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A state appeals court has ruled in favor of a block of physicians with Promedicus Health Group in their lawsuit against Independent Health Association.

The Appellate Division decided that 25 Promedicus physicians are entitled to $342,843 in disputed pharmacy costs from the Amherst-based health maintenance organization.

The decision reverses a decision by State Supreme Court Justice Nelson H. Cosgrove, who dismissed the lawsuit last March.

The Appellate Division remanded the case back to Justice Cosgrove to determine damages.

Dr. Robert Erickson, president and CEO of Promedicus, said other financial factors between the two parties are relevant to the case and damages may total about $250,000, instead of $342,843.

The loss could have additional financial consequences for the HMO. Independent Health issued a statement Friday indicating it has notified 30 other primary care practices who had similar contracts for pharmacy charges about the court's ruling.

Independent Health plans to continue waging the legal battle. The company said it will move to reargue the Appellate Division ruling.

"It has been our position throughout this entire process that there was no ambiguity in the capitation contract language governing pharmacy charges," the company said in a written statement.

An attorney for Promedicus said the Appellate Division ruling is an important victory for physician groups who must rely on an increasing amount of revenue coming from HMO contracts.

"This case is a victory for all physician groups who have questioned their contracts with HMOs. It is clear that as the health care industry evolves, contractual relationships between physicians and HMOs will become the focal point of much scrutiny and must be carefully evaluated on both sides," said Robert G. Greene, and attorney from Woods, Oviatt, Gilman, Sturman and Clarke in Rochester.

The lawsuit over disputed pharmacy charges was filed by 25 physicians with Buffalo Family Practice Medical Associates in 1997. The group since merged with Medical Partners of Western New York to form Promedicus, one of the area's largest physician groups treating about 180,000 patients.

Buffalo Family Practice entered into a "capitation" contract with Independent Health and the Individual Practice Association of WNY in 1997 to share the risk of pharmacy charges.

The Individual Practice Association is an entity representing all physicians with Independent Health.

Independent Health set aside an average of $11.27 a month for prescription drug expenses of 16,600 Buffalo Family Practice patients, according to court records. The contract allowed physicians to share in savings from pharmacy expenses, but left them liable for any excess charges.

The pharmacy pool grew to $1.27 million between January and July 1997, according to court records. The doctors believed they were about $24,000 under budget at the end of July, but the HMO said pharmacy charges were $199,992 over budget.

The difference came in co-payments patients make at pharmacy windows. The insurance company had 33 different prescription riders in 1997 with co-payments ranging from $3 to $10.

Independent Health believes co-payments fell within the contract's definition of pharmacy expenses. The physicians argued the co-payments are between customers and pharmacies, and have no bearing on the financial arrangement between doctors and the insurance company.

Independent Health extrapolated the overbudget amount to an "annualized" figure of $342,843 and started deducting the money from its payments to Buffalo Family Practice in four monthly installments. When the first deduction was made in September 1997, the doctors filed suit.

A five-judge Appellate Division panel simply stated: "Defendants are authorized to debit the Pharmacy Referral Fund only with the actual amount that they have paid to pharmacies," in the Dec. 31 ruling.

Promedicus stopped seeing Independent Health patients on Jan. 1, citing quality of care concerns.

"The court's decision in this case reinforces our belief that honesty is paramount to a healthy relationship between physicians and health maintenance organizations," Erickson said.

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