.2d 811 (Colo. Ct.App.1992) (holding that HMOs are not insurers against a provider’s negligence although leaving open the possibility that an HMO might be subject to actions in negligence if it selected unqualified providers). Our review of the treatises, the cases, and the statutes, leads us to hold that, unless a contract provides to the contrary, a provider’s (physician’s) contract with an HMO governs his recovery of fees for services rendered to an HMO’s subscribers. Except to the extent a contract lawfully permits him to collect fees from an HMO subscriber he may not do so.

Copayments (or, as in the case of insurance, percentages or deductibles) may, under certain circumstances, as we shall discuss, be collectable from a patient. In the case sub judice, however, the contract at issue and the fees sought from the HMO are not based on copay provisions. If they exist in this case, and the agreement indicates that they might, such copay provisions would not affect a resolution of the res judicata “transaction” issue. Except as to copays contractually provided for, the applicable statutes prohibit a provider from attempting to collect fees from an HMO’s subscriber.

The fees appellant was attempting to collect in the prior and present cases were not copayments. Accordingly, appellant’s only right to collect these fees for the services rendered in respect to his various and numerous bills was under his master contract with appellee — the HMO-Provider contract at issue. Appellant had no contractual right to collect any of the sums being sued for from the HMO’s subscribers. In the initial suit in the District Court, Civil No. 050-23594, for recovery of fees for services rendered to Vivian Stevens, appellant made several contentions.

He noted that 1) appellee was a successor corporation to the “non-profit Prince George’s Health Services Foundation, Inc.”; 2) he had an agreement with appellant to provide specialist physician services; and 3) he would be paid, as appellant quotes, “ ‘usual and customary compensation for the same service among other physicians participating.’ ” 11 This quote (with one difference — a trans ²⁶⁷ posing of “physicians” and “participating”) appears to be taken from Attachment B — “Physicians Compensation” — of an agreement entitled “Prince George’s Health Services Foundation, Inc., Specialist Physician Agreement.” Appellant, in his breach of contract claim, stated that he and appellee “have a written agreement which provides that K.J. Patel will be paid for services provided to patients referred to K.J. Patel by HealthPlus” (the successor to the previous HMO). In that District Court suit, appellant was relying, therefore, on the “Prince George’s Health Services Foundation, Inc., Specialist Physician Agreement” an unsigned copy of which is in the record. In the next District Court suit, Civil No. 050-27712, involving services rendered to patient McCoy, appellant clarified that he was operating under the previous contract. Appellant stated: “In 1983, K.J. Patel entered into an agreement to provide specialist physician services for patients of Prince George’s Health Services Foundation, Inc., ... which was later transformed into a for profit corporation, and purchased ... and operated as HealthPlus, Inc.” 12 Consequently, it is clear that the contract forming the basis of the arrangement between appellant and appellee is the one found in the record.

As the circuit court trial judges rendered judgments on res judicata grounds in the case sub judice, any further relevance of any subsequent modifications, interpretation of the procedure for payment of bills, the fairness or correctness of fees, the intentions of the parties as to method of payment, whether the trial judge in this case knew of their intentions, etc., will, in the context of this case, be relevant only if we were to reverse. If res judicata does not apply, the case will need to be remanded, at which time these ancillary issues could presumably be addressed. ²⁶⁸ We look now to the agreement to see whether it limits the ability of appellant to maintain separate suits against the patients for the fees. Appellant argues that it does not; he asserts that this case is . distinguishable from the application of transactional analysis in the res judicata context. As directly relevant, and in association with the statute we will discuss, the following provisions of the contract are important: WHEREAS, IPA [13] desires to enter into an Agreement with Specialist Physician obligating him to perform said specialist health services for the Members of Health Plan; WHEREAS, IPA as well as Specialist Physician desires to enter into an Agreement which recognizes fully the contributions of Specialist Physician and assures continuous harmonious management of the affairs of IPA; and WHEREAS, IPA and Specialist Physician mutually desire to preserve and enhance patient dignity; ... [I]t is initially covenanted and agreed by and between the parties hereto as follows: II.

