SAN ANTONIO July 06 (BestWire) — In a case with potentially broad implications for the managed-care industry, a San Antonio jury has levied a $4.2 million damages verdict against Humana Inc.'s Texas HMO subsidiary, finding the HMO partially liable for negligently mismanaging a member's medical care.

The family of Joan Smelik, including her husband and two grown children, originally filed the wrongful death suit in May 2003, alleging Humana Health Plan of Texas Inc. mismanaged Smelik's health care before her 2001 death from kidney failure by failing to implement case management procedures set forth in Humana's member handbook, said Jon Powell, an attorney who represented the Smeliks, based in San Antonio.

In the 10-2 verdict, handed down July 1 in the 224th District Court in Bexar County, the jury found the Smelik family suffered a total of $9 million in damages due to the mismanagement.

In addition to Humana of Texas, a unit of Humana Inc. (NYSE:HUM), the defendants also included a physician and a physician group, said Rene McElhaney, of the San Antonio-based Cox Smith Matthews Inc., another attorney who represented the Smelik family.

Joan Smelik received her health insurance coverage from Humana through her husband's employer, a health plan governed by the Employee Retirement Income Act of 1974, or ERISA, said McElhaney.

With the jury verdict, delivered after three days of deliberations, Humana was found 35% liable, McElhaney said. Total damages levied against the HMO were $4.2 million, which included $2.6 million in compensatory damages and $1.6 million in punitive damages, she said.

The physician and physician group, which were within Humana's provider network, were liable for the remaining 65% in damages. However, these defendants settled out of court prior to trial, she said, adding that the amount of the settlements is confidential.

Tom Noland, a spokesman for the Louisville, Ky.-based Humana, said the company continues "to express our sympathy to Mr. Smelik and his family; however, we intend to vigorously appeal the verdict.

"The evidence showed Humana acted responsibly as a health benefits company," Noland said in a statement. "We approved every physician and hospital referral and paid every medical bill."

During the nearly three-week trial, Humana claimed it didn't know Joan Smelik had kidney disease, but Powell said that claim was contradicted by the company's computer records. During her illness, Humana told the Smeliks that the arteries leading to Joan's kidneys were hardening and could be fixed with an inexpensive device called a stent, he said.

"The family wasn't told she had chronic kidney disease and that she would need the care of a kidney doctor, and ultimately, dialysis, which is very expensive," Powell said. "The family was told about the inexpensive diagnosis, but never informed about the kidney disease."

The case may have broader implications for the managed-care industry, McElhaney and Powell said. The Smeliks' main negligence allegation — that Humana "failed to exercise ordinary care" in managing Joan's care — was key to their case, McElhaney said.

"Both attorneys and now enrollees can look at this case and see that if (a) complaint is with the managed care side ... the promises that an HMO makes, and the HMO does not do what they have promised to do, or what the law requires them to do, then I think an HMO can be liable in a court of law," she said

Last year, the U.S. Supreme Court — in a big victory for health insurers — unanimously ruled that patients unhappy with their coverage decisions cannot sue their HMOs in state court. The high court ruling settled an issue that had been fought in the U.S. Congress and in statehouses across the country, as lawmakers for years struggled to balance patient protections against crippling the court system—and insurers—with lawsuits (BestWire, June 21, 2004).

In the Supreme Court decision, which also was based on suits filed in Texas, the court ruled patients may not pursue claims against their HMOs in state court, and that for their claims to move forward, they must follow the 30-year-old Employee Retirement Income Security Act of 1974, or ERISA law, and pursue their cases in a federal court (BestWire, June 21, 2004).

The patients suits were "preempted" by ERISA, the high court ruled, essentially taking insurers off the hook for large jury awards. Once in federal court, patients may only seek the value of the benefit the insurer denied them—thus sparing insurers the potential of paying out vast sums in punitive damages, which state court juries often hand out (BestWire, June 21, 2004).

But the Smelik family's case wasn't barred by ERISA, Powell explained, noting its significance.

The Smelik family didn't allege that Humana denied benefits to Joan Smelik, he said. "It wasn't that a claim for a kidney doctor was submitted and Humana denied it," Powell said. Instead, "it was the HMO's failure in managing her care. She didn't get a case manager; she didn't get a kidney doctor," as Humana specified in its member handbook, he said.

In order for plaintiffs to be awarded punitive damages in Texas, there must be a finding of gross negligence, Powell said. The jury in this case found gross negligence, he said. The jury verdict "will make Humana and other HMOs actually have to live up to their promises and actually implement their policies and procedures," Powell said.

The Texas HMO Act, the statute at issue in the 2004 landmark Supreme Court ruling, allows plaintiffs to file a negligence claim against their HMO, Powell noted.

"We treated the Texas HMO Act as a codification of the duties owed by a managed-care entity to Texans under the common law," McElhaney explained.