Thank you for sharing!

Your article was successfully shared with the contacts you provided.
If a book were written titled HMO Nightmares, Juan Davila and Ruby Calad could have their own chapters. But Davila and Calad are not characters in a novel. They are key figures in a U.S. Supreme Court case that will decide whether health maintenance organizations can be sued in state courts for negligence and medical malpractice. The court on March 23 will hear arguments in their consolidated cases, Aetna Health Inc. v. Davila, No. 02-1845, and CIGNA Health Care Inc. v. Calad, No. 03-83. It’s the justices’ fourth venture into the arena of managed care in four years, and perhaps their most important. “As a legal matter as well as a policy matter and financial matter, the case is extremely important,” said health care and government relations expert Harold N. Iselin, the managing shareholder of Greenberg Traurig’s Albany, N.Y., office. “And, if anything, it may be the mother of all the pre-emption cases involving HMOs. “This is finally the key issue about what sort of liability a health plan may or not face under state law.” Aetna and CIGNA, backed by the Bush administration and business and health care groups, argue that medical malpractice claims are pre-empted by the federal Employee Retirement Income Security Act of 1974 (ERISA), which regulates employee benefits plans, including HMO and managed care plans. ERISA provides an exclusive set of remedies for the claims of Davila and Calad, they say. State court suits, they argue, with the threat of large punitive damage awards, would drive up costs and discourage employers from offering health benefits. The lawyer for Davila and Calad, as well as consumer and patient advocates, argues that HMOs should face liability just as physicians and other medical personnel do when they don’t just determine coverage but chart the course of treatment for patients. States can exercise their police power to protect their residents’ health and regulate insurance, they say, by providing remedies for medical malpractice consistent with ERISA. The lawyer, George Parker Young of Fort Worth, Texas, said ERISA’s remedies do nothing for Davila and Calad and the government and HMOs know that. Davila and Calad, he said, followed the course of treatment dictated by their HMOs’ medical-necessity decisions, even when their physicians objected. They were injured by that treatment and should be able to show in state courts that the HMOs did not meet Texas’ professional medical standard for HMOs. If that view prevails in the Supreme Court, it would be a “huge” change in the way decisions by managed care companies have always been viewed, said Robert Eccles of O’Melveny & Meyers, counsel to CIGNA. “This is about direct liability at the managed care company level,” he said. “Our basic point here is that what managed care companies are doing is not the same as what treating physicians are doing.” Case 1: Pain Medecine Davila has severe rheumatoid arthritis post-polio. To treat his constant pain, his physician recommended Vioxx, an expensive drug requiring prior approval by Aetna before it would cover the cost. An Aetna pharmacist told Davila’s doctor that he first had to try at least two similar and less expensive drugs unless they were contraindicated because of allergies or some other condition. They had a higher risk of internal bleeding. The doctor prescribed one called Naprosyn. A few weeks later, Davila was rushed to an emergency room, where he was given seven units of blood. Physicians told him that he came within hours of dying of internal bleeding. He contends the bleeding was a result of Aetna’s negligent medical decision. Davila spent five days in critical care and had a later readmission. He now cannot take any pain medication that is absorbed through the stomach, including Vioxx. Aetna contends that Davila did not avail himself of any of the options available if he and his doctor felt Vioxx was more appropriate. They did not tell Aetna that the other drugs were contraindicated, did not file a grievance or invoke his right to an independent review panel, and did not file an action under ERISA to compel Aetna to pay for the Vioxx. Davila sued under the 1997 Texas Health Care Liability Act, alleging that Aetna had engaged in medical malpractice under state law by “directly influencing and controlling” his treatment. Aetna, he charged, violated the law’s duty of ordinary care when it insisted on the use of a cheaper alternative to Vioxx. Case 2: Post-Operative Care CIGNA precertified Calad for a one-day post-surgery hospital stay for a complicated hysterectomy with rectal, bladder and vaginal repair. On the day she was to be discharged, CIGNA’s discharge nurse, contrary to the medical judgment of Calad’s doctor, decided that continued hospitalization did not meet CIGNA’s medical-necessity criteria. Calad’s lawyer, Young, said her physical and financial conditions made an appeal infeasible since the quickest process available under federal law is 72 hours. Calad went home and developed serious physical complications requiring her readmission a few days later. She also sued under the Texas law, alleging that the nurse’s actions did not meet the state standard of care and that CIGNA influenced and controlled the course