Supreme Court Finds No Federal Case in HMO Lawsuit

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Wahington Times

The Supreme Court ruled 9-0 yesterday that health maintenance organization members injured because doctors ration health care in pursuit of cash bonuses may not make a federal case of ordinary malpractice lawsuits.

“Whatever the HMO, there must be rationing and inducement to ration,” said the unanimous opinion, which acknowledged, but did not endorse, the concept of “paying physicians more to do less.”

The court said Congress could change the rules, but federal courts should not “draw a line between good and bad HMOs,” a concept promoted by Congress for 27 years.

Carter Phillips, the Washington lawyer representing CarleCare health maintenance organization, said nothing in the HMO bill currently in a congressional conference committee would alter yesterday’s decision, although Congress has the power to do so.

“They do, but it would be incredibly stupid,” said Mr. Phillips, a specialist in Supreme Court appeals. “It’s pretty clear from the court’s opinion that if it had gone the other way, it would have been the end of HMOs.”

“With this ruling, the Supreme Court isn’t just asking for congressional action. They are shouting at the top of their lungs for us to act,” responded

Rep. Charlie Norwood, Georgia Republican and co-sponsor of a bill that he says would “protect patients from HMOs that put profits ahead of patient care.”

A joint House-Senate conference committee appeared to be making slight progress toward a compromise until Democrats tried to attach their broader bill to the annual defense authorization measure. Its defeat called into question the future of compromise efforts and left reform of managed care apparently deadlocked in Congress.

Yesterday’s ruling left uncertain the fate of more than 10 federal class-action lawsuits attacking HMOs for concealing financial incentives paid to doctors who cut treatment costs, a charge not made in the case before the high court.

The justices threw out a lawsuit filed against CarleCare by Cynthia Herdrich, who contracted peritonitis after her appendix burst during an eight-day wait imposed by the physician-owned health maintenance organization for a scheduled ultrasound test to diagnose her inflamed abdomen.
“Since the provision for profit is what makes the HMO a proprietary organization, her remedy in effect would be nothing less than elimination of the for-profit HMO,” the court said in the opinion written by Justice David H. Souter.

“This is not to suggest that the Carle provisions are as socially desirable as some other HMO organizational schemes; they may not be,” he wrote of the Illinois company, which contracted to provide health care for workers of State Farm Insurance Co., including Mrs. Herdrich’s husband.

“It’s not a bounty,” Mr. Phillips said. “I don’t understand why the Supreme Court thought these sets of incentives are more pernicious than at other HMOs. They involved payments at the end of the year to divide overall profits.”

He said doctors at HMOs still will be subject to state courts, just as other physicians are.

“Nobody’s saying the physician’s obligation to the patient has changed one iota as a result of this,” Mr. Phillips said.

Mrs. Herdrich was awarded $35,000 in compensatory damages in a separate case that was unaffected by yesterday’s decision.

Her attorney, James Ginzkey of Bloomington, Ill., was in court yesterday, away from his home county and unavailable for comment, an aide said.

“This decision will probably be viewed as a defeat for patients’ rights, but it really is not that at all,” said Paul Clark of the Coalition for Local Sovereignty, who said the outcome reinforces “traditional state regulation” of medicine.

“This really doesn’t do much damage to the patients’ rights movement,” said Jamie Court of the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights. “We’ve always believed that state courts are the better venue.”

The court said using a federal law intended to insure employee benefits – the Employee Retirement Income Security Act (ERISA) – to convert an ordinary malpractice case into an ERISA case could only allow it to be heard sooner and enhance attorneys’ fees.

“We know that Congress had no such haphazard boons in prospect,” wrote Justice Souter, who said it is the point of any HMO to ration care and within its prerogative to delay tests, avert expensive consultations or refuse experimental care.

“Rationing necessarily raises some risks while reducing others. Ruptured appendixes are more likely; unnecessary appendectomies are less so. Any legal principle purporting to draw a line between good and bad HMOs would embody, in effect, a judgment about socially acceptable medical risk,” he said.

* Sean Scully contributed to this report.

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