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United States Supreme Court Shields HMO’s From Lawsuits

The United States Supreme Court has just dealt a devastating blow to consumers by ruling that they can no longer sue an HMO under state law for refusing to cover necessary medical care. 

In a decision that essentially locks the courthouse doors to HMO patients, the Court unanimously held in AETNA Health, Inc. v. Davila that all state law claims against an HMO for failure to provide medically necessary/physician recommended medical treatment are preempted by the Employment Retirement Income Security Act of 1994 (“ERISA”).  This is surely a great victory for HMOs, whose profits will increase while their accountability diminishes, but is a tragedy for HMO patients, who will have virtually no recourse for their health plans’ wrongful denial of care.

Background

Davila consolidated two cases Texas cases.  In the first case, AETNA forced its insured, Juan Davila, to take a generic drug for arthritis instead of the name brand (Vioxx) prescribed by his doctor.  When the generic caused Mr. Davila a severe reaction and extensive medical treatment and hospitalization, he sued under Texas Healthcare Liability Act for AETNA’s failure to use ordinary care in making a medical treatment decision.

In the second case, Ruby Calad sued CIGNA Healthcare when a discharged nurse determined that she did not meet plan criteria for a continued hospital stay following her hysterectomy despite the recommendation of her treating physician.  Calad experienced post-surgery complications resulting in a return trip to the hospital.  She also sued under the Texas statute.

Relying on Section 502(a) of ERISA, the HMOs sought to remove the cases to Federal Court arguing that the claims were preempted.  The Fifth Circuit disagreed, relying on the Supreme Court decision, Pegram v. Hendrichs, 530 US 211 (2002), which that held ERISA did not preempt “mixed eligibility and treatment decisions.”

The Supreme Court appeared to retreat from this view in Davila by holding that “duties imposed by the [state statute] in the context of these cases. . . . did not arise independently of ERISA or the plan terms.”  Writing for the Court, Justice Clarence found that in denying coverage the HMOs made only benefit determination, not medical decisions.  Based on this logic, the Court reasoned that Plaintiffs’ claims were preempted because they concerned only how the Defendant HMOs administered the ERISA-regulated plans, and therefore “[did] not attempt to remedy any violation of a legal duty independent of ERISA.”  As the Court explained more fully:

It is clear . . . that [the Plaintiffs] complain only of denials of coverage promised under the terms of ERISA-regulated employee benefit plans . . . [A] managed care entity could not be subject to liability under the [state statute] if it denied coverage for any treatment not covered by the health care plan that it was administering.  Thus, interpretation of the terms of [the Plaintiffs’] benefit plan forms an essential part of their [state law] claim and . . . liability would exist here only because of [the HMO’s] administration of ERISA-regulated benefit plans.  [Their] potential liability under the [state statute] in these cases, then, derives entirely from the particular rights and obligations established by the benefit plan.

The Court distinguished the denials at issue from lawsuits concerning mixed eligibility decisions, because the HMO’s “are neither [the Plaintiffs] treating physicians nor the employers [their] treating physicians.  The HMO’s coverage decisions, then, are ‘pure eligibility decisions.’”

In a concurring opinion, Justice Ruth Bader Ginsburg wrote that the Court’s broad reading of ERISA pre-emption and narrow reading of remedies under it resulted in harm consumers that Congress never intended, and that only Congress could remedy

The Future

What happens now and what causes of action are still viable?  As a result of the Supreme Court’s decision, most insureds wrongfully denied coverage by HMOs cannot obtain compensation for personal injuries.  The only remedy they have is to sue for the value of the particular treatment or service the HMO denied.  In other words, a Plaintiff’s only options are to either pay for treatment and then sue for reimbursement, or attempt to obtain an injunction against HMO preventing it from denying the requested care.

Thankfully, Davila does not impact ERISA-exempt policies, such as private personal plans and those held by government employees.  People insured under these plans can still obtain full compensation for the injuries caused by an HMO’s wrongful denial of benefits.

As for ERISA plans, consumers can only hope that Congress will take Justice Ginsburg’s opinion to heart and enact a Federal Patients Bill of Rights to allow those injured by a managed care company’s to receive the full compensation they deserve.  Unfortunately, until Congress acts, HMOs will have free reign to wrongfully deny care without the threat of being held accountable in a court of law.