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A jury verdict in San Antonio in a negligence suit against a health-maintenance organization may provide plaintiffs with a detour around the U.S. Supreme Court’s 2004 decision in Aetna Health Inc. v. Davila, which bars many coverage suits against HMOs. In Davila, decided with Cigna Health Care of Texas v. Calad, the justices unanimously ruled that patients cannot sue under state tort law for an insurer’s refusal to pay for doctor-recommended medicines and procedures. The high court found the 1974 Employee Retirement Income Security Act pre-empts such suits. But on July 27, 224th District Judge Rene Diaz of San Antonio signed a final judgment awarding a total of $9 million in damages to the plaintiffs in John Peter Smelik, et al. v. Michael W. Mann, et al. The issue at stake in Smelik differs enough from Davila for one of the plaintiffs lawyers in Smelik to call it a “groundbreaking case.” “This is not a denial-of-benefits case. This is a mismanagement-of-managed-care [case],” says another plaintiffs attorney, Jon Powell of San Antonio. Joan Diane Smelik, who was diagnosed in 2000 with kidney problems, died on June 1, 2001, of sepsis, a complication of emergency kidney treatment, says plaintiffs attorney Renee McElhaney. Smelik’s husband, John, and her adult children alleged in a petition filed in 2003 in Bexar County, Texas, that Humana Health Plan of Texas Inc. violated the Texas HMO Act, the Texas Deceptive Trade Practices Act and the Texas Insurance Code, and made negligent and/or fraudulent misrepresentations by failing to monitor the medical care provided to Joan Smelik. Also, the family alleged Humana committed itself to be involved in the health care provided to Smelik, and “promised to do much more than simply make a determination whether a particular ordered test, referral to a specialist, or hospital stay is or is not covered under the Humana HMO plan.” The Smelik family also alleged Dr. Michael Mann and Dr. Fred C. Campbell Jr. failed to properly treat Joan Smelik and alleged Alamo City Medical Group, Mann’s employer, failed to properly monitor the care Mann provided to Smelik. All of the defendants denied the allegations, and lawyers on both sides of the litigation say the doctors and Alamo City Medical settled prior to trial. Powell says the defendants settled for a total of $602,000. David Stephenson, a shareholder in Clemens & Spencer in San Antonio who represented Mann and Alamo City Medical, confirms his clients settled before trial but declines to give the value of the settlement. Keith Kendall, a shareholder in San Antonio’s Thornton, Biechlin, Segrato, Reynolds & Guerra who represents Campbell, was on vacation last week and did not return a telephone call seeking comment before presstime on July 28. Ross McLerran, media relations manager for Humana in Texas and Louisiana, declines comment beyond this statement: “The evidence showed Humana acted responsibly as a health benefits company. We approved every physician and hospital referral and paid every medical claim. We continue to express our sympathy to Mr. Smelik and his family. However, we intend to vigorously appeal the jury’s verdict.” McElhaney says the Smeliks did not allege Humana failed to pay for Joan Smelik’s medical care. “We readily admit that Humana paid every claim. We are not complaining about coverage, and we are not complaining about benefits,” she says. “We are complaining about a second bundle of obligations … where an insurance company is serving as a managed-care entity.” According to their petition, the Smelik family brought wrongful death, negligence, professional negligence, gross negligence, fraud and/or malice claims against the defendants and claimed Humana violated the Texas HMO Act, the Texas Deceptive Trade Practices Act and the Texas Insurance Code. A jury in Diaz’s court returned a verdict on June 28 finding Humana, Mann and Alamo City Medical Group negligent in connection with Smelik’s medical care and lodged 35 percent of the liability against Humana, 50 percent against Mann and 15 percent against Alamo City Medical Group. The jury found Campbell was not negligent and found Humana did not engage in fraud. In the punitive damages phase of the trial, the jury found the harm to Smelik resulted from gross neglect or fraud on the part of Humana. Prior to the second phase of the trial, Humana stipulated that punitive damages would be at the statutory cap amount — two times economic damages and a portion of non-economic damages. The judgment Diaz signed on July 27 awards the plaintiffs about $7.5 million in actual damages and $1.6 million in punitives. McElhaney and Powell say the judgment apportions a total of $4.5 million of the damages, including prejudgment interest, to Humana. WILL IT STAND? An associate professor at South Texas College of Law in Houston who read the Second Amended Petition and the verdict form isn’t so sure Smelik will pass appellate muster. “If all you have to do is prove negligence and you are around ERISA, then the Supreme Court’s opinion in Davila doesn’t mean anything,” says Charles “Rocky” Rhodes, who teaches constitutional law and civil procedure. “It certainly is an interesting case, and it was a very inventive attempt. It was well done. I will give the plaintiffs attorneys credit for that. I just don’t think it will stand up,” Rhodes says. Defense attorney Steven Shaver, a partner in Wilson, Elser, Moskowitz, Edelman & Dicker in Dallas, says Humana will file a motion for new trial and a motion for judgment notwithstanding the verdict. If those are unsuccessful, he says, Humana will appeal. McElhaney says Smelik is a “groundbreaking case,” because it may make law in the managed-care area. “It will make law, but it won’t be for them,” counters Shaver, who declines further comment. Shaver was a trial lawyer for Cigna in Cigna v. Calad, which the Supreme Court decided with Davila. Brenda Strama, a regulatory lawyer for hospitals and physician groups, says the issue at stake in Smelik is interesting, but, she says, “I’ll be very surprised whether that will hold up under appeal.” Strama, a partner in Vinson & Elkins in Austin, says, with the caveat that she is not familiar with the facts in Smelik, “If the issue is an HMO can be held liable for improper case management, then it seems to me that the answer is yes. Anybody can be held directly negligent for something if it’s their direct responsibility.” Rhodes says the plaintiffs lawyers “artfully tried” to prevent ERISA pre-emption. But he maintains it will be difficult to stand up on appeal. “In the end, this is just too easy a way to circumvent the Supreme Court’s decision in Davila by simply saying it’s a negligence claim, and it’s not based on a denial of coverage,” he says. It was the legal issues more than the prospects of a part of a big contingent fee that got McElhaney, an appellate lawyer, excited about the suit. McElhaney, a shareholder in Cox Smith Matthews in San Antonio, says Powell, of the Powell Law Firm, asked her about a month before trial to get involved. Brant Mittler, a solo practitioner in San Antonio who is also a doctor, also worked on the suit. Mittler did not return two telephone calls seeking comment before presstime. “I looked through the pleadings and read through some depositions. He [Powell] was in the process of settling with some of the doctors,” McElhaney recalls. She also researched Davila before she took the case. McElhaney says the issues piqued her interest, but then she met with John Smelik, who had been married to his wife for 47 years. “You meet with Mr. Smelik, and you just want to take care of him. He’s such a good guy. He’s a sweetheart,” says McElhaney. “After that due diligence we decided this was exactly the kind of case our firm should be involved with because … it has to do with ensuring a big company that has the assets to do the right thing lives up to its obligations. Also, it’s actually a method by which we can enforce a statutory system, which is the Texas HMO Act,” she says. Notes McElhaney, “My firm is more interested in cases that are maybe more complex, that will have an impact, that will be broader than just the initial interest of the parties.”

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