No damages when coverage denied for recommended care

San Francisco Chronicle

Private employees in California and other states who get health insurance through their employer are not entitled to damages for any harm they suffer when their HMO improperly denies coverage for recommended medical care, the U.S. Supreme Court ruled Monday.

The unanimous decision in a Texas case effectively overturns laws in California and at least nine other states that allowed damage suits against against health maintenance organizations for wrongful medical decisions. The court said those laws conflict with a 1974 federal law that makes the federal government the exclusive regulator of workplace benefits. The federal law, known as ERISA, allows patients to challenge the denial of benefits or win compensation for their costs but does not provide damages for resulting injury or death.

Two justices, Ruth Bader Ginsburg and Stephen Breyer, said the ruling, though legally correct, is unfair to patients and should be changed by Congress. But attempts to pass a so-called patients’ bill of rights that would allow damage suits against HMOs under state law have been bottled up in Congress since the late 1990s.

The ruling is a big win for health maintenance organizations and other managed care programs provided through private workplaces.

It “takes HMOs off the hook for any liability when they deny needed health care, even when improper denials have tragic consequences,” said Ron Pollack, executive director of a consumer organization called Families USA.

But an industry spokeswoman said the ruling will help patients and employers alike “who otherwise faced the prospect of higher health-care costs without added benefits.”

“The ruling puts the brakes on efforts by trial lawyers to turn every question about the scope of an individual’s coverage into a costly lawsuit,” said Susan Pisano of America’s Health Insurance Plans. She said the trade organization’s members insure over 200 million Americans.

Insurers also argued that exposing health plans to damage suits would make the plans more expensive and less available.

The ruling has political implications. President Bush, as governor of Texas, signed the state law that was at issue in the case and praised the law during an October 2000 presidential campaign debate as a model for the nation. In the Supreme Court, however, his Justice Department joined HMOs in successfully fighting the law.

“Americans deserve a president who will stand up for patients, not one who refuses to hold HMOs accountable when their actions harm patients,” Sen. John Kerry, D-Mass., the prospective Democratic nominee for president, said in response to the ruling.

But Bush spokesman Taylor Gross contended the ruling is “consistent with the administration’s position” and would allow an HMO to be sued under state law “if it is making a health care treatment decision rather than making a decision about whether to pay for treatment.” He did not cite any language in the ruling that supported his interpretation.

The case involved a pair of run-of-the-mill coverage decisions in which an HMO’s judgment of medical necessity conflicted with the view of the patient’s doctor.

In one instance, Aetna refused to pay for Vioxx, a drug that Juan Davila’s doctor had prescribed for his arthritis pain. Davila said he suffered a severe reaction that sent him to the hospital when he used a substitute, Naprosyn. The other patient, Ruby Calad, had a doctor’s recommendation for an extensive hospital stay after surgery but had to leave when her insurer, CIGNA Healthcare of Texas, said she didn’t need an extended stay. She said she wound up back in the hospital with post-surgery complications.

Both patients sued under the Texas law that puts HMOs in the same category as doctors when making medical decisions and allows damages for harm caused by substandard medical care. A federal appeals court let their suits proceed, leading to Monday’s ruling.

The opinion by Justice Clarence Thomas said ERISA, the Employee Retirement Income Security Act of 1974, established extensive federal regulation of worker benefit plans and barred states from authorizing suits that go beyond federal law.

“The limited remedies available under ERISA are an inherent part of the careful balancing between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans,” Thomas said. If states could allow additional compensation, he said, “Congress’ intent to make the ERISA civil enforcement mechanism exclusive would be undermined.”

The ruling applies only to private employers, who provide a majority of the nation’s health care coverage through their insurance plans. Government employees are not covered by ERISA and may still be able to sue HMOs under state laws allowing such suits.

Under the state laws, including the California law that took effect in 2001, a patient could sue an HMO for damages after first appealing a denial of benefits to an independent medical review board, which had the power to order coverage.

Under the terms of HMO contracts, most damage suits would be referred to private arbitration rather than a court. Monday’s ruling appears to ban damage awards by either arbitrators or judges under state law, although there was some disagreement about its scope.

In any event, few suits have been reported under the California law. Consumer advocates, like Jamie Court of the Foundation for Taxpayer and Consumer Rights, said the fear of expensive lawsuits has kept HMOs in line.

Steve Tough, head of the California Association of Health Plans, disagreed, saying, “Serving the beneficiary population is what keeps you honest and moving in the right direction.”