Compensation Specialist Physician’s compensation for services hereunder shall be at the rates set forth in the Fee Schedule for Specialist Physicians annexed hereto as Attachment B. IPA and Specialist Physician agree that the objective of the fee arrangement described in Attachment B is to provide equitable distribution according to level of activity, appropriateness of service volume as determine[d] by peer review and distribution of surpluses based on reductions in utilization. The availability of such distributions will be used to encourage appropriate high-quality utilization patterns and ²⁶⁹ strengthen services. [14] Specialist Physician shall look only to IPA for compensation and at no time shall he seek compensation from Health Plan Members for services except for the nominal co-payments permitted under the Member’s Medical and Hospital Service Agreement with Health Plan, a copy of which is attached hereto as Attachment C and made a part hereof. C. This Agreement shall be governed in all respects by the laws of Maryland and 42 U.S.C. § 300e, et seq. The invalidity or unenforceability of any terms or conditions hereof shall in no way affect the validity or enforceability of any other term or provision.

ATTACHMENT B PHYSICIAN’S COMPENSATION Physician compensation for health services shall be determined by IPA, the maximum amount payable for any one service being established by IPA based on historical records of the usual and customary compensation for the same service among other participating physicians in IPA. [Emphasis added.] The contract upon which appellant relies prohibits any attempt on his part to initiate separate suits against individual patients for collection of fees for services he rendered to the appellee’s subscribers except as to any applicable copay provisions. Even if copay provisions were contained in the applicable contract, no copay issues are, as we have indicated, present in this particular appeal. ²⁷⁰ Based upon this contract, appellant filed the initial District Court suit that we have mentioned; that court determined that contract to be valid and rendered judgment for appellant, a judgment that appellant accepted and did not appeal. 15 In addition to the contract provisions, and more important, a statute prohibits appellant from instituting or maintaining separate contractual actions, for the fees that are the subject of the underlying suit at issue here, against members of the HMO for services rendered to them pursuant to appellant’s contract with appellee. Section 19-710 requires that all agreements between HMOs and providers contain a hold harmless clause. This section provides: (h) Hold harmless clause. — {1) ...

Agreements between a[n HMO] and providers ... shall contain a “hold harmless” clause. (2) The hold harmless clause shall provide that the provider may not, under any circumstances, including nonpayment of moneys due the providers ... or breach of the provider contract, bill, charge, collect a deposit, seek compensation, remuneration, or reimbursement from, or have. ²⁷¹ any recourse against the subscriber, member, enrollee, patient, or any persons other than the [HMO] acting on their behalf, for services provided in accordance with the provider contract. [16] [Emphasis added.] Moreover, subsection (o) of section 19-710 specifically forbids attempts to collect from subscribers: (o) Enrollee not liable for covered services; exceptions.— (1) Except as provided in paragraph (3) of this subsection, individual enrollees and subscribers of health maintenance organizations issued certificates of authority to operate in this State shall not be liable to any health care provider for any covered services provided to the enrollee or subscriber. (2)(i) A health care provider or any representative of a health care provider may not collect or attempt to collect from any subscriber or enrollee any money owed to the health care provider by a health maintenance organization issued a certificate of authority to operate in this State. (ii) A health care provider or any representative of a health care provider may not maintain any action against any subscriber or enrollee to collect or attempt to collect any money owed to the health care provider by a health maintenance organization issued a certificate of authority to operate in this State.

The exceptions relate to copayment, uncovered services, etc., not relevant to this appeal. Holding We hold, therefore, that under the contract at issue here and under contracts between HMOs and health care providers generally, Maryland statutory law requires a health care provider to look only to the health maintenance organization for payment for any covered services it has performed for the subscribers, members, or enrollees of the HMO, except to the extent the contract between the provider and the HMO validly ²⁷² permits the provider to recover from the subscribers for copayments, which subscribers may be hable for under their separate and distinct membership contract with the HMO. 17 Accordingly, in the case at bar, there was but one contract (as correctly found by circuit