ERISA does not preempt state medical malpractice suit, Second Circuit rules.

In a case of first impression for the Second Circuit, a three-judge panel held that a medical malpractice claim brought in state court regarding an HMO's treatment decision is not preempted by the Employee Retirement Income Security Act (ERISA). (Cicio v. Vytra Healthcare, No. 01-9248, 2003 WL 283150 (2d Cir. Feb. 11, 2003).)

The district court for the Eastern District of New York dismissed all 18 claims filed by the widow of a cancer patient who was denied treatment by his HMO. The court said all the claims were administrative and thus preempted by ERISA [subsection] 502(a) and 514(a). The circuit court affirmed that claims involving timeliness in denying coverage and misrepresentation of benefits were administrative, but it agreed to consider the claims it said were based on "alleged lapses in the quality of medical care provided by the defendants."

"[T]he mere presence of an administrative component in a health care decision no longer has determinative significance for purposes of preemption analysis when the decision also has a medical component," wrote Second Circuit Judge E. Thomas Boyle.

The 2-1 decision "means that there's now no barrier for anyone in New York, Connecticut, or Vermont to sue an HMO when the health plan denies treatment recommended by a doctor," said David Trueman of New York City, who represented the plaintiff.

The case was brought by the widow of Carmine Cicio, who was treated with chemotherapy for multiple myeloma. His oncologist recommended a tandem stem-cell transplant, but Vytra Healthcare refused to pay for the procedure, which it deemed an "experimental/investigational" treatment. Although the oncologist provided documentation that the double transplant was a "well-established method of treatment," the company refused to reconsider its decision. Cicio died in May 1998.

The district court granted Vytra's motion to dismiss all claims against it, its medical director, and several other doctors. Cicio's widow, citing the U.S. Supreme Court's decision in Pegram v. Herdrich (530 U.S. 211 (2000)), argued on appeal that ERISA does not preempt claims for improper medical care.

In a "liberal construction" of the complaint, the Second Circuit found that the plaintiff had "alleged more than an adverse benefits decision" and agreed to decide whether her malpractice claims against the HMO and its doctors were administrative claims because they related to the benefits plan it administered.

In Pegram, the Supreme Court ruled for the defendant, a managed care organization, finding that its business practices did not violate ERISA standards for fiduciary conduct. But the case defined two categories of health care decisions those that involve interpreting an insurance contract and those that involve exercising medical judgment--and found that the categories may overlap, creating a third: mixed eligibility and treatment decisions. Vytra's decision not to cover the doctor-recommended treatment fit in the third category, the Second Circuit found.

In the Cicio decision, Boyle wrote that the Supreme Court did not reason that any "finely filigreed" connection between ERISA and a state law automatically establishes preemption. Instead, he said, the Court found that "in the field of health care, a subject of traditional state regulation, there is no ERISA preemption without dear manifestations of congressional purpose."

Boyle reasoned that the mere presence of an administrative component in an HMO decision does not mean its medical aspects should be ignored and the claim preempted; instead, a plaintiff should be allowed to pursue medical malpractice claims.

"We conclude that a state law malpractice action, if based on a 'mixed eligibility and treatment decision,' is not subject to ERISA preemption when that state law cause of action challenges an allegedly flawed medical judgment as applied to a particular patient's symptoms," he wrote.

Judge Guido Calabresi dissented in part, calling his colleagues' decision "a Band-Aid on a gaping wound," one that would not be healed "until the Supreme Court reconsiders the existence of consequential damages under the statute or Congress revisits the law to the same end."

He said the decision centers on the nature of Cicio's claim--that is, whether the suit is against an insurer for negligent failure to provide contracted coverage or against a medical care provider for negligent failure to treat. "Because I think that the current suit is clearly of the first sort, I regretfully conclude that it is barred" by ERISA, he wrote.

The Second Circuit remanded the case to district court.