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A little over a year ago, the U.S. Supreme Court handed down a decision that seemed, at first glance, to spell the end of managed-care liability claims involving health insurance purchased through a private employer. A recent verdict out of Texas, however, serves as a useful reminder that the reports of the death of this area of managed care liability have been greatly exaggerated. ‘AETNA V. DAVILA’ Aetna v. Davila involved state-law claims arising out of Aetna’s alleged misconduct in the handling of a coverage decision. The case was consolidated in the Supreme Court with CIGNA v. Calad, a case that involved similar state-law claims. Both cases were originally filed in state court, and by design the plaintiffs did not raise or attempt to pursue claims based on the Employee Retirement Income Security Act of 1974 (ERISA). Because the plaintiffs in both cases had obtained their health coverage through private employers, however, the managed care plans fell within the scope of ERISA. The Supreme Court held that because the plaintiffs’ claims were essentially claims challenging coverage decisions made by ERISA plans, they were completely preempted under Section 502(a) of ERISA. As a result, the claims could properly be removed from state court to federal court and then dismissed with prejudice, even though the plaintiffs themselves had elected not to pursue ERISA claims. This left the plaintiffs without any meaningful remedy for the managed care misconduct alleged. Davila has been read as essentially putting an end, for now, to meaningful remedies for managed care misconduct involving decisions to deny benefits or coverage for a particular treatment, whenever the health insurance involved is obtained through a private employer. As a practical matter, that reading is largely correct. But it would be a mistake to conclude that Davila put an end to managed care accountability in all cases that involve ERISA. Cases arising out of managed care involvement in patient care that is more direct than a mere benefit determination remain viable. Davila was about coverage decisions and denials of benefits, nothing more. Benefit determinations and coverage decisions were the fundamental framework that drove not only the court’s result, but also its analysis. The Supreme Court’s decision leaves intact, and does not displace in any way, the distinction that the 3rd U.S. Circuit Court of Appeals has drawn between decisions regarding an insured’s eligibility for a particular benefit, which are completely pre-empted under Section 502(a) of ERISA, and treatment decisions, which are not. The cases illustrating this are DiFelice v. Aetna and Pryzbowski v. U.S. Healthcare Inc. Of course, even for claims that are not subject to complete preemption under Section 502(a), preemption under another section of ERISA, Section 514(a), remains an issue. But many courts have recognized that medical malpractice claims, even malpractice claims against ERISA health insurers, are not subject to Section 514(a) preemption. Thus, it appears that claims arising out of medically negligent insurer involvement in treatment are not preempted by ERISA, under either Section 502(a) or under Section 514(a). This is significant because the benefits provided by managed care firms often, and with increasing frequency, include care management programs that have the insurer taking an active role in the management of patient care. This involvement often takes its most visible form through “disease management” programs. By design, disease management programs directly and intimately involve the managed care insurer in health care decisions. For example, one large disease-management company emphasizes that its medically trained care managers will “develop one-on-one relationships with patients and deliver targeted care management interventions.” Another company has a program under which patients submit vital statistics and other medical information to the care manager every day, so that acute episodes can be detected early, or averted entirely, by the care manager and the patient’s physician. All of this takes place against the more general backdrop of managed care, in which essentially every medical decision is reviewed by the managed care company to determine whether or not the particular treatment is medically appropriate for the patient’s condition. This intimate involvement in medical care and medical decision-making creates, and carries with it, significant responsibilities and corresponding legal accountability. ‘SMELIK V. HUMANA’ Joan Smelik was enrolled in Humana’s HMO. Humana has extensive disease management programs, which are given prominent mention in its insurance policies and marketing materials. Smelik suffered from chronic obstructive pulmonary disease, kidney disease, high blood pressure, and other serious diseases and conditions. In 2000 she had stents placed in both her renal arteries. After the stents were placed, her physicians negligently prescribed a variety of medications that were toxic to the kidneys and were specifically contraindicated in patients with kidney disease. Her physicians also failed to properly monitor her condition or perform the proper tests or even make an appropriate referral to a kidney specialist. In the months that followed, Smelik’s kidney problems progressed and got worse. By May 2001, Smelik was in acute renal failure, and she passed away June 1, 2001. Through its care management programs, Humana had taken an active case management role in Smelik’s care, and Humana medical personnel had intimate knowledge of Smelik’s medical condition and medical problems. Notwithstanding this knowledge, Humana approved, as medically appropriate, medications with documented kidney toxicity. Humana was fully aware that the necessary monitoring was not being provided, and it failed in numerous other ways to reasonably carry out all that it undertook and promised to do. The family filed state-law managed-care claims against Humana, alongside more traditional medical malpractice claims against the physicians and physician practices involved. The case was tried in June 2005. The Smelik family’s trial lawyers — Jon Powell and Brant Mittler of San Antonio, Texas — recognized that the case against Humana did not involve a failure to provide a benefit, but rather involved Humana’s mismanagement and mishandling of the care management responsibilities that it undeniably took on and assumed. As a result, state-law managed-care claims against Humana were not foreclosed by Davila, even though Smelik’s HMO membership was through an ERISA plan. In presenting the case at trial, the family’s lawyers made effective use of Humana’s own insurance documents, marketing materials, contracts and internal guidance documents, all of which spoke quite candidly about the active role that Humana wanted to take and did take. The jury returned a verdict of $7.4 million in compensatory damages. Before the jury could consider punitive damages, the parties agreed to a $1.6 million figure, bringing the total amount of the jury award to $9 million. The jury apportioned 35 percent of the fault to Humana and 65 percent to other medical providers. The plaintiff settled with the physician and practice group defendants before trial; those settlements totaled $602,000. Under Texas law, Humana is responsible for 35 percent of the compensatory damages and the entire amount of punitive damages. The managed care claims in Smelik were based on Texas state law. The bases for those claims, however, have clear correlates in Pennsylvania law. For example, in Shannon v. McNulty, the Pennsylvania Superior Court recognized that “[w]hen a benefits provider, be it an insurer or a managed care organization, interjects itself into the rendering of medical decisions affecting a subscriber’s care it must do so in a medically reasonable manner.” The Superior Court held that an HMO could therefore be held liable for negligent medical advice provided to an insured, by a telephone triage nurse employed by the HMO. Disease management and care-management programs often place the managed care company in a position similar to the position occupied by the telephone triage nurse in Shannon, and give rise to the same legal duties and remedies. It bears mention that there is nothing in the trail of unfortunate medical errors preceding Smelik’s death that explicitly pointed to her HMO’s involvement. Were it not for the diligent attention of the family’s attorneys to the broader context in which medical care was provided to Smelik, Humana might have escaped any meaningful accountability for conduct that was, at least according to the jury, a serious breach of the duties owed to its insured. Equally important, the family’s attorneys recognized that Davila left intact important patient protections, rights and legal remedies. These are rights and remedies that should be considered any time a managed care insurer has taken upon itself a duty to help manage a patient’s care, and has harmed a patient by its failure to properly carry out that duty. Gregory B. Heller is a member of Young Ricchiuti Caldwell & Heller, where he represents plaintiffs in catastrophic personal injury litigation, including litigation against health insurers.

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