SUPREME COURT TO DECIDE IF HMOs MAY BE SUED IN STATE COURT.

The Supreme Court agreed Nov. 3 to hear a challenge by health maintenance organizations to lower court rulings allowing injured patients and their families to sue in state court without being preempted by the Employee Retirement Income Security Act.

The cases, Aetna Health Inc., etc., v. Juan Davila (02-1845) and a companion case, Cigna Healthcare of Texas, Inc. v. Ruby R. Calad, et al. are being closely watched by insurers and employer groups.

Briefs filed with the Supreme Court say Davila was covered by a health plan managed by Aetna. His doctor prescribed the painkiller Vioxx for his arthritis, but the plan's formulary called for him to try two similar but cheaper drugs first and Aetna refused to pay for the Vioxx.

Davila suffered an adverse reaction and was rushed to an emergency room, where he was diagnosed with bleeding ulcers.

He sued in Texas court under the Texas Health Care Liability Act, but Aetna succeeded in getting the case transferred to federal court on grounds of federal preemption.

In the other case, Ruby Calad was enrolled in an HMO operated by Cigna, which refused to extend her one-day hospital stay after a hysterectomy despite her surgeon's request. She suffered a medical emergency and had to be readmitted a few days later. She, too, sued under the Texas Health Care Liability Act, and Cigna got her case removed to federal court as well.

The Fifth U.S. Circuit Court of Appeals reversed the rulings and said the state claims weren't completely preempted. It ordered the cases remanded to state court.

The insurers took their claim of ERISA preemption in the Supreme Court.

Aetna argues ERIDA clearly covers the claims decision in Davila's case but he failed to pursue his administrative remedy, seek independent review of the decision or sue for benefits under the federal law.

Backing Aetna are the American Association of Health Plans, the U.S. Chamber of Commerce, the American Benefits Council and the National Association of Manufacturers.

In a brief as friends of the court, they claim the Fifth Circuit's decision "threatens the foundation on which ERISA was built."

In order to encourage employers to offer benefits, they argued, Congress included an express preemption provision to foster uniform and lower-cost regulation of multistate plans.

Complicating the cases is a 2000 Supreme Court decision in Pegram v. Herdrich. It held that an HMO's treating physician doesn't act as an ERISA fiduciary when making a medical treatment decision and indicated the doctors themselves may be sued for malpractice.

But the court went beyond the borders of that case to discuss "mixed eligibility and treatment decisions," and some courts have interpreted Pegram as opening the way for state-law tort suits if a claim arguably involves some form of medical judgment.

The Fifth Circuit noted Davila and Calad had advanced only state-law claims and argued the HMOs weren't acting as plan fiduciaries when denying them medical treatment. "We agree," the panel said.

"Although Pegram did not decide the precise question before us - whether, under s. 502(a)(2), a patient can hold his HMO directly liable for its own medical malpractice - its holding is broad enough to apply here," it said.

"Any doubts we might have are eliminated by Pegram's admonition that ERISA should not be interpreted to preempt state malpractice laws or to create a federal common law of medical malpractice."