Healthcare Law

Mr. Albert Crenshaw, aged 45 years, is employed as a computer specialist. Through his employer in the

private sector, he has obtained health coverage with the Happy Family Health Plan, which is an MCO.
Happy Family has a network of participating physicians who have agreed to provide services to Happy
Family enrollees.

Each enrollee is required to choose a PCP from Happy Family’s list of participating physicians.
Because Mr. Crenshaw had recently moved to the area, he did not know any doctors. Therefore, he chose
Dr. Julia Smith as his PCP because she was on the list for Happy Family’s network.

Dr. Smith is a physician in private practice. Happy Family entered into a participating physician
contract with her because she was willing to provide services at a discount. In paying Dr. Smith,
Happy Family withholds 20% of her fee for each visit and puts that 20% into a risk pool. At the end of
the year, Dr. Smith will share in any money left in the pool.

Happy Family’s participating physician agreement is a standard form contract. It specifies that
participating physicians are independent contractors, rather than employees or agents of Happy Family.
In addition the contract between Happy Family and Dr. Smith provides that it may be terminated by
either party, with our without cause, on 30 days notice to the other party.

In the community in which Dr. Smith practices, it has been routine medical practice for many years to
give an electrocardiogram (EKG) to any patient older than 40 years who complained of chest pains.
However, on October 5, 1998, Happy Family sent a bulletin to Dr. Smith and the other participating
physicians with regard to Happy Family’s new policy on EKGs. Under that new policy, EKGs will only be
covered by the plan if the patient is older than 50 years.

Approximately 3 weeks later, on October 25, 1998, Mr. Crenshaw began experiencing chest pains after
working out at his gym during his lunch hour. He immediately went to Dr. Smith’s office. She knew Mr.
Crenshaw was covered by the happy family health plan, and she remembered the recent bulletin she had
received from the plan. Dr. Smith examined Mr. Crenshaw but did not perform an EKG, even though
performing an EKG under those circumstances was the routine practice in the community at the time.

Dr. Smith advised Mr. Crenshaw that he was safe for him to go back to work. Mr. Crenshaw did go back
to work, where he died of a heart attack two hours later.

As soon as Dr. Smith heard about the death of Mr. Crenshaw, she called the president of Happy Family
Health Plan. Dr. Smith told him that from now on she was going to order an EKG for every patient who
needs it, regardless of age. The next day, Happy Family responded by giving Dr. Smith 30 days notice
of termination from the plan which would effectively prevent her from treating any Happy Family

Subsequently, Mr. Crenshaw’s widow sued Dr. Smith for medical malpractice in state court. The
plaintiff (Mrs. Crenshaw) had an expert witness who testified that Mr. Crenshaw would not have died if
he had been given an EKG instead of being sent back to work. Mrs. Crenshaw also claimed that Happy
Family gave financial incentives to Dr. Smith to encourage her to provide less care to patients
covered by the plan. According to Mrs. Crenshaw and her lawyer, those financial incentives should be
illegal and, at the very least, should have been fully disclosed to Mr. Crenshaw.

In response, Dr. Smith denied that she was liable for the death of Mr. Crenshaw. According to Dr.
Smith, she satisfied the new standard of care as established by the Happy Family Health Plan. In
addition, Dr. Smith’s lawyer argued that the financial arrangements between Dr. Smith and Happy Family
were entirely lawful and that Dr. Smith had no legal obligation to disclose her financial arrangements
to Mr. Crenshaw. Finally, Dr. Smith’s lawyer contended that the medical malpractice case should be
thrown out of court a cause of the federal law known as ERISA, which regulates employer-sponsored
health plans such as Mr. Crenshaw’s plan.

In addition, Mrs. Crenshaw sued the Happy Family Health Plan in state court for damages caused by
Happy Family’s improper denial of benefits. According to Mrs. Crenshaw, Happy Family’s refusal to pay
for a necessary diagnostic tests was a substantial cause for her husband’s death. Therefore, Mrs.
Crenshaw claimed that she is entitled to $1 million from Happy Family to compensate her and her
children for 20 years of Mr. Crenshaw’s lost wages. In addition, she asked the court to make Happy
Family pay $10 million in punitive damages to teach them a lesson and encourage them to change their
policy for the future. However, Happy Family’s defense lawyer responded that the case against Happy
Family may only be heard in a federal court because of the federal ERISA law on employee health plans.
Moreover, according to Happy Family’s lawyer, even if Mrs. Crenshaw wins the case, she cannot recover
$1 million in lost wages or $10 million in punitive damages for Happy Family. Rather the most that she
can possibly recover against Happy Family is the cost of the EKG exam, which would have been covered
by the plan.

Who is likely to prevail on each claim, and why?