Supreme Court Set to Hear Pivotal HMO Case

From the WebMD Archives

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.

Health plans are shielded from this practice by the Employee Retirement Income Security Act (ERISA). ERISA cases are usually argued in federal court, and patients are unable to collect punitive damages.

"I think there's an assault on the industry. I think the politicians who have participated in it are now becoming confronted with the reality that if we go away, working families will have few alternatives," American Association of Health Plans' president Karen Ignani tells WebMD.

Paul Ellwood, MD, the man credited with coining the term "HMO" says managed care providers are "plenty worried" about the increasingly litigious atmosphere. "If these organizations are practicing medicine, they should be responsible for the medicine they practice. But at the same time, I think that some of the anti-HMO emotion could destroy our ability to be practical in the amount of medical care that we give to people," Ellwood tells WebMD.

While critics say the Herdrich case strikes at the very heart of an HMO's ability to provide quality care at a lower price, Larry Gostin, JD, a specialist in health law at Georgetown University, says that managed care is facing increasingly tough challenges from the courts, and the industry must respond. "If they structure their contracts in ways that mean that patients don't come first, then, yes, [sue the HMOs]. But all they need to do is restructure their financial incentives, which is not impossible," Gostin tells WebMD.

Meanwhile, vocal HMO reformers on Capitol Hill like Rep. Greg Ganske, MD (R, Iowa) see the Supreme Court case as an opportunity to advance their own agenda. In Ganske's case, that means an arbitration mechanism that could avoid costly punitive damages, with litigation as a last resort.

"If the Supreme Court rules ... in the plaintiff's favor on this, then the HMOs are going to come back to Congress and say, 'You've got to do something about this,'" Ganske tells WebMD. "There are just so many egregious cases where the HMO has injured a patient, and it was never the intent of Congress to give that kind of legal immunity to a health insurer."

WebMD Health News
© 2000 WebMD, Inc. All rights reserved.