Thank you for sharing!

Your article was successfully shared with the contacts you provided.
In a decision much-awaited by the public and health law community alike, the Pennsylvania Supreme Court on Wednesday affirmed its 1998 decision in Pappas v. Asbel, holding that a state law medical negligence claim was not pre-empted by the Employee Retirement Income Security Act of 1974 (ERISA). “We conclude that our reasoning and result in Pappas I are consistent with the [U.S.] Supreme Court’s decision Pegram [v. Hendrich],” Justice Ralph J. Cappy wrote for the majority. “Accordingly, we confirm our original disposition; the order of the Superior Court reversing the grant of summary judgment to U.S. Healthcare is affirmed.” Justice Thomas G. Saylor was the lone dissenter. The decision now clears the way for the CAT Fund and PHICO — the successors in interest to Haverford Community Hospital — to prove at trial that the medical director at U.S. Healthcare was negligent in his medical handling of Pappas’ case. But don’t expect the trial to be any time soon, said Stephen A. Ryan, counsel for PHICO and the CAT Fund and an attorney with Philadelphia-based Marshall Dennehey Warner Coleman & Goggin. “The timeline all depends on whether U.S. Healthcare decides to petition the [U.S.] Supreme Court for cert, and my guess is that they will. They’ve got nothing to lose.” The decision followed the dictates of two cases: the 1995 U.S. Supreme Court decision New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co. and Pegram v. Hendrich, a 2000 U.S. Supreme Court decision which triggered the remand of Pappas back to Pennsylvania’s highest court. THE ‘PAPPAS’ CASE The original plaintiff in the case, Basile Pappas, sued his doctor and Haverford Hospital for medical malpractice after a 1991 incident when he was delayed in being transferred to a hospital to treat his epidural abscess. The condition is an infection and inflammation of the area between the skull and the covering of the brain, usually caused by the bacteria Staphylococcus. For about three hours, Pappas lay waiting to be treated while a Haverford emergency room doctor quibbled with his insurer over where the HMO would allow him to be sent for further treatment. After a consultation with a neurologist and neurosurgeon, the physicians had concluded Pappas’ condition constituted a neurological emergency. The treating doctor at Haverford wanted to transfer Pappas to Jefferson University Hospital, where he believed the facilities were uniquely able to treat Pappas’ condition. U.S. Healthcare denied the transfer to Jefferson, an out-of-network facility. But the HMO said Pappas could instead go to Hahnemann University Hospital, Temple University Hospital, or the Medical College of Pennsylvania. Hahnemann was contacted first but said it would be delayed in admitting Pappas for at least an additional half-hour, time that Pappas couldn’t spare. MCP almost immediately said it could take Pappas, so Pappas was transferred there. But the prolonged compression of his spine resulted in permanent quadriplegia. Pappas is now out of the case, having settled with Haverford Community Hospital for an undisclosed amount. Haverford, which joined U.S. Healthcare as an additional defendant, was succeeded by the CAT Fund and PHICO after its settlement with Pappas. The CAT Fund only agreed to settle if it could maintain its cross-claim against U.S. Healthcare, Ryan said. U.S. Healthcare moved for summary judgment on the grounds of ERISA pre-emption, which the trial court granted. The Superior Court reversed, stating that finding that ERISA did not pre-empt the state law claims. U.S. Healthcare appealed to the Supreme Court of Pennsylvania to determine whether the third-party claims in Pappas fall within the scope of state actions pre-empted by ERISA. In 1998, the court held there was no pre-emption. U.S. Healthcare then appealed to the U.S. Supreme Court, which granted cert in June 2000, but remanded the case to Pennsylvania’s Supreme Court for consideration in light of the Pegram decision. ‘PEGRAM’S’ LEGACY: THE ‘MIXED DECISIONS’ ANALYSIS The court’s first decision, or Pappas I, focused on the Travelers case. “We deemed it significant that the [U.S. Supreme] Court … recognized fairly significant bounds on pre-emption when it stated that ‘preemption does not occur … if the state law has only a tenuous … connection with covered plans …. ‘ “ The court also considered it significant that the Travelers decision cautioned, “nothing in the language of [ERISA] or in the context of its passage indicates that Congress chose to displace general health care regulation, which historically has been a matter of local concern.” Accordingly, the Pennsylvania Supreme Court in Pappas I concluded there was no ERISA pre-emption. The Travelers case marked the end of a period that began in the 1980s and ended in the early 1990s, where the U.S. Supreme Court had given ERISA pre-emption “a notably expansive scope” based on the plain language of the statute. Heavy public criticism followed. Cappy said that Travelers ” … signaled a change in course, instructing the courts to look to the objectives of ERISA, and not solely to the bare, ‘unhelpful’ text of the statute.” But it was Pegram v. Herdrich, a case the U.S. Supreme Court decided last year, that took the ERISA pre-emption debate a step further. In Pegram, the plaintiff-patient sued her HMO for waiting eight days to administer an ultrasound at an in-network facility. When the plaintiff was initially examined, she was experiencing pain in her abdomen. The doctor discovered an inflamed mass in that area, but instead of immediately ordering an ultrasound, decided to wait eight days for an in-network facility. In the meantime the plaintiff’s appendix ruptured, causing peritonitis. The patient sued the HMO and doctor, alleging the scheme that rewarded doctors for limiting care was an inherent breach of the fiduciary duties imposed by ERISA. The U.S. Supreme Court granted cert and decided that treatment decisions made by an HMO, acting through its physicians, are not fiduciary acts. Although the fiduciary issue was not an issue in Pappas, the Pegram case set forth “two guiding principles,” that were of use in the Pappas case, Cappy said. The first principle is that HMO doctors occupy “dual