Supreme Court wades into ERISA's 'Serbonian bog' again.

The U.S. Supreme Court has agreed to answer a question that has bedeviled lawyers, judges, and legislators for more than a decade: Can a health insurance company that denies or delays a patient's medically recommended treatment be sued for negligence? The answer, expected to come this summer, will affect the legal rights of more than 130 million people who are covered by employee or union-sponsored managed health care plans. (Aetna Health, Inc. v. Davila, No. 02-1845 (U.S. Nov. 3, 2003).)

At the center of the debate is the Employee Retirement Income Security. Act (ERISA), which Congress passed 30 years ago to protect workers' interests in employee benefit plans. Because the law includes specific federal remedies for violation of its provisions, it has preemptive effect over state-based causes of action against HMOs--but how much preemptive effect is unclear.

Health insurers argue that preemption is total, citing evidence of congressional in ten t in passing ERISA and early U.S. Supreme Court decisions interpreting the law. But plaintiffs say that because the law was enacted long before the managed-care industry dominated health insurance, Congress could not have meant it to govern all claims against HMOs. And, plaintiffs say, more recent rulings prove that the Supreme Court agrees and has backed away from its earlier total-preemption stance.

The Court has been asked to look at the issue again in a pair of cases that were consolidated for appeal before the Fifth Circuit in 2002. That court held that ERISA did not bar the plaintiffs in each case from suing their HMOs--Aetna Health, Inc., and CIGNA Healthcare for medical negligence in Texas courts. (Roark v. Humana, Inc., 307 F.3d 29 (5th Cir. 2003).)

In the first case, Juan Davila, a diabetes patient, complained of arthritis pain to his doctor, who prescribed Vioxx. Davila's HMO, Aetna, refused to pay for the drug until he first tried two other, less expensive, drugs that carried higher risks of gastrointestinal bleeding. Davila took one of the cheaper drugs for three weeks and was rushed to the emergency room with bleeding ulcers. He required transfusion of seven units of blood and nearly suffered a heart attack. He now cannot take any pain medication that is absorbed through the stomach.

The second plaintiff, Ruby Calad, underwent a hysterectomy performed by a CIGNA doctor. Although the doctor recommended a longer hospital stay, CIGNA's hospital discharge nurse determined that the standard one-day stay would be enough for recovery. A few days later, Calad returned to the emergency room, having suffered post-surgical complications.

Both Davila and Calad sued their HMOs under the 1997 Texas Health Care Liability, Act (THCLA), which lets Texas patients sue their HMOs directly for medical malpractice. The plaintiffs alleged that the HMOs and their employees had failed to use ordinary care in making their medical-necessity decisions and that the HMOs' systems made negligent care more likely.

The defendants removed the cases to federal courts, which, in turn, denied the plaintiffs' motions for remand, finding that ERISA preempted state-based claims against HMOs. The judges also found that because the plaintiffs were seeking remedies for negligence, a cause of action that is not included in ERISA's enforcement provisions, their claims had to be dismissed.

Preemption and care

There's the all-too-familiar and painful rub, plaintiff attorneys say. "ERISA preempts decisions that are made on the basis of whether you qualify for care or how much care you qualify for," said Jeffrey White, senior amicus counsel with the Center for Constitutional Litigation in Washington, D.C. "But the decisions about quality of medical care, especially if the HMO takes it upon itself to make medical judgments, these are going to have to be subject to medical malpractice rules."

Yet ERISA does not address medical negligence. Instead it gives plan members contractual and equitable remedies for injuries caused by HMO decisions. So if an HMO wrongfully refuses to pay for treatment that a member's doctor has ordered--as happened in Davila's and Calad's cases--ERISA allows the member to either seek damages in the form of the cost of the benefits that were denied, or file suit to force the HMO to provide it. ERISA does not allow compensation for any injuries the number suffered as a result of the denial.

Inadequate remedies

The Davila and Calad cases are perfect examples of why ERISA's remedies are insufficient, said George: Parker Young of Fort Worth, Texas, the plaintiffs' lawyer. "The idea that even a 72-hour expedited independent review is something that would have helped Juan and Ruby, that's just unrealistic. What good would it do? Juan's in terrible pain, and he goes to fill his prescription, and he offers to PW for the brand name that his doctor wanted him to have, and the pharmacy, because of its relation ship with the HMO, won't even let him do that," Young said.

In a concurring opinion to a recent decision by the Third Circuit, Judge Edward Becket wrote, "[The law] preempts state causes of action to enforce ERISA-guaranteed rights even when [it] provides no substitute federal cause o faction. This "regulatory vacuum' creates situations in which plan beneficiaries have little or no recourse for even the most egregious violations of their rights, for the remedies contained in [the statute] are incapable of making those victims whole; indeed, in many cases they actually create incentives for HMOs to mistreat their plan participants." (Difelice v. Aetna U.S. Healthcare, 346 F.3d 442 (3d Cir. 2003).)

