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In a decision that may create a new cause of action against health maintenance organizations — at least in New York’s Third Department — a deeply divided Appellate Division panel last week held that an HMO can be sued by a patient whose medical records were improperly released by a clerk. In Jane Doe v. Community Health Plan-Kaiser Corporation, 85529, the Third Department reinstated a claim against an Albany, N.Y. area HMO. A dissenting opinion accused the slim 3-2 majority of selectively grasping fragments from various statutes to fashion a “hybrid cause of action, hitherto unknown to the law.” Also last week, the Third Department affirmed the power and authority of the State Public Service Commission in upholding a PSC finding of gross negligence and willful misconduct against New York Telephone Company. The case is New York Telephone Company v. Public Service Commission, 84407. The HMO matter involves a patient who received services from a psychiatric social worker at a CHP-Kaiser facility just north of Albany. After a medical records clerk, Christen Adey, allegedly revealed confidential information, the patient sued the HMO for, among other things, negligent disclosure. Albany Supreme Court Justice Joseph C. Teresi granted a summary judgment motion by the defendant and dismissed the action against CHP-Kaiser. Justice Teresi reasoned that since Adey was not acting within the scope of her employment, the HMO was not liable for the alleged disclosure. Last week, the Third Department reversed. In a prevailing opinion by Justice Carl J. Mugglin, the Third Department noted New York’s 150-year tradition of recognizing the importance of doctor-patient confidentiality “in order to nurture a relationship of trust in health care settings.” Justice Mugglin said the “cloak of confidentiality” extends beyond direct-care medical service providers to include clerks like Adey. He said that to relieve CHP-Kaiser of liability because an employee acted outside the scope of her employment would in effect shield HMOs from virtually any claim of wrongful disclosure, “since the wrongful disclosure of confidential information would never be within the scope of the employment of its employees.” Joining the opinion were Justices Edward O. Spain and Victoria A. Graffeo. In dissent, Justice Thomas E. Mercure said the majority holding wrongly imposes strict liability on the HMO and allows the plaintiff to recover regardless of CHP-Kaiser’s fault. “We seriously question the wisdom of having an intermediate appellate court create a new legal remedy every time it discovers an unserved need,” Justice Mercure said in a dissent joined by Justice Anthony J. Carpinello. “We also cannot discern any meaningful distinction between a statute’s creation of a private right of action and a judicial recognition of a new common-law cause of action based upon a violation of the very same statute.” Lee D. Greenstein, an attorney in Albany who represents the plaintiff, said the ruling recognizes that the trust a patient places in an HMO extends throughout the organization. “This is a victory for patients everywhere,” Greenstein said. “Now, when someone goes to see a healthcare provider, the promise they get from the organization that what they say is in confidence now has some teeth.” Greenstein, however, disputed that the ruling creates a new cause of action, but acknowledged that he expects the case to be appealed. “I don’t think it creates any new law at all,” he said. CHP-Kaiser was represented by Paul M. Collins of Hinman, Straub, Pigors & Manning in Albany. TELEPHONE COMPANY The telephone company case arises from a multi-faceted dispute over an information service through which customers can obtain sports scores and news summaries by dialing certain numbers beginning with 976. Callers of those numbers are assessed a fee by New York Telephone (NYT), a portion of which is shared to the information providers pursuant to PSC Tariff 900. New York Telephone used an automated system called Autotrax to keep track of the number of 976 calls received by various information providers until September 1990. However, Autotrax was prone to errors and New York Telephone eventually transferred the 976 calls from that system to the Ericsson system, which was apparently fraught with its own problems. After information providers complained of a marked decrease in calls, and a corresponding decrease in income, the Public Service Commission initiated an investigation which led to a PSC-approved settlement with some providers, and a scathing report from an Administrative Law Judge who found the telephone company guilty of gross negligence in connection with the Autotrax-to-Ericsson transfer, and willful misconduct in connection with the call-count adjustment. The PSC adopted most of the findings of the ALJ — except, notably, a recommendation that NYT refund $25.2 million to the information providers. It concluded that the recommended refunds were de facto damages, which the PSC lacks authority to award. New York Telephone challenged the finding of willful misconduct and gross negligence. The telephone company argued that the misconduct and negligence findings relate solely to damages, which the PSC acknowledged it cannot impose. Consequently, New York Telephone maintained, the PSC exceeded its authority. In a per curiam opinion, the Third Department unanimously disagreed. The court said that PSC Tariff 900 immunizes NYT from negligent behavior and absolves it from liability absent gross negligence or willful misconduct. It then stands to reason, the court said, that the PSC is empowered to determine if the telephone company’s misconduct rose to that level of culpability. “We simply cannot envision a legislative scheme that would empower an administrative agency to investigate a matter, yet would preclude it from issuing findings of fact regarding … NYT’s potential liability as defined in the governing tariff,” the court said. FREE SPEECH CLAIMS In a consolidated matter, the court also rejected a claim by an information provider, Arthur Evans, and the Ad Hoc Committee of Independent Information Providers. Evans had contended that a blocking mechanism that allowed customers to block so-called “premium,” often adult, services inadvertently blocked innocuous 976 calls as well. He sought relief for free speech violations. The court found the situation analogous to one in which postal customers can have objectionable materials withheld from delivery. “Evans is entirely free to market and provide his services to any subscriber willing to pay for them,” the court said. “However, he does not enjoy the constitutional right to force his services on unwilling customers.” On the panel were Justices Mercure, Carpinello, Mugglin, Karen K. Peters and D. Bruce Crew III. Lead counsel were Guy Miller Struve, of Davis, Polk & Wardwell, for the telephone company and Diane T. Dean, in-house counsel for the PSC.

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