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It’s starting to look like HMOs can’t be sued anywhere for anything. In a pair of orders handed down Monday, the U.S. Supreme Court signaled that last week’s decision in Pegram v. Herdrich was just the beginning and that the justices may intend to protect HMOs from being sued in both the federal courts and in the state courts. In Pegram, the court said HMOs can’t be sued under ERISA for allegedly breaching their fiduciary duty by providing financial incentives to doctors to cut costs. The majority opinion by Justice David Souter said that Congress designed the laws that govern HMOs to allow for cost-saving mechanisms and that Congress, not the courts, is in the best position to change the laws if they need changing. Monday, the justices ordered the Pennsylvania Supreme Court to vacate its 1998 decision in Pappas v. Asbel and, in light of Pegram, to reconsider the question of whether an HMO can be sued for malpractice by a patient who says its rules caused doctors to hold back care. And in a second order, the justices let stand the decision by the 3rd U.S. Circuit Court of Appeals in Bauman v. U.S. Healthcare that sent a malpractice lawsuit against an HMO back to the state courts of New Jersey. At first glance, it might appear that the two orders are in conflict, especially since the HMO won a new review in Pappas, but another HMO lost its petition for certiorari in Bauman. But closer inspection shows that the two orders could be read as perfectly consistent. The Bauman case presented the justices with a purely jurisdictional question of whether such malpractice suits against HMOs are “completely preempted” by ERISA. The 3rd Circuit found they were not and sent the case back to the state courts. U.S. Circuit Judge Dolores K. Sloviter said the Bauman’s case was not preempted because their claim was not to recover benefits due, but rather to challenge the quality of care provided. Monday’s decision to let the appellate court’s ruling in Bauman stand could be read as nothing more than the high court’s agreement that litigation against HMOs should not be federalized. But in Pappas, the U.S. justices were forced to look at the merits of such cases and confront the question of whether an HMO can be included in the pool of defendants in a malpractice case. The case began with a lawsuit by Basile Pappas of Newtown Square, Delaware County, Pa., who said inadequate care left him a quadriplegic. He went to Haverford Community Hospital with a spinal problem, and his HMO refused to authorize his transfer to a hospital outside the HMO network for specialized emergency care. Pappas settled his claim against a doctor and Haverford. The hospital then sued the HMO, United States Healthcare Systems of Pennsylvania. A state judge said ERISA pre-empted the suit, but the Superior Court reversed, finding that ERISA did not pre-empt the claim. It concluded that the decision by U.S. Healthcare was in essence a business decision. The court found that the cost-containment mechanisms in HMOs did not exist when ERISA was enacted, and therefore Congress could not have intended to pre-empt state law claims on that basis. The Pennsylvania Supreme Court affirmed the Superior Court, but on different grounds, finding ERISA pre-emption unjustified in any medical negligence action against an HMO. Justice Ralph Cappy summarized the issue as whether negligence claims such as those against U.S. Healthcare in this case are expressly pre-empted by the Section 1144(a) of ERISA. The ERISA pre-emption clause states that “the provisions of this title … shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Cappy noted that the U.S. Supreme Court has never squarely addressed whether a medical negligence claim against an HMO “relates to” an ERISA plan. U.S. Healthcare argued that the high court’s interpretation of the ERISA pre-emption clause has been “deliberately expansive,” and should be found to include state law negligence claims such as those in this case. Cappy agreed that the high court’s interpretation of the pre-emption clause was extremely broad in the 1980s and early 1990s, but said he was persuaded that recent cases marked a deliberate retreat from that expansive view. In New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., Cappy said, the justices “noticeably changed tack” in that decision and held that a New York statute requiring hospitals to collect surcharges from patients covered by insurance companies other than Blue Cross was not pre-empted by ERISA. By doing so, Cappy said, the high court finally acknowledged that the “relates to” language of the ERISA preemption provision was unclear. “After years of striving to make sense of the plain language of the preemption provision,” Cappy wrote, “the court frankly admitted that the text is ‘unhelpful.’” Cappy said the high court recognized that if taken to its logical extreme, the phrase “relates to” would allow unlimited pre-emption of state laws. Cases since Travelers have continued the trend, Cappy said, including California Division of Labor Standards Enforcement v. Dillingham Construction, NA., Inc. in which the court held that a California prevailing-wage law was not pre-empted by ERISA; and DeBuono v. NYSA-ILA Medical and Clinical Services Fund, in which the court held that a New York gross-receipts tax could be applied to hospitals operated by ERISA plans. “Based upon our interpretation of the Travelers line of cases, we conclude that negligence claims against a health maintenance organization do not ‘relate to’ an ERISA plan. As noted by Travelers, Congress did not intend to pre-empt state laws which govern the provision of safe medical care,” Cappy wrote. “Claims that an HMO was negligent when it provided contractually-guaranteed medical benefits in such a dilatory fashion that the patient was injured indisputably are intertwined with the provision of safe medical care,” he wrote “We believe that it would be highly questionable for us to find that these claims were pre-empted when the United States Supreme Court has stated that there was no intent on the part of Congress to pre-empt state laws concerning the regulation of the provision of safe medical care,” Cappy wrote. THE ‘BAUMAN’ CASE The claim in Bauman was similar, but the case took a different path in the courts. Michelle Bauman gave birth to a daughter, Michelina, on May 16, 1995. Under their HMO’s policy, the Baumans’ physician — a health-care provider contracting with the HMO — discharged mother and child from the hospital 24 hours after the child’s birth. Their HMO, U.S. Healthcare, had a 24-hour discharge policy for normal births. One day later, the Baumans noticed their daughter was ill. When they called their physician, she allegedly did not advise them to bring the baby to the hospital. And though they asked that U.S. Healthcare send an in-home pediatric nurse, none was provided. The Baumans’ daughter died of meningitis the day the request was made. The Baumans brought suit in Superior Court in Camden, N.J. Their six-count complaint asserted direct tort claims against the HMO physician who treated their daughter, as well as against Kennedy Hospital and The Health Maintenance Organization of New Jersey, a subsidiary of U.S. Healthcare. Against U.S. Healthcare, the Baumans alleged that the HMO’s policy encouraged, pressured and/or directly or indirectly required the 24-hour pre-certified discharge used by the doctor and hospital. In implementing its policy, the Baumans alleged, U.S. Healthcare acted “without adequate consideration” for the policy’s medical appropriateness and without due care for the health and safety of members. The Baumans also included a claim for vicarious liability for the negligence of the doctor and hospital in prematurely discharging the newborn after only 24 hours while the infection went undiagnosed. The HMO removed the case to federal court, but the district court found removal proper only over the claim related to the in-home visits. The court said such a claim fits within the scope of Section 502(a) of ERISA, which covers claims “to recover benefits due” under the terms of the plan. The district court found it had subject matter jurisdiction under the doctrine of complete pre-emption, which confers original federal subject matter jurisdiction over a claim notwithstanding a federal cause of action on the face of a complaint. It then went on to dismiss the count, finding it was expressly pre-empted under ERISA. Declining to retain supplementary jurisdiction over the remaining counts, the court remanded the remaining claims to state court. U.S. Healthcare appealed, arguing that the remaining counts against it should have been completely pre-empted. A cross-appeal filed by the Baumans asserted that the district court erred when it completely pre-empted and dismissed the claim related to in-home visits. The 3rd Circuit reversed in part, finding the lower court erred in dismissing the claim, but upholding its refusal to take supplemental jurisdiction on the other counts. The three-judge panel stressed the distinction between state-law claims directed to the quality of benefits provided, which are not completely pre-empted, as opposed to claims that the plans erroneously withheld benefits due.

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