Supreme Court Hears HMO Case

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Gannett News Service

WASHINGTON — Supreme Court justices listened skeptically Wednesday

as attorneys for a woman who won a malpractice claim against her

doctor argued that the bonuses given by the woman’s HMO to its

doctors harmed the care that its patients received.

Attorney James Ginzkey argued that the lawsuit filed by Cynthia

Herdrich, who didn’t get tests needed in time to diagnose an inflamed

appendix that later burst and hospitalized her, would only affect

her HMO. But the justices seemed to think the case could drag

them into a much larger role in determining how HMOs should operate.

“Why should the courts get into this slippery slope problem

when Congress has built a scheme to deal with it?” asked

Justice Sandra O’Connor. “Why should the courts get involved

in this messy business?”

The case of Pegram vs. Herdrich revolves around the issue of whether

Herdrich’s managed care plan, CarleCare HMO of Urbana, Ill., put

its financial interests ahead of her health. Her attorneys claim

that bonuses paid to doctors who were also owners of the plan

created a conflict of interest — technically, a breach of the

fiduciary duty given to the plan under the federal law governing


The bonuses were a reward for keeping costs down, a primary goal

of managed care plans, and attorneys for the plan argued that

calling the bonuses a conflict of interest could lead to the dismantling

of other cost-containment measures used by managed care plans.

If Herdrich and her attorneys win, said HMO attorney Carter Phillips,

“then managed care as we know it will be in violation of

federal law.”

The case of Herdrich, formerly of Bloomington, Ill., and now of

Loveland, Colo., is timely. Congress is about to begin work on

the final stages of legislation that may expand a patient’s right

to sue his HMO, and the issue of how to punish managed care plans

that do wrong by their patients has been a hot one for the last

two years.

The managed care industry’s trade association is convinced that

a decision in favor of Herdrich will crush the managed care system,

but other observers believe that the court could also rule in

a way that applies only to her case and her HMO, having no effect

on the system at large.

Oddly, if Herdrich loses her case, it could be an advantage for

HMO patients, said Jamie Court, co-founder of Consumers for Quality

Care, an HMO watchdog group. “It’s a novel way of thinking

about the scope of federal law,” he said. “If the court

rejects (her argument), in the future, it may let state law prevail.”

State law, unlike federal law, allows patients to sue for emotional

and punitive damages when suing doctors. Herdrich has already

won a $ 35,000 malpractice suit in state court.

If she wins the Supreme Court case, she receives no financial

windfall. Ginzkey said that he wanted to see CarleCare bonus money

go back to the plan for patient care. A ruling from the high court

is expected this summer and could send the case back to lower

courts for trial.

“I would just like to hear the justices say that as a result

of the incentive clauses, that that hindered the care I received,”

said Herdrich, who attended the arguments. She no longer belongs

to an HMO.

The justices were most concerned about the fine line being drawn

regarding an HMO’s fiduciary duty. Generally, federal law considers

plan administration — such as determining benefits, and approving

and denying claims — to be part of a fiduciary’s role. Medical

decisions are generally considered separate, although the line

becomes less clear when doctors also act as administrators.

Even those who say that CarleCare was not acting as a fiduciary

— its own lawyers, as well as the government’s — admit it’s

hard to find the boundaries sometimes.

“So you concede that some incentive plans are OK, and the

government concedes that some are not,” Justice Steven Breyer

said to Ginzkey.

“It’s a difficult line to draw, but the fact that it’s difficult

to draw doesn’t mean you don’t,” Ginzkey replied.

Consumer Watchdog
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