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High hopes are riding on the HMO liability cases that the U.S. Supreme Court agreed to review last week. Health maintenance organizations and others concerned about the rising costs of medical care hope that the court will reaffirm a 1987 ruling, Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, that, broadly speaking, prevented plan participants from bringing state-law tort claims against their HMOs, limiting their remedies to those Congress created in the 1974 Employee Retirement Income Security Act (ERISA). Plaintiffs’ lawyers and patient rights advocates hope that several post-1987 Supreme Court rulings signal a recognition that ERISA, enacted long before managed care became the norm, does not adequately protect the rights of participants and must make room for state-law remedies. Those rulings nibbled at the edges of the Pilot Life decision. Finally, there are those who hope merely for clarity. They include federal judges who have begged the high court or Congress to bring greater simplicity and consistency to often furiously tangled questions about ERISA’s pre-emption of state-law claims. “People spend more time litigating pre-emption than the merits of the cases,” Wendy K. Mariner said in describing the current state of the law. Mariner is a professor at Boston University’s schools of Law, Public Health and Medicine. Davila and Calad The Supreme Court agreed to hear consolidated appeals brought by Aetna Health Inc., No. 02-1845, and CIGNA Healthcare of Texas, No. 03-83. Both companies seek the reversal of a 2002 decision by the 5th U.S. Circuit Court of Appeals, Roark v. Humana Inc., 307 F.3d 298. The decision allowed Aetna participant Juan Davila and CIGNA participant Ruby R. Calad to bring medical malpractice suits against the companies under the Texas Health Care Liability Act. Both claimed that they were injured because of a denial of medically necessary care. According to the 5th Circuit’s opinion, Davila’s physician prescribed the medicine Vioxx for arthritis pain because less expensive alternatives are harder on the stomach. As part of its “step program,” Aetna required Davila to try two less expensive medications first. After three weeks on that program, he was rushed to the hospital when a bleeding ulcer caused a near heart attack, the court said. He had to spend five days in critical care and can no longer take medication absorbed through the stomach. Calad underwent a hysterectomy with rectal, bladder and vaginal repair performed by a CIGNA doctor. “Although that doctor recommended a longer stay, CIGNA’s hospital discharge nurse decided that the standard, one day hospital stay would be sufficient,” the 5th Circuit said. Calad alleged that, as a result, she had to return to the emergency room a few days later with complications. ERISA allows wronged plan participants to recover the costs of the benefits they should have received (for instance, by reimbursing patients who paid for a denied procedure out of their own pockets) and attorney fees. But the law makes no allowance for consequential damages, according to Fort Worth, Texas, solo practitioner George Parker Young, who represents both Davila and Calad. Thus, ERISA gives his clients no compensation for the injuries that flowed from the denials of care, he said. “Some federal courts won’t even award the benefit levels called for in the plan. That’s why the insurance companies love federal court,” he said. HMOs counter that ERISA gives a participant the right to seek an injunction to enforce benefit rights, that most plans allow for internal appeals of claim denials and that state nontort law often gives them additional remedies, such as the right to seek a second opinion from an independent review organization (IRO). Speaking through its attorney, John B. Shely of the Washington office of Houston-based Andrews & Kurth, Aetna said, “Mr. Davila does not contend in his suit that he attempted to use the IRO process available under Texas law.” In its petition for certiorari, CIGNA asserts that, “Calad did not protest [CIGNA's] benefits determination.” But the bedrock argument in favor of ERISA pre-emption is that expanding HMO liability would defeat the very purpose of managed care: to put a lid on costs. The Supreme Court in Pilot Life explicitly found that ERISA pre-emption served that goal. Susan Pisano, vice president of communications for the American Association of Health Plans/Health Insurance Association of America said, “Lawsuits have had a negative impact on health, quality, safety, trust and access to health care.” Her group has been granted permission to file a friend-of-the-court brief in the Davila/Calad cases. Whether lawsuits really had such an impact on health care is uncertain. Last month, law professors Mark A. Hall and Gail Agrawal published the results of a survey in which 85 experts were asked about the impact of state laws, like those of Texas, that purport to give managed care participants tort remedies. Those questioned included plaintiffs’ and defense attorneys, HMO administrators and in-house counsel, regulators and industry analysts. “To date . . . there is no evidence of the ‘flood of litigation’ that was predicted when states began to enact right-to-sue laws,” they wrote in