of treatment. Texas was the first state to allow its residents to sue their health plans. A patient can sue without exhausting administrative appeals if the plan’s decision has caused harm. Ten other states have similar laws, according to the National Conference of State Legislatures. Texas will share argument time with Young to defend the states’ traditional power in this area. Aetna and CIGNA removed the state court suits to federal district court, asserting successfully that the state law claims were completely pre-empted by ERISA. The 5th U.S. Circuit Court of Appeals reversed. Circuits are split over whether state law claims against HMOs for negligence or medical malpractice are pre-empted by ERISA. The 2d, 5th and 11th have said no; the 1st, 3d, 4th, 7th and 8th have said yes. The 5th Circuit said a state law claim is pre-empted only if it “duplicates or falls within the scope of” a claim that could have been filed under ERISA. Under ERISA, plan participants can bring suits for a breach of fiduciary duty or a claim for benefits. The 5th Circuit reasoned that the claims by Davila and Calad were more in the nature of actions in tort, while a claim for benefits is more akin to an action for breach of contract. The court also said that the claims did not overlap with an action for breach of fiduciary duty because the HMOs’ decisions were mixed decisions involving both medical-treatment and eligibility aspects. And, it added, the Supreme Court had held in Pegram v. Herdrich in 2000 that HMOs making mixed decisions are not ERISA fiduciaries. HMOs’ Arguments In the high court, Miguel A. Estrada of Gibson Dunn & Crutcher will argue for Aetna and CIGNA. In a brief for Aetna, Estrada said that under Pilot Life Insurance Co. v. Dedeaux and its progeny, Davila’s claims are pre-empted because they are complaints that Aetna failed to approve coverage for Vioxx, an administrative determination that could be challenged under ERISA. Eccles argues that Calad “cannot seriously deny” that her claim is for benefits, which falls under ERISA. Both men and the Bush administration contend that some courts have misread Pegram to hold that whenever a plan’s decision about benefits coverage includes some element of medical judgment, the decision is transformed from a fiduciary act into a nonfiduciary act and can be regulated by the states. “Potentially any decision under a medical plan has some element of medical judgment,” said Eccles. “Somebody has to decide what’s medically necessary.” The HMOs and the government argue that Pegram should be confined to its factual situation — one in which a treating physician is determining both medical treatment and benefits. Young counters that the HMOs’ insistence that ERISA contains the sole remedy for his clients’ claims overlooks the natural question: “Remedy for what?” Remedies Called Irrelevant The nature of medical errors, he said, makes ERISA’s protections and remedies irrelevant. Davila could not seek reimbursement under ERISA for purchasing Vioxx out of pocket because he never bought any, or approval of future Vioxx prescriptions because he is too sick now to use it, Young said; Calad can’t seek reimbursement for additional hospital days because she left when she was told. Young disagrees with the idea that there was an earlier point in time when Davila and Calad could have made a claim for benefits. But even if there were, he said, it was exceptionally brief. Sara Lenz Lock, who filed a brief supporting Young on behalf of the AARP Foundation and others, said the ERISA remedies are unrealistic in some situations, such as here. “They say Calad could have requested an injunction preventing her from being discharged or pursued a remedy within the plan,” she said. “The reality is you are sick and your insurance company is saying it’s not covered. “It was only after the fact that they knew there was a problem and a need to challenge the insurance company. There’s no incentive to do that because you are faced with trying to get the best care. It’s just not within the patient’s intuitiveness to challenge something before something bad happens.” Young noted that the Supreme Court in Pegram also stated that Congress never intended to federalize state malpractice law. That decision, he said, extends earlier cases finding that state law continues to control medical malpractice cases even where an HMO’s decision has a coverage aspect to it. “I was very disappointed in the solicitor general because they have taken so many positions here inconsistent with what they said in the past,” Young said. “They should not be changing position based on a change in the administration.” In the past eight years, the Supreme Court has retreated from the high-water mark of ERISA pre-emption, where anything possibly related to an ERISA plan at the state level was pre-empted, said Elliott Pollack of Pullman & Comley in Hartford, Conn., who represents health care providers. If the court rules for Davila and Calad, he said, the decision “will probably inter pre-emption as a defense to just about any claim against an HMO other than a direct coverage claim dealt by the contract itself.” This article originally appeared in The National Law Journal , a publication of American Lawyer Media.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.