Supreme Court Ruling Narrows Suits Against HMOs

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June 12, 2000 (Washington) -- Patients can't sue their HMOs under federal law for offering bonuses to doctors who withhold treatments to save money, the U.S. Supreme Court ruled Monday. In a unanimous decision written by Justice David Souter, the high court says that "no HMO organization could survive without some incentive connecting physician reward with treatment rationing."

Still, the ruling leaves patients the option of suing their health plans in state court for denying benefits, depending on where they live.

The case decided Monday involved the treatment a woman named Cynthia Herdrich received from her Central Illinois managed care plan in 1991. Herdrich, who suffered abdominal pain, says her HMO physician waited eight days to order diagnostic tests to find out what the problem was. Meanwhile, her appendix ruptured, requiring emergency surgery.

She filed suit and won a $35,000 malpractice award against her physician and the Carle Clinic HMO. Herdrich then lost a round in federal court, but an appellate court later ruled that Carle Clinic had violated its "fiduciary responsibility" when it put doctor compensation before patient care.

A key issue in the case was whether the federal Employee Retirement Security Act (ERISA), which covers insurance and benefit plans, pre-empts most lawsuits against HMOs. ERISA has been used as a shield against litigation by health plans since it was enacted in 1974, but the question in this case was whether the HMO had violated its duty under ERISA to put the patient's interest first.

But the high court ruled that Herdrich's HMO didn't breach its fiduciary responsibility, even though treatment was delayed. "We think Congress did not intend Carle or any other HMO to be treated as a fiduciary," Souter writes.

Those representing the HMO lobby were happy with the ruling, which they said was a victory for affordable health care.

"The court's decision today validates the principle that the legal system is not the place to make health care work. ... We will continue to advocate strongly for a patient's right to an outside, independent review," said Karen Ignagni, president and CEO of the American Association of Health Plans.


Her group had urged the court to take the case in an effort to resolve the question that goes to the core of how health plans do business.

"It is our hope that the trial bar will heed the message ... and recognize that consumers are ill-served by expensive litigation that would drive up coverage costs and dramatically increase the number of uninsured Americans," said Chip Kahn, president of the Health Insurance Association of America.

Donald Palmisano, MD, an American Medical Association trustee, said he was happy that the court's decision apparently means physicians won't be held liable under the ERISA statute unless they are running the HMOs. The AMA had filed a brief with the court arguing that the particular incentive scheme used by a health plan is less important than how well a doctor takes care of the patient.

But Palmisano says the ruling points up the need for Congress to pass a "patients' bill of rights," which includes the right to sue your plan. "We're saying that a federal law [is needed] that allows HMOs to be held accountable when they interfere with the patient-physician relationship," Palmisano tells WebMD.

Monday's ruling is limited in that it applies only to those times when a doctor is making a decision both on treatment and eligibility, says Peter Budetti, MD, director of the Institute for Health Services Research and Policy Studies at Northwestern University.

Gregg Bloche, MD, a co-director of the Georgetown/Johns Hopkins program on law and public policy, backed Herdrich's case, but he says he still believes the industry may come up a loser at the end of the day. He says non-ERISA suits involving issues of whether a health plan denied a treatment that a doctor wanted for a patient could fit under the Herdrich ruling.

"The industry may be better protected from the class-action sharks but not from the malpractice minnows in state court," Bloche tells WebMD.

Like Cynthia Herdrich, Jan Greene, a 39-year-old freelance writer from San Francisco, had a bad experience with an HMO. And she has some advice -- short of a lawsuit -- for those who find themselves in the same boat.


Greene and several friends developed an intestinal illness after eating a fresh-raspberry dessert at Greene's bachelorette party. Greene's HMO doctor diagnosed her over the phone with stomach flu. But she contacted her local health department, got tested, and was diagnosed with cyclospora. Armed with that information, she went back to her doctor and got the antibiotics she needed to treat her illness.

Greene, who has since switched to a PPO plan, has these suggestions for people trying to resolve conflicts with a health plan:

  • Find out exactly who makes the decisions for your care; it's usually the insurer or the medical group that is contracted to give care. Call them and push for what you need.
  • If your coverage is provided through your job, consult the human resources department for help. As representatives of your employer, they have more clout because they help decide which insurer to use.
  • Ask a human resources representative for shortcuts. They may know the name of someone you can call directly to discuss the problem, so you don't waste time being transferred from person to person.

Many medical centers and some managed-care organizations have patient advocates who can also assist patients and their family members in getting the care that they need, and getting providers who are able and willing to provide that care.

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