HMO can be sued for negligent medical decision, Pennsylvania court rules.

In Pappas v. Asbel, on remand from the U.S. Supreme Court, the Pennsylvania Supreme Court ruled that the Employee Retirement Income Security Act (ERISA) did not preempt a claim against an HMO. (No. 98 E.D., 2001 WL 327888 (Pa. Apr. 3, 2001).)

Citing Pegram v. Herdrich (120 S. Ct. 2143 (2000)), the court ruled that the HMO's refusal to permit referral to a non-network hospital was a "mixed eligibility and treatment decision" that should be redressed through state medical malpractice law.

"The decision is significant because it opens the way for suits against HMOs for wrongfully exercising medical judgment," said Marc Machiz of Washington, D.C., an attorney who worked at the Department of Labor on ERISA preemption issues for state and federal amicus filings.

The case began when Basile Pappas went to a local hospital emergency room with paralysis and numbness in his extremities. The ER doctor diagnosed a neurological emergency and arranged to transfer him to a university hospital that could handle the problem. However, Pappas's insurer, U.S. Healthcare, denied authorization for transfer to that hospital. It took several hours for the doctor to arrange to transfer him to a hospital the HMO approved.

Pappas now has permanent quadriplegia that he claims could have been prevented if the transfer had not been delayed. In the suit against the hospital and defendant doctor, the hospital brought a third-party claim against the HMO for negligently refusing to authorize the transfer.

"Claims that an HMO was negligent when it provided contractually guaranteed medical benefits in such a dilatory fashion that the patient was injured indisputably are intertwined with the provision of safe medical care," wrote Pennsylvania Supreme Court Judge Ralph Cappy. In enacting ERISA, Congress never intended "to preempt state laws concerning the regulation of the provision of safe medical care."

In first taking up the case in 1998, the court based its opinion on the U.S. Supreme Court's 1995 ruling in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co. (514 U.S. 645 (1995).) That case "instructs that ERISA does not preempt state law that regulates the provision of adequate medical treatment," wrote Cappy.

After the Supreme Court vacated and remanded Pappas, the Pennsylvania court based its recent decision on Pegram, which "instructs that an HMO's mixed eligibility and treatment decision implicates a state law claim for medical malpractice, not an ERISA cause of action for fiduciary breach," he wrote.

The Pegram Court recognized three kinds of decisions made by HMO physicians: pure eligibility decisions, which "turn on the plan's coverage of a particular condition or medical procedure for its treatment"; treatment decisions, or "choices about how to go about diagnosing and treating a patient's condition"; and mixed eligibility and treatment decisions "in which coverage and medical judgment are intertwined." Generally, only pure eligibility decisions are strictly fiduciary and thus covered by ERISA.

"What people debate is `Can you sue your HMO?'" said Machiz. "What's hiding behind that simple question is `Can you sue for damages when an HMO makes a mixed eligibility and treatment decision that injures you?'"

The U.S. Supreme Court may address the issue again, he said. "It will very likely knock around in the courts for a while as it ripens for Supreme Court review, but I predict the issue will inspire another trip to the Court within the next two years."

"The case law in this area and the legislation are confusing," said Joshua Spielberg, an attorney in Cherry Hill, New Jersey, who has handled cases against managed care companies. "The good thing about Pappas is it draws a fairly bright line if the Court takes it up again."