The remedies gap was not a problem when ERISA was enacted in 1974. Back then, most employees were covered by traditional health insurance plans. When they got sick, they went to a doctor or hospital, and the bill was submitted to the insurer. If the treatment was covered by the health plan, the insurer paid its share.

Things changed considerably over the next two decades, as HMOs gained popularity among employers as a cost-effective way to provide medical insurance to their workers. By 1987, 27 percent of employees were covered by HMOs. Ten years later, enrollment was up to 74 percent.

This meant that more people began to be affected, sometimes negatively, by HMO decisions that conflicted with their doctors' advice. Those who turned to the courts for relief soon found the doors barred.

In a seminal 1987 decision interpreting the statute, Justice Sandra Day O'Connor wrote for a unanimous Court: "The deliberate care with which ERISA's civil enforcement remedies were drafted and the balancing of policies embodied in its choice of remedies argue strongly for the conclusion that ERISA's civil enforcement remedies were intended to be exclusive." ([Pilot Life v. Dedeaux, 107 S. Ct. 1549 (1987).)

"The earlier [Supreme Court] decisions were very broadly stated and would seek to lock the courthouse door to just about anybody who has a group ERISA plan," said White.

A softer line?

But recent Supreme Court decisions have hinted that the justices are reconsidering their earlier hard-line position. In 2000, the Court ruled that a plaintiff could not sue her HMO for breach of fiduciary duty for allegedly using financial incentives to encourage its doctors to provide substandard care. The Court noted that HMOs make three types of decisions: eligibility (whether a condition is covered) ; treatment (how a patient's condition should be treated); and "mixed" (determining "whether one treatment option is so superior ... and needed so promptly, that a decision to proceed would meet the medical necessity requirement"). It then concluded that the conduct the plaintiff was complaining of was a mixed decision that was not fiduciary in nature as defined by ERISA. (Pegram v. Herdrich, 530 U.S. 211 (2000).)

A contrary result would "lead to further difficulties that we think fatal," wrote Justice David Souter for the majority. "For all practical purposes, every claim of fiduciary breach by an HMO physician making a mixed decision would boil down to a malpractice claim, and the fiduciary standard would be nothing but the malpractice standard traditionally applied in actions against physicians."

Moreover, the Court noted, "federal fiduciary law applying a malpractice standard would seem to be a prescription for preemption of state malpractice law," which would mean creation of a federal medical malpractice common law.

Congress could never have intended that when it passed ERISA, said White: "Nobody wants that. It's tough enough to keep up with the state laws of malpractice."

That is precisely why the Court should rule in favor of preemption in Davila, say the HMOs. Allowing patients to sue their HMOs for medical negligence in state court would defeat ERISA's purpose of providing uniform regulation of group health plans, they argue. In a motion for leave to file an amicus brief in the case, the American Association of Health Plans and other industry groups argued that a ruling in favor of the Davila plaintiffs "will result in a patchwork of remedies that will expand liability and increase health plan costs."

"That's the wackiest argument they've come up with," said Young. "There's no empirical evidence that allowing state court accountability in last-resort private causes of action adds one dime to the cost of health care."

Young said his state's experience since passage of the THCLA proves the point. "Texas had the strongest and earliest expressed liability provisions in the country. We've had only between 30 and 50 cases filed in [the six years since the statute was passed.] That's less than 10 a year. More important, our premiums are right in line with or even lower than those in many other parts of the country," Young said.

In 2002, the Court ruled that ERISA did not preempt a stare law that required HMOs to submit to an independent medical reviewer reimbursement disputes over whether a procedure is medically necessary. (Rush, Prudential HMO, Inc. v. Moran, 122 S. Ct. 2151 (2002).)

The apparent judicial weakening of ERISA's preemptive powers has led to confusion among the federal circuits faced with deciding how to treat stare tort claims leveled at HMOs. In addition to the Fifth Circuit, the Second and Eleventh circuits have ruled that these claims are not preempted. The First, Third, Fourth, Seventh, and Eighth circuits have concluded that ERISA does preempt state negligence claims against insurers.

The inconsistency in the law has created "an unjust and increasingly tangled ERISA regime," Becker wrote in his concurring opinion in Difelice.

"Lower courts have struggled to maintain some semblance of equity notwithstanding the enormous breadth of the preemption test.... They have struggled to make sense out of the distinction between eligibility decisions (which are preempted) and medical decisions (which are not), a hopeless endeavor.... Unfortunately, the price of all this has been descent into a Serbonian bog wherein judges are forced to don logical blinders and split the linguistic atom to decide even the most routine cases."

At press time, oral arguments in Davila had not been scheduled, but Young said he expected they would be set for some time in March.