Health Affairs, a policy journal. Moreover, they found that “If the ERISA barrier were removed . . . key informants still had serious doubts about whether these statutes would give rise to much litigation.” That’s because plaintiffs’ lawyers generally prefer to sue doctors or other health care providers, even when HMOs could be roped in. One attorney told Hall and Agrawal, “What do I need with another set of lawyers when I already have the [providers] on the hook?” In an interview, Hall said that, even so, HMOs had good reason to worry about litigation costs. In his opinion, plaintiffs’ lawyers will rarely bring an HMO into the picture unless they scent the prospect of punitive damages. He said there have been a few damages awards in the range of $50 million to $100 million in recent years and that the industry can afford few more. Hall is a professor of law and public health at Wake Forest University; Agrawal, associate dean and professor at the University of North Carolina School of Law. Young, the plaintiffs’ lawyer, acknowledged that plan participants can often sue a health care provider even when ERISA blocks a suit against an HMO. For instance, instead of suing CIGNA, Calad could have sued her physician, who had to concur in the decision to discharge her from the hospital, he said. But he doubted that a jury would award her any damages, since the doctor could point the finger at CIGNA. Mariner expressed doubt that a doctor could so easily evade liability. In fact, she suggested that managed care companies have structured their programs precisely to shift the risk of liability to doctors. For instance, they shy away from making outright denials of treatment, instead giving doctors financial incentives to avoid expensive treatments. “That’s why doctors hope that HMOs can be sued,” she said. But she dismissed worries about crushing punitive damages. “The fear of punitive damages is way overblown,” she said. “It’s good for frightening people, but good luck collecting.” David Orentlicher, professor at Indiana University’s schools of law and medicine, agreed, saying, “It’s tough to win punitive damages. The typical malpractice case is focused on a particular patient. To get punitive damages, you generally have to show an egregious pattern of misbehavior.” Orentlicher said that when health care providers were typically paid on a fee-for-service basis, it was often said that tort liability, by encouraging “defensive medicine,” encouraged doctors to order unnecessary procedures. Now the financial incentives push in the the other direction, so spreading tort liability more widely may act as a corrective, he said. Both Orentlicher and Mariner said it’s desirable, as a matter of principle, to make HMOs pay compensation if in fact they are responsible for malpractice. Critics of Pilot Life are heartened by more recent Supreme Court cases. They include 1995′s New York State Conference of Blue Cross and Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, in which the unanimous court made the offhand remark that ERISA was not meant “to displace general health care regulation, which historically has been a matter of local concern.” Three years later, in Pegram v. Herdich, 530 U.S. 211 (a case dealing with the fiduciary duties of HMOs and not malpractice), the court hinted that state fiduciary laws might not be pre-empted when a health care provider acted as an HMO’s fiduciary while making a decision that involved both eligibility under a plan and the medically appropriate treatment. In last year’s Rush Prudential HMO Inc. v. Moran, 536 U.S. 355, the court held that ERISA did not pre-empt a state statute entitling participants to an IRO appeal. That decision, though, was 5-4, a sign for some that the anti-pre-emption wave is breaking. Pre-emption proponents argue that those decisions leave the core of Pilot Life untouched. To that, Young retorted, “They said the same thing about IRO review; they’ve been saying that for years.” According to Hall and Agrawal, lower courts have responded to the mixed signals by developing three lines of analysis. The first says that pure questions of eligibility under a plan are pre-empted, but not decisions about the medical appropriateness of a treatment. The second modifies the first by expanding tort liability to include “mixed” medical decisions that partake of both eligibility and treatment elements. A third approach says HMOs are subject to state-law challenges if they are negligent in delivering care, for instance by imposing too great a workload on a given doctor, but not if their method of paying providers is implicated. Circuits’ analysis The 5th Circuit, using the second approach, found the denials of treatment in Davila’s and Calad’s cases were mixed decisions not immune from suits. The 2d Circuit has taken a similar position. The 3d and 4th circuits have held that similar mixed decisions are pre-empted by ERISA. The remarks of 3d Circuit Judge Edward R. Becker, in October’s DiFelice v. Aetna U.S. Healthcare, No. 02-3381, are typical of judicial dissatisfaction with these stopgaps. He urged that “Congress and the Supreme Court revisit what is an unjust and increasingly tangled ERISA regime.” Young’s e-mail address is [email protected].

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