ERISA preemption hinges on quality of care provided, Third Circuit rules.

The Third U.S. Circuit Court of Appeals in Philadelphia ruled in September that a suit against an HMO pertaining to the quality of the treatment provided is not preempted by the Employee Retirement Income Security Act (ERISA). (In re U.S. Healthcare, Inc., Nos. 98-5263, 98-5222, 98-5262, 1999 WL 728474 (3d Cir. Sept. 16, 1999).)

The ruling joins those from a growing number of courts rejecting defendants' efforts to transfer malpractice and negligence claims against HMOs to federal courts, where under ERISA the most plaintiffs can recover is the cost of the denied treatment.

"The Baumans seek recovery for decisions that U.S. Healthcare made in providing and arranging medical services, decisions that adversely influenced the medical judgment of its participating physicians," wrote the circuit court.

The court found that the plaintiffs' claims "do not involve an attempt to recover benefits due ... under a plan, but rather seek recovery under the quality standard found under the otherwise applicable state law."

Steven and Michelle Bauman's newborn daughter, Michelina, was discharged in 1995 from a New Jersey hospital because U.S. Healthcare, the Baumans' HMO, required that mothers and their newborns be discharged within 24 hours of birth. The next day, Michelina came down with a strep infection that developed into deadly meningitis.

The Baumans' suit charged that their daughter died because the condition was undiagnosed and untreated. Their case spurred passage of a federal law that bars hospitals from discharging mothers and newborns until at least 48 hours after birth.

In their complaint, the Baumans alleged that the HMO was recklessly indifferent or negligent regarding the health consequences of its policy, that it wrongly refused to send a pediatric nurse to the house the day Michelina became sick, and that it was vicariously liable for the negligence of the doctor and hospital in failing to diagnose her condition. The claim was directed at the HMO's actions in arranging for medical treatment rather than its role as plan administrator.

"The allegations ... do not raise the failure of U.S Healthcare to pay for a benefit or process a claim for benefits as the basis for the injury suffered," wrote the court. It remanded the case to New Jersey state court for trial.

Leading the way

"This is the leading case in a trend in holding HMOs accountable for their actions and putting an end to the myth that ERISA was intended to prevent suits against HMOs," said the Baumans' attorney, Joshua Spielberg of Cherry Hill, New Jersey. (Wendy Davis, ERISA Won't Preempt Tort Suit Against HMO, 3rd Circuit Says, N.J.L.J. (Sept. 27, 1999) http://www.lawnewsnetwork.com.)

A spokesman for U.S. Healthcare said the company is considering whether to ask the U.S. Supreme Court to hear the case on appeal.

The Third Circuit had previously ruled that an HMO could be vicariously liable in state court for malpractice committed by a plan doctor. (Dukes v. U.S. Healthcare, 57 F.3d 350 (3d Cir. 1995).)

In August, the First Circuit ruled that ERISA preempted a woman's claim that her HMO negligently failed to follow a doctor's recommendation to hospitalize her at a psychiatric facility where she had previously been treated. (Danca v. Private Health Care Systems, Inc., 185 F.3d 1 (1st Cir. 1999).)

Pamela Danca claimed the care was inadequate at the medical center where she was treated, resulting in her attempted suicide.

Other recent cases in which federal district courts have held that claims based on direct or vicarious liability were not preempted by ERISA include Harris v. Deaconess Health Services Corp., No. 4:99-CV701 CAS, 1999 WL 615213 (E.D. Mo. July 13, 1999); Harare v. Lovelace Health Systems, Inc., 35 F. Supp. 1327 (D.N.M. 1999); and Moreno v. Health Partners Health Plan, 4 F. Supp. 2d 888 (D. Ariz. 1998).