Dow Jones Newswires

CHICAGO (Dow Jones)–HMOs cheered Monday’s Supreme Court decision protecting them from state lawsuits filed over coverage decisions, but consumer advocates said this represents a bleak day for patients’ rights.

The Supreme Court, in a unanimous decision, ordered lower courts to reject state-filed lawsuits filed against Aetna Health Inc., a unit of Aetna Inc. (AET) and Cigna Healthcare of Texas, a unit of Cigna Corp. (CI). The two companies have been fighting lawsuits filed in Texas by patients who believe the health maintenance organizations wrongly denied them insurance coverage, leading to additional medical problems.

Under the Supreme Court’s holding, the cases must now be shifted to federal court and analyzed under the Federal Retirement Income Security Act of 1974, ERISA. This federal law, which governs employer-sponsored health and other benefits programs, generally shields insurance companies from lawsuits.

“We are pleased with the Court’s decision,” Cigna said in a statement Monday. “ERISA, which was at the heart of this case, has for many years helped to ensure that participants in health benefit plans have numerous protections, including access to quick resolution of coverage disputes through internal and external appeals processes.”

To consumer rights advocates, however, the Supreme Court decision represented a step backward.

“This is a major setback for patient rights because it removes deterrents from HMOs, who would increase profits by cutting back patient care,” said Jerry Flanagan, spokesman for the Foundation for Taxpayer & Consumer Rights, a California-based non-profit education and advocacy organization. “This means there are no disincentives for HMOs to deny the care your doctor says you need.”

Around a dozen states including Texas instituted patients’ rights laws over the last seven years that allowed patients to sue HMOs if they suffered as a result of an HMO’s decision to deny care.

“The law said, if the HMO steps in and you’re harmed, the HMO is liable,” Flanagan said. “HMOs have traditionally denied care – that’s how they increase profits.”

People who opposed these laws, including HMOs, Flanagan said, attacked the laws on the assumption that they’d trigger a flood of lawsuits.

That hasn’t been the case, according to Flanagan.

“There hasn’t been a landslide of court cases,” he said. Indeed, New Jersey’s law was passed in 2001 and there hasn’t been a lawsuit filed under it yet. There have been fewer than 10 lawsuits filed in Texas since the state passed patients’ rights legislation in 1997.

Flanagan supports passing a nationwide patients’ bill of rights.

Ron Pollack, director of a health care consumer group called Families USA, said, “Today’s Supreme Court decision takes HMOs off the hook from any liability when they deny needed healthcare.”

A spokesman for New York Attorney General Elliot Spitzer, who has been a major advocate for consumer rights in health care, said the office had no immediate comment and is reviewing the Supreme Court decision.

The 5th U.S. Court of Appeals in New Orleans ruled last year that ERISA didn’t preempt the lawsuits that were at the center of the case decided by the Supreme Court on Monday.

In both cases, HMOs had denied patients care prescribed by their doctors, and the patients said complications arose related to the denials.

The HMOs argued in court that ERISA barred the lawsuits. Aetna, in its appeal of the 5th Circuit decision, said the Supreme Court should overturn the ruling before “the development of conflicting and overlapping state remedial schemes” that conflict with the federal regulation of private employer health insurance.

On Monday, Aetna issued a statement saying it was pleased with the Supreme Court’s decision, and that ERISA is the proper place to resolve coverage disputes.

Flanagan, the consumer rights spokesman, said it’s disappointing that the Bush administration filed an amicus brief in the Supreme Court case on the side of the HMOs, particularly because Bush had supported the patients bill of rights that became law in Texas in 1997, when he was governor of that state.

Since the 1997 Texas law went into effect, Flanagan said, 11 states have passed similar legislation allowing patients the ‘right to sue’ when they are harmed by a health insurer.

Monday’s decision raises questions about the continued viability of these laws, said Richard Cauchi, program director with the health program of the National Conference of State Legislatures.

“At this moment it’s too early so say all those laws are dead, but there’s every indication this will have a significant impact in terms of future cases in state court,” Cauchi said.

Most of the laws, he said, were passed in hope of providing patients a formal remedy when they were denied services. There hasn’t been a flood of lawsuits associated with them, he added, and in Texas, about half the cases were decided in favor of the patient and half in favor of the provider.

The main difference between suing in a state court and taking a dispute to ERISA is that under ERISA, a patient can’t collect punitive damages, only actual damages, Cauchi added. He said people who supported the state laws felt that

ERISA wasn’t a good place to resolve these issues.

Shares of both Cigna and Aetna were both trading lower late in Monday’s session.

Analysts who follow the industry don’t expect the Court’s decision to have much effect on HMO stocks. But it does take away a worry investors may have had.

“It removes some sort of overhang,” said Adam Miller, of Williams Capital Group. “It’s a weight off (the HMOs) shoulders – one less litigation issue they have to worry about.”

Miller rates Aetna a hold and doesn’t have any conflicts. He doesn’t have a rating on Cigna.