Ruling Favorable To HMOs Stirs Call For Patient Rights Bill

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After the U.S. Supreme Court ruled unanimously in favor of protecting employer-sponsored health plans against state lawsuits involving benefit determinations, various members called for Congress to pass “patient rights” legislation.

Rep. John Dingell, D-Mich., says he is introducing a “patient rights” bill in the House. Sponsors of a Senate patient rights bill probably will include Sens. John Edwards, D-N.C.; John McCain, R-Ariz.; Edward Kennedy, D-Mass.; and Sen. John Kerry, D-Mass., the likely Democratic presidential nominee, who has added calls for passage of a patient rights bill to his stump speech.

The high court’s ruling, which resolves the Aetna Health Inc. vs. Davila and CIGNA Healthcare Inc. vs. Calad cases, supports insurers’ argument that the federal Employee Retirement Income Security Act of 1974 preempts state efforts to let patients sue private employers’ benefit plans in state court.

By shielding plans from big state court damage awards, the ruling could cut coverage costs or increase health plan profits.

Because of uncertainty about liability exposure, benefit plan administrators have been charging employers about $2 per employee per month to bear the burden of liability risk, according to John Piro, a senior legal consultant in the Norwalk, Conn., office of Hewitt Associates.

Benefits experts speculate that the Davila ruling also could encourage employers to take a bolder approach to plan design and administration, health care experts say. “Theres already been a trend back toward self-insurance,” Pirro says. “This might accelerate the trend.”

The American Medical Association, Chicago, is warning that the Davila ruling could put members of ERISA plans at the mercy of plan administrators’ whims.

“Managed care plans will now have very little incentive to approve expensive but medically necessary treatments,” says Dr. John Nelson, the association’s president.

But Pirro and others interviewed say market forces and worries about the possibility of Congress weakening the ERISA preemption provisions probably will moderate the effects of the Davila ruling.

The Davila ruling deals solely with interpretation of ERISA and draws no conclusions about the validity of the plaintiffs’ claims.

The plaintiffs, Juan Davila and Ruby Calad, are Texas residents who belonged to employer-sponsored health maintenance organization plans.

A Texas law, the Texas Health Care Liability Law, let patients sue HMOs that failed to exercise “ordinary care” when making determinations about the “medical necessity” of proposed treatments. States that enacted similar laws include Arizona, California, Georgia, Louisiana, Maine, New Jersey, Oklahoma, Washington and West Virginia.

Davila says Aetna’s refusal to cover a brand-name arthritis medication led to severe internal bleeding that nearly killed him.

Calad blames hysterectomy complications on CIGNA’s refusal to let her stay in the hospital more than 1 day after surgery.

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.