Court Nixes Some Lawsuits vs. HMOs

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Associated Press

WASHINGTON (AP) — The Supreme Court waded into the patients’ rights debate Monday, shutting down one legal avenue for people to sue their health-maintenance organizations while Congress considers bolstering the right to sue.

The justices’ unanimous ruling said patients cannot use a federal law to sue HMOs for giving doctors a financial incentive to cut treatment costs. Such lawsuits could mean the end of HMOs, which are based on financial incentives, the court said.

“The fact is that for over 27 years the Congress of the United States has promoted the formation of HMO practices,” Justice David H. Souter wrote for the court. “The federal judiciary would be acting contrary to the congressional policy … if it were to entertain (a claim) portending wholesale attacks on existing HMOs solely because of their structure.”

HMO representatives praised the ruling. Stephanie Kanwit of the American Association of Health Plans said the decision was “sensible for both health plans and for consumers” because the Illinois lawsuit thrown out Monday was “challenging the very cost containment mechanisms that in fact keep health care costs down for everyone.”

James P. Ginzkey, the lawyer for the Illinois woman who filed Monday’s case, “I am very disappointed but not at all surprised at the decision… It’s a bad decision. I think that managed care systems are going to get an awfully lot more aggressive in their cost containment measures. Basically, the Supreme Court has said ‘do whatever you want.”’

Patients’ rights advocate Jamie Court noted the ruling left open the possibility that lawsuits could be filed in state court. “This really doesn’t do much damage to the patients’ rights movement,” said Court of the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights.

“We’ve always believed that state courts are the better venue” for patients’ lawsuits, Court added. The Illinois lawsuit was based on a federal law that strictly limits damage awards.

Several states — including California and Texas — have enacted laws explicitly letting patients sue their HMOs, and some courts have allowed lawsuits in states without such laws.

Meanwhile, Congress is considering patients’ rights legislation that could give people an expanded right to sue as well as other protections.

Monday’s ruling barred a lawsuit by Cynthia Herdrich of Bloomington, Ill., who blames her ruptured appendix on inadequate care. The court said federal law does not allow her to sue her HMO on a claim that it violated its duty to act in patients’ best interests.

Souter said, “Since the provision of profit is what makes the HMO a proprietary organization, (Herdrich’s) remedy in effect would be nothing less than elimination of the for-profit HMO” and perhaps nonprofit HMOs as well.

The ruling leaves in place patients’ right to file lawsuits in state court alleging that an individual doctor committed medical malpractice.

It was not certain how Monday’s ruling would affect about a dozen federal class-action lawsuits that accuse HMOs of unlawfully concealing doctors’ financial incentives to hold down treatment costs. The Supreme Court’s ruling noted that Herdrich did not raise such a claim in her lawsuit.

Herdrich sued the Carle Clinic Association in 1992, saying her appendix ruptured and peritonitis set in because her doctor delayed diagnostic tests for eight days so the tests could be performed at a facility owned by the HMO.

She was awarded $35,000 in damages for medical malpractice under Illinois law. But she also sued under a federal law that governs employee health benefits and pensions, known as the Employee Retirement Income Security Act, which requires health plan managers to act in patients’ best interests.

A federal judge dismissed her claim, but the 7th U.S. Circuit Court of Appeals let her sue. The Supreme Court said the appeals court was wrong.

Congress passed legislation in 1973 intended to encourage the development of HMOs. The ERISA law, passed the following year, aimed to protect workers’ benefits by setting federal standards.

Several HMO stocks were up following the decision. Aetna, which was upgraded by Salomon Smith Barney on Monday, rose $3.25 to $70.625. Cigna jumped $2.25 to $90.75. United Healthcare rose $1.50 to $78.18; and Pacificare rose $1.50 to $67.87.

The case is Pegram vs. Herdrich, 98-1949.

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