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In another major victory for HMOs, a federal judge has dismissed a proposed class action suit that accused an insurer of violating ERISA by failing to tell its members about the financial rewards it pays to doctors who limit the care they provide. In his 17-page opinion in Peterson v. Connecticut General Life Insurance Co., U.S. District Judge Robert F. Kelly found that the 3rd U.S. Circuit Court of Appeals has never squarely addressed the question of “whether ERISA imposes a universally applicable, automatic duty upon HMOs to disclose all of their physician financial incentives to all of their plan participants.” But Kelly found that the 3rd Circuit rejected a case with nearly identical allegations brought under RICO. But since Maio v. Aetna Inc. was a RICO case, Kelly found that it did not mandate dismissal of Joanne Peterson’s suit. Turning to the 3rd Circuit’s law on ERISA, Kelly found that none of the cases that Peterson’s lawyers cited was strong enough to save her case. “We do not agree with Ms. Peterson that the [three cases she cited] constitutes the 3rd Circuit’s ‘ringing endorsement’ of such a universal, automatic duty upon all HMOs to disclose every aspect of their physician financial incentives without a request from the participant or without any other special circumstance,” Kelly wrote. “Rather, those 3rd Circuit cases which have addressed the fiduciary duty to disclose … have done so only where a plan participant makes a specific inquiry or where the fiduciary knew of the plaintiff’s particular circumstances requiring disclosure and the non-disclosure resulted in a particular injury.” Kelly said he agreed that the 3rd Circuit “is arguably willing to expand the protections afforded by ERISA’s disclosure provisions” but said the case law also shows the appellate court’s “reluctance to overly burden plan administrators with broad disclosure duties.” As a result, he said, lower courts should not impose the “blanket duty” that Peterson seeks. “Because the burden of the duty Ms. Peterson asks us to impose is staggering, without a clear endorsement from the 3rd Circuit, we are reluctant to permit this action to go forward and result in an effective amendment of ERISA to encompass such claims,” Kelly wrote. Kelly also found that Peterson’s lawyers — H. Laddie Montague Jr., Jerome M. Marcus and David Langer of Berger & Montague — had failed to rebut two propositions advanced by CGLIC that weakened her claim. First, he said, they failed to dispute CGLIC’s claim that the information that Peterson seeks is available on CGLIC’s Web site — a fact which, Kelly found, “would suggest that CGLIC has already conformed with the disclosure duty Ms. Peterson seeks.” And they also did not dispute the argument by CGLIC’s lawyers — John G. Harkins Jr. and Eleanor Morris Illoway of Harkins Cunningham — that both houses of Congress have “recently passed separate bills that would amend ERISA to require the very disclosure plaintiff seeks here — although even those bills would require the disclosure only upon request by a beneficiary, and not as an automatic duty as plaintiff urges here.” Kelly found that the pending legislation sheds light on the current state of ERISA law. “The fact that Congress is currently considering whether ERISA should be amended to impose a broad disclosure duty of financial incentives upon HMOs strengthens CGLIC’s argument that such decisions are properly made by the legislature,” Kelly wrote. According to the suit, Peterson has been enrolled in a health plan operated by CGLIC as a benefit made available to her by her employer. Under the plan participants must seek treatment from physicians under contract with CGLIC. The suit alleged that CGLIC violated its fiduciary duty to the plan participants under ERISA by failing to disclose all of its compensation arrangements under the contract between CGLIC and its physicians, consisting of “compensation incentives and disincentives with which CGLIC confronts health care providers, as well as its use of treatment and hospitalization guidelines, and those other internal limitations it has created and imposed which affect the coverage actually available to its subscribers.” Peterson alleged that such incentives are material information that “a reasonable subscriber would find significant both in his or her assessment of whether to become a [CGLIC] HMO subscriber and by an existing subscriber in determining how to deal with his or her [primary care physician].” If the information were disclosed, she said, a subscriber “might conclude that such incentives create too great a risk that a physician will under-prescribe needed health care,” and that therefore the subscriber’s physician “must be questioned more aggressively regarding treatment options if the physician is given incentives or guidelines by [CGLIC] which have the effect of limiting the health care to be provided.” But Kelly found that Peterson did not allege that she or any other person “ever made a request for information regarding CGLIC’s physician financial incentives which was refused or responded to in an incomplete or false manner.” CGLIC’s lawyers argued that “information about how plaintiff’s physician is compensated is available for the asking” and that the company’s Web site “invites plan members to ask their physician’s administrative staff about which compensation method applies to services provided by a specific physician.” Kelly also said Peterson never alleged that “she or any other participant was ever refused reimbursement for medically necessary care, was ever denied medically necessary care, or was ever injured due to inadequate care.” The Berger lawyers argued that such allegations were unnecessary because Peterson’s claim is a breach of her statutorily conferred right to information and that “it makes absolutely no difference whether [she] has been treated improperly by a doctor.” Peterson’s theory, they said, is that the failure to disclose physician incentives renders the scope of “the safety net of coverage” smaller than promised and that CGLIC has been unjustly enriched as a result. They argued that while the 3rd Circuit has not yet specifically addressed the question of an ERISA-imposed fiduciary duty to disclose financial incentives in health insurance plans, the appellate court has nonetheless “adopted a vigorous form of the rule that the ERISA fiduciary duty mandate includes within it a duty to disclose material information.” In their brief, the Berger lawyers relied heavily on three 3rd Circuit case — Bixler v. Central Pennsylvania Teamsters Health & Welfare Fund, Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec., Inc. and Harte v. Bethlehem Steel Corp. In Bixler, they said, the 3rd Circuit held that “the duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful.” But Kelly found that while the Bixler court recognized a duty to disclose, “it did so in the circumstance where a request for information did not receive a complete and accurate response.” And while Bixler stands for the “general proposition” that disclosure is required for the protection of the beneficiary, Kelly found, the ruling “does not clearly mandate upon all HMOs the imposition of a universal duty to disclose all physician financial incentive arrangements to all plan members absent a request for such information by a plan participant.” Similarly, Kelly found that while the Glaziers court recognized the possibility that a duty to disclose existed in that case for the protection of the beneficiary, the case specifically concerned information about “a particular potential harm” that was allegedly known to a fiduciary but was not disclosed. The Glaziers decision, he said, emphasized that disclosure should be required only when necessary for the “protection” of the beneficiary and therefore “does not clearly support Ms. Peterson’s request for universal disclosure of all physician financial incentives absent any special circumstance or even a request by a participant.” Kelly found that the Harte decision, too, does not require “the broad duty to inform plan participants of physician financial incentives.” Instead, he said, Harte “specifically dealt with a change in status as it related to retirement benefits, and the court was careful to limit its holding to cases involving employment severance. The court also expressed reluctance to impose a fiduciary duty in certain cases, recognizing the potential burden upon plan administrators that a broad duty to inform would entail.”

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