roles,” acting in some instances as plan administrators and others as health-care providers. In their administrative role, doctors decide pure eligibility issues, such as whether a patient is covered for a certain condition. However, as a health-care provider, they decide what medical treatment is appropriate. The second principle is that HMO doctors make three kinds of decisions: eligibility decisions, treatment decisions, and finally, those of a “mixed” variety, which combine both elements. The Pappas case was one illustration of a mixed decision, the court said, where choosing a facility that a doctor deems appropriate — even if it’s out-of-network — is not only an eligibility decision, but also a treatment decision. When doctors’ decisions are of the mixed variety, the court said, they “are properly redressed, as Pegram teaches, through state medical malpractice law.” And there is no ERISA pre-emption. … “If Haverford’s 3rd-party claim against U.S. Healthcare arose out of a mixed decision, it is, according to Pegram, subject to state medical malpractice law, which is what Haverford asserted,” Cappy wrote. “Moreover, under Travelers, it is not pre-empted by ERISA.” … “Not surprisingly, U.S. Healthcare argues that its decision about Pappas’ referral ‘constituted a quintessential “coverage” determination,’ ” said Cappy. “ We, however, disagree.” Having found no pre-emption in Pappas, Cappy remanded the case to the trial court for proceedings consistent with the opinion. DISSENT Justice Saylor discussed the difficulty of balancing a managed care organization’s structure, which fundamentally rations treatment, and imposing state law duties on them. “Their viability will be determined by whether the cost of such harm ultimately exceeds the savings achieved by rationing in the first instance,” he wrote. Saylor said the pre-emption inquiry “may not be presently capable of distillation into questions answerable in a ‘yes’ and ‘no’ format … . Rather, [it] may have to endure a further evolution in the law, perhaps substantial, at both the state and federal levels … “ “My point is that the Court should refrain at this juncture from directing that the cause of action against U.S. Healthcare must necessarily be assessed according to medical malpractice precepts and, correspondingly, resolving the pre-emption inquiry on such basis.” REACTION I think [the majority opinion] is pretty cut-and-dried,” said Ryan, the lawyer for the CAT Fund and PHICO. “I think it will make HMOs more accountable and more responsible. For example, if the HMO knew it had a bad doctor [in-network] and still sent the patient to a bad doctor, then it would be accountable for that. “I think it does eviscerate the pre-emption argument, but there are still plenty of decisions HMOs can make [that will be under the protection of pre-emption]. There will be muddy or gray areas, but hopefully not many.” David Carter, a spokesman for Aetna/U.S. Healthcare, could not comment on the case other than to say Aetna was “disappointed that a majority of the court chose to follow its original decision, despite the 3rd Circuit ruling in Pryzbowski.” The Pryzbowski v. U.S. Healthcare opinion, issued Mar. 27 by the 3rd U.S. Circuit Court of Appeals, was mentioned by Saylor in a footnote of his dissent. In that case, the plaintiff alleged U.S. Healthcare “negligently and carelessly delayed” back surgery she needed. The court affirmed an earlier order dismissing Pryzbowski’s claims as pre-empted. Even so, Judge Dolores K. Sloviter noted that “As a result of the enactment of ERISA and the substantial changes in the delivery of health care, new legal issues regarding rights and responsibilities have arisen. The law remains, to some extent, in a state of flux.” The court said Congress, not the courts, should decide whether to limit or channel relief in the world of managed care. Professor Barry R. Furrow, who has directed the Health Law Institute at Widener University School of Law in Wilmington, Del., for 10 years, said this latest round of Pappas will make it into his new casebook just under the wire for publication in May. But other than that, he said he was disappointed. “This doesn’t seem like much of an opinion,” he said. “It would have been nice to see the [state] supreme court develop a more refined set of analytic standards for deciding what cases will or won’t be pre-empted by ERISA. “I’m generally sympathetic to perforating ERISA [and allowing some negligence suits]. But I don’t think this is what the [U.S.] Supreme Court had in mind when it wrote the Pegram decision. This ‘mixed decision’ analysis doesn’t provide a lot of guidance. The opinion seems to mean the argument of ERISA pre-emption sort of disappears in Pennsylvania.” Furrow said he was sympathetic to the position of U.S. Healthcare in Pappas. “I don’t think the utilization review doctor here was necessarily looking at the patient’s case,” he said. “I think he was saying, we don’t participate with this hospital, but you can go to one of the three other hospitals we do participate with. That’s not really a mixed treatment and administration decision. It’s one of access. “HMOs are based on a volume-discount relationship. It doesn’t mean you get the best of what’s available out there. It doesn’t matter that Jefferson happened to have a better program [for spinal-cord injury]. The insurer here didn’t have a relationship with Jefferson.” APPEAL A letter sent from attorney Burt M. Rublin, counsel for U.S. Healthcare, to the Pennsylvania Supreme Court dated Mar. 28 suggested the courts haven’t seen the last of Pappas. Reached at his office Wednesday, Rublin declined to comment on the case. The letter urged the court to recognize “a very significant decision” rendered the day before in Pryzbowski. … “ “The Pryzbowski opinion materially affects the status of … cases relied upon by the appellees,” the letter continued. The majority did not mention Pryzbowski at all in its 12-page opinion. “If U.S. Healthcare petitions the [U.S. Supreme] court again, I’m hopeful they will deny cert,” said Ryan. “But I’m not concerned about it going to the U.S. Supreme Court. The court has already said if it was going to have to find a medical standard of care, that should be decided by Congress.”

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.