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Supreme Court bars patients from suing HMOs under federal law

Patients cannot sue their HMOs under federal law just because their doctors are given incentives for controlling treatment costs by limiting medical care, the U.S. Supreme Court ruled on June 12.

"No HMO could survive without treatment rationing."

In the much-anticipated decision, the justices unanimously overturned an appeals court ruling and barred patients from suing their HMO under the federal Employee Retirement Income Security Act (ERISA). The ruling, however, has no bearing on state laws granting patients the right to sue for damages.

"No HMO organization could survive without some incentive connecting physician reward with treatment rationing," Justice David H. Souter writes in the 25-page decision. The Hippocratic Oath, he writes, obliges doctors to provide care "with a reasonable degree of skill and judgment in the patient's interest."

Because the Supreme Court ruling denies patients the right to sue only under federal law, it leaves the door open for cases at the state level. But so far, just four states — California, Georgia, Texas, and Washington — have granted patients the right to sue their HMOs for damages under state law.

ERISA was enacted in 1974, a year after Congress passed legislation encouraging the development of HMOs. ERISA was meant to protect the employer-provided benefits of workers by setting federal standards, but its rules have been interpreted by courts as protecting HMOs from patient lawsuits. Patients still can file suit under ERISA to force their HMOs to cover their medical care or to recoup the cost of the treatment if they've paid for it out of their own pocket.

The Health Insurance Association of America (HIAA), an industry lobbying group, immediately issued a statement praising the Supreme Court decision. HIAA President Chip Kahn calls it a consumer victory, saying that if such lawsuits were allowed to go forward, more Americans would be unable to afford health insurance.

He also blasted the recent string of lawsuits — many filed by the former tobacco industry prosecutors — targeting HMOs over such financial incentives. "The High Court dealt a body blow against one of the key tenets of several baseless class action suits launched recently against many health plans," Kahn says.

The case before the Supreme Court stems from a lawsuit filed in 1992 by a woman from Illinois who contracted peritonitis after her appendix burst when her doctor delayed treatment for eight days. The woman, Cynthia Herdrich, was awarded $35,000 in medical malpractice damages in a lawsuit against her doctor. But the trial court tossed out her separate argument that her HMO, Health Alliance Medical Plans, had violated its fiduciary responsibility under ERISA, which requires managers of health plans to act in the best interest of patients. Herdrich said the HMO handed out year-end bonuses to doctors who held down treatment costs by denying care.

Herdrich appealed, and the Seventh Circuit Court of Appeals overturned the lower court's decision and sent the case back to trial court. Health Alliance, however, requested a hearing before the Supreme Court.

Health Alliance echoed HIAA's comments about the High Court decision. "It confirms our belief that managed care is an appropriate mechanism for controlling costs and ensuring quality care," says Jeffrey C. Ingram, the HMO's CEO.

At the same time, Ingram denies rewarding doctors for withholding treatment. "This would contradict the very essence of managed care and the most basic of physicians' medical ethics," he says. "Withholding treatment would only lead to higher costs in the long run and loss of incentives to providers."

Health Alliance, based in Urbana, Ill., is the largest managed care organization in downstate Illinois, offering health care coverage to more than 200,000 customers in Illinois and Iowa.

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