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Fearing that the managed health care industry would be destroyed if it ruled otherwise, the Supreme Court on Monday protected HMOs from being sued by disgruntled patients for breach of fiduciary duty under a key federal employment law. “The judiciary has no warrant to precipitate the upheaval that would follow,” wrote Justice David Souter for a unanimous court in Pegram v. Herdrich. “The fact is that for over 27 years the Congress of the United States has promoted the formation of HMO practices.” The ruling removes, at least for now, a legal threat that could have subjected health maintenance organizations to a wave of litigation under the Employee Retirement Income Security Act (ERISA), which protects employee benefit programs and requires that any organization that has a fiduciary duty to employees must act in their best interests. Cynthia Herdrich of Bloomington, Ill., made an ERISA claim when she sued her HMO after one of its doctors failed to order a test that could have prevented her appendix from rupturing. She said an HMO incentive plan that rewarded her doctor, Lori Pegram, for limiting the number of tests ordered for patients amounted to a breach of fiduciary duty under the law. The Supreme Court didn’t see it Herdich’s way. “We think Congress did not intend [HMOs] to be treated as a fiduciary to the extent that it makes mixed eligibility decisions acting through its physicians,” Souter wrote. Noting that HMOs are profit-making organizations, Souter said that if the Court agreed with Herdich’s claim that the profit-motivated incentive plan violates the fiduciary duty of HMOs, it would mean “nothing less than elimination of the for-profit HMO.” Carter Phillips, a D.C. partner at Sidley & Austin and the lawyer for the CarleCare HMO sued by Herdrich, said the justices had correctly recognized that if Herdrich won, “all HMOs would be illegal.” The decision “considerably undermines” future plaintiffs’ breach of duty claims, said Stephanie Kanwit, a D.C. partner at New York’s Epstein Becker & Green, author of an amicus curiae brief in the case for health insurers and the U.S. Chamber of Commerce. But lawyers for the other side drew comfort from a footnote in Souter’s opinion, which seems to offer an opening for further ERISA claims against HMOs. “Although we are not presented with the issue here,” Souter wrote, “it could be argued that Carle is a fiduciary insofar as it has discretionary authority to administer the plan, and so it is obligated to disclose characteristics of the plan and those who provide services to the plan, if that information affects beneficiaries’ material interests.” Because of that footnote, says Stephen Neuwirth, a partner at Boies, Schiller & Flexner in Armonk, N.Y., Monday’s holding “does not expressly limit” suits trying to force HMOs to disclose their financial incentive programs. Neuwirth is co-lead counsel in a series of major class actions pending against Humana Inc. and six other providers. Gregg Bloche, who teaches health care law at Georgetown University Law Center, said the class action “suffered a terrible blow” in Monday’s decision. But Bloche said the litigation could shift to state courts. The Court ruling was the second piece of good news for HMOs recently. Last week the Senate defeated a patients’ bill of rights that would have subjected HMOs to malpractice suits and federal damages in federal court. Also on Monday, the Court: � Ruled 5-4 against Virginia death row inmate Bobby Lee Ramdass, offering a narrow reading of the duty of a judge to inform a jury that the defendant would never be released if sentenced to life in prison. In Ramdass v. Angelone, the majority agreed with the Virginia Supreme Court and the 4th U.S. Circuit Court of Appeals that the sentencing judge acted properly in not giving the jury an instruction on the defendant’s parole non-eligibility. Under Virginia’s “three strikes” law, Ramdass, who had previously been convicted twice on armed robbery charges, would have been ineligible for parole if sentenced to life in the murder of convenience store clerk Mohammed Kayani. But because a final judgment hadn’t been entered yet in one of the robbery convictions, the Court said the murder did not qualify as a “third strike.” Justice Anthony Kennedy, joined by Chief Justice William Rehnquist and Justices Antonin Scalia, Clarence Thomas and Sandra Day O’Connor — who wrote a separate concurrence — agreed that the Virginia Supreme Court’s ruling was not contrary to Simmons v. South Carolina, the 1994 decision in which the Court said that a jury considering the death penalty should be told if the defendant is ineligible for parole. Justice John Paul Stevens, in dissent, said the majority was perpetuating an “acute unfairness” based on an interpretation of Simmons that went beyond “even the most miserly reading” of that opinion. “Why does the Court insist that the Constitution permits the wool to be pulled over their [the jury's] eyes?” Stevens was joined by Justices Ruth Bader Ginsburg, Stephen Breyer, and Souter. � In Carter v. United States, the Court, by the same 5-4 split as in Ramdass v. Angelone, said a New Jersey man facing bank robbery charges was not entitled to a jury instruction that he could be convicted of the lesser crime of larceny. Because the crime of larceny contains several elements not included in the definition of bank robbery, it is not a “lesser included offense,” Justice Thomas wrote for the majority. Dissenting Justice Ginsburg wrote that the majority “gives short shrift to the common-law origins and statutory evolution” of bank robbery and larceny laws. Jonathan Ringel, a senior reporter in the American Lawyer Media Washington, D.C., bureau, contributed to this article.

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