Ruling Favorable To HMOs Stirs Call For Patient Rights Bill

ERISA normally prevents states from regulating benefit plans or letting members sue the plans in state court, especially when the plans are acting as fiduciaries. The authors of ERISA argued that preempting state-level interference would help employers increase the uniformity and lower the cost of their benefits programs.

ERISA does include a clause that permits states to regulate benefit plan matters that relate to the "business of insurance."

The statute lets plan members sue plans in federal court to enforce benefit contracts, but members can sue only to require plans to cover proposed treatments or pay claims. Members cannot collect compensation for actual damages, such as the cost of buying an artificial limb to replace a leg lost as a result of coverage problems.

Traditionally, courts have made one exception to ERISA preemption of state health plan court cases: They have let patients sue the doctors in "staff model" HMOs and the HMOs over allegations of medical malpractice.

Although states have the right to regulate the insurance in benefit plans, "every state law that can arguably be characterized as regulating insurance' will be preempted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISAs remedial scheme," Justice Clarence Thomas writes in an opinion that represents the views of 7 of the 9 Supreme Court justices on the Davila and Calad cases.

Davila and Calad also tried to get support from Pegram vs. Herdrich, a 2000 Supreme Court decision that held that an HMO is not acting as a fiduciary when it combines decisions about the medical necessity of proposed treatments with benefits eligibility decisions.

But Davila and Calad complained only about denials of benefits, not poor treatment by physicians directly employed by their HMOs, Thomas notes.

When HMOs are administering employee benefit plans, "HMOs must make discretionary decisions regarding eligibility for plan benefits, and, in this regard, must be treated as plan fiduciaries," Thomas writes.

Calad and Davila could have obtained coverage for the desired treatments by going through their plans' appeal systems, seeking court injunctions, or paying for the care themselves and then going to court to seek reimbursement, Thomas writes.

The plaintiffs in the cases have put out statements pointing out that, for them, the suits are about more than money.

"My life is not the same and may have been cut short because of the HMO's decision to play doctor," Davila says.

But Aetna, CIGNA, employer groups and insurance groups argue that insurers already have responded to consumer concerns by moving away from restrictive HMO designs and establishing binding external review systems.

Karen Ignagni, president of America's Health Insurance Plans, Washington, warns that exposing sponsors and insurers to suits could lead some employers to drop coverage altogether. "There is already far too great a reliance on using the courts to resolve disputes in health care," she says.

Although all 9 justices agreed in the Davila ruling that ERISA preempts state regulation of health benefit determinations, Justice Ruth Bader Ginsburg writes in a concurring opinion for herself and Justice Stephen Breyer that Congress ought to come up with a better mechanism for giving seriously injured patients a remedy against plan wrongdoing.

In 2001, Congress came close to sending President Bush a patient rights bill that would have given plan members a limited right to sue their plans in state court. That bill died in conference committee after the Sept. 11 terrorist attacks.

Reproduced from National Underwriter Edition, June 25, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.