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Health Insurance & Affordable Care Act

Supreme Court Set to Hear Pivotal HMO Case

WebMD Health News

Jan. 7, 2000 (Washington) -- If you have any interest in the fate of the managed care industry in America, you'll want to mark your calendar for Feb. 23 at 10:00 a.m. EST. That's when the U.S. Supreme Court is scheduled to hear the Cynthia Herdrich case. Herdrich claims she was victimized by her HMO, but that's only the beginning. No mere malpractice lawsuit, industry critics and supporters agree that this action could profoundly affect the way managed care organizations cover some 140 million Americans in the future.

"If we go back to an era where care was unmanaged, 15 years ago, and health care inflation picks up where it left off, you're not going to have 44 million people uninsured in America, you're going to have 144 million people uninsured," Jeffrey Gabardi, legislative director and counsel for the Health Insurance Association of America, tells WebMD.

Specifically, the 1992 case involves a $35,000 malpractice award given to Herdrich on the basis that her physician failed to follow up on evidence she had appendicitis. Ultimately, Herdrich's appendix ruptured, and she developed peritonitis. Herdrich's HMO, the Carle Clinic of Urbana, Ill., appealed the verdict, and the Seventh Circuit court ruled that Herdrich's HMO had breached its basic "fiduciary" responsibility to act in the patient's best interest, because the company's compensation scheme rewarded doctors who saved money on treatment. In other words, was the HMO more concerned about the patient or the bottom line?

"The court of appeals' view that physician incentive arrangements substantially erode the quality of American health care is both historically naive and contrary [to the evidence]," says a brief filed in the Herdrich case on behalf of the American Association of Health Plans, the Health Insurance Association of America, the Association of Private Pension and Welfare Plans, and the U.S. Chamber of Commerce.

The managed care industry has asked the Supreme Court to hear the case in hopes of resolving what has become an increasingly acrimonious national debate over the need to provide essential care vs. the pressure to control rising health costs. The U.S. Solicitor General has filed an opinion supporting the industry.

In addition to the Herdrich case, it's estimated there may be as many 20 class action lawsuits pending against health insurers, not unlike those that have beset the tobacco and gun industries. However, the legal basis isn't product liability, but rather conspiracy and racketeering. "The [racketeering] claims are nonsense," says Gabardi.

Congress is also considering legislation that would allow patients to sue their health plans in state court for failure to provide care. A Congressional conference committee is trying to reconcile two different bills passed last year -- the House version would empower patients with the right to sue.

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