Sacramento Bee

 In a decision that could prod Congress to act on health care reform, the Supreme Court on Monday ruled that health maintenance organizations cannot be sued in federal court simply because they offer incentives to their doctors to reduce treatment costs.

In a unanimous judgment, the justices said allowing such lawsuits would shift what are essentially medical malpractice cases from state to federal courts, and would vastly disrupt the HMO industry.

Managed care firms, which considered the case a dagger thrown at them by trial lawyers and other critics, claimed the ruling as a triumph.

“The Supreme Court decision today is a resounding victory for maintaining affordable health care,” said Karen Ignagni, head of the American Association of Health Plans. “It’s also an equally resounding defeat for trial lawyers that have sought to dismantle the U.S. health care system.”

Consumer activists voiced disappointment but said the decision places the onus squarely on Congress to provide dissatisfied patients with better legal options.

“The case is extraordinarily timely because it will have potentially a very significant impact in Congress on a patients’ bill of rights,” said Ron Pollack, executive director of Families USA, a national nonprofit group.

The ruling, he added, reaffirmed that patients have “no meaningful opportunities under current law” to hold health plans accountable when care is improperly denied or delayed.

Rep. Charlie Norwood of Georgia, the lead Republican sponsor of the House-passed patients’ bill of rights, agreed. “With this ruling, the Supreme Court isn’t just asking for congressional action,” he said. The justices “are shouting at the top of their lungs for us to act.”

Senate Minority Leader Tom Daschle, D-S.D., said, “Congress will have to do more to protect patients.”

The House and Senate have passed competing measures, and a conference committee is trying to draft a compromise. The main stumbling block is the number and type of administrative steps that will be required before consumers can seek redress in court.

The dispute settled by the high court Monday began in 1992 when Cynthia Herdrich of Illinois was suffering abdominal pains. She was told by her doctor the rules of the Carle Clinic Association HMO required her to wait eight days before a non-emergency ultrasound test could be conducted.

In the meantime, what had been misdiagnosed as a urinary tract infection or an ovarian cyst turned out to be appendicitis. Herdrich’s appendix ruptured, she suffered a bout of peritonitis and later sued her physician in state court for malpractice. She was awarded $35,000.

But Herdrich pressed another legal claim, accusing Carle Clinic of breaching its fiduciary duty to provide adequate care by offering financial incentives to its doctors who keep costs down. That, she charged, was a conflict of interest.

That claim was transferred to U.S. District Court where it was initially dismissed. But the 7th U.S. Circuit Court of Appeals revived it, saying Herdrich could pursue the case. The HMO then appealed to the Supreme Court.

Justice David Souter, writing for the court, suggested the specific incentive plan Carle Clinic maintained may have “blinded” Herdrich’s doctor to the need for immediate diagnosis and treatment.

But he concluded that no for-profit HMO can survive without some type of physician-incentive plan that seeks to trim the delivery of care one way or the other. “Whatever the HMO, there must be rationing and inducement to ration,” he wrote.

Further, Souter disagreed with the 7th Circuit’s assertion that courts can distinguish acceptable incentive programs from unacceptable ones. That, he wrote, would require judges to delve into the minutiae of health insurance, treatments and medical risk that are more properly the province of elected officials.

To agree with Herdrich, the justice added, would prompt additional lawsuits and cause an unjustified “upheaval” in an industry that Congress has promoted in various bills for almost 30 years.

“If Congress wishes to restrict its approval of HMO practice to certain preferred forms, it may choose to do so,” Souter wrote.

The decision did not foreclose malpractice suits in state courts, but consumer activists noted that those claims arise after treatment is provided. If patients seek amends from health plans for denying or delaying care, they are normally sent to federal court.

But those proceedings could take years, and federal law severely limits the financial damages that can be gained — which in turn deters attorneys typically working for a share of damage awards.

State court is actually a better forum for HMO liability cases, said Jamie Court, advocacy director for the Foundation for Taxpayer and Consumer Rights and an outspoken critic of managed care. Court noted that not only is the amount of money defendants can recover unlimited, but defendants can try their case before a jury.

“This opens the door wide for HMO defendants to seek remedies in state courts,” Court said.

Seven states, including California, permit HMOs to be sued in state courts, Pollack said. But it is unclear whether those laws are pre-empted by federal statutes, he added.

Walter Zelman, president of the California Association of Health Plans, praised the court’s unwillingness to unravel the basic premise of managed care.

“It is widely acknowledged and widely accepted that managed care plans use incentives to encourage physicians to provide appropriate care and not inappropriate care — that’s how managed care works,” Zelman said. “If consumers and others believe that managed care should not use economic incentives, then they should go to the legislature and make the case that there needs to be a change in public policy.” Bee staff writer Jean Fisher contributed to this report.