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February 5, 1999
To the great frustration of physicians and patients, health maintenance organizations (HMOs) have enjoyed shelter from any legal liability for their actions, because the federal ERISA law grants them a broad exemption from patients' lawsuits. A recent ruling by the Pennsylvania Supreme Court, however, could provoke considerable judicial anxiety in the powerful industry.
APA and other medical and patient advocacy organizations have long and vociferously objected to the law that protects HMOs and managed care plans from malpractice lawsuits by patients. This situation has its roots in Congress's 1974 enactment of the Employee Retirement Income Security Act (ERISA), in which the lawmakers included a provision stating that this law preempts state statutes governing the regulation and provision of medical care. Malpractice suits are filed in state courts, since state, not federal, statutes govern medical malpractice.
The U.S. Supreme Court ruled in 1995, however, that in enacting ERISA, Congress did not intend to apply the broad state tort law preemption to the mandate to provide patients with safe medical care.
With that decision in mind, the Pennsylvania Supreme Court ruled last December 24 that an HMO can in fact be sued for negligence under state law when a patient charges that he or she suffered injury as the result of the HMO's failure to make sure it was providing safe medical care.
The case in which Pennsylvania's high court ruled, Pappas v. Asbel, arose from a charge alleging that a U.S. Healthcare HMO was negligent for delaying the transfer of Basile Pappas to a large medical center equipped to respond to his neurological emergency. As a consequence of the delay, according to Pappas's suit, he was left with irreversible quadriplegia.
The critical issue for the court in this case was the distinction between regulations concerning the provision of medical treatment and those governing the quality or scope of the benefits an HMO offers to its enrollees.
An HMO's decision to deny a health care benefit, for example, will probably be protected from legal challenge because this decision will usually be based on standards and regulations explained in the plan's benefit description. Patients cannot sue based on charges that an HMO or other managed care entity breached a fiduciary responsibility to the patient.
From the perspective of patients and physicians, this unanimous ruling from the Pennsylvania Supreme Court is a hopeful harbinger of rulings, but is limited in its impact. It did not find the insurer guilty of delivering negligent care; it declared only that this type of suit could go forward because it falls outside of the ERISA preemption.
"This decision is certainly a very positive development in that it recognizes that managed care organizations do in fact provide medical care and that patients have a right to take them to court over their actions," Sheila Judge, M.D., president of the Pennsylvania Psychiatric Society, emphasized in an interview with Psychiatric News. "As much as managed care organizations are run on a corporate philosophy and envision themselves as businesses, they need to be held to the same ethical and accountability standards as others who provide medical care."
The ruling applies only to HMO and other managed care plans in Pennsylvania. U.S. Healthcare has not announced whether it will appeal the decision to the U.S. Supreme Court.
Congress will still have to amend ERISA if patients are to gain the right to sue their health plan for benefit denials or restrictions they insist are unfair or compromise their ability to get quality medical care.
APA last year strongly backed the Patient Access to Responsible Care Act introduced by Rep. Charles Norwood (R-Ga.), which would have removed the shield that protects managed care plans from lawsuits arising from patient-related actions.
"Change that, and we change the entire system," said Norwood, who practiced dentistry before his election to Congress. The bill also mandated special licensing or accreditation for medical care reviewers.
While the ERISA reform failed to win House approval, APA Director of Government Relations Jay Cutler, J.D., does not believe the ERISA loophole and the "tragedies that patients are suffering because of it" will fade from Congress's radar screen any time soon. Lawmakers do need to be made aware, he said, "that courts in many jurisdictions are not only holding that malpractice claims are free of the ERISA preemption, but also that some courts are viewing the denial of treatment by a managed care entity as a quality-of-care medical decision" and not an ERISA issue about a health plan's level of benefits.
Ken Jones, general counsel for the Pennsylvania Medical Society, which filed an amicus brief on behalf of Pappas, is quite pleased with the court's ruling. "We got the most favorable result likely," he told Psychiatric News. "In cases where patients are harmed by the decisions of HMOs, we can now bring suit, which is a substantial victory."
Without this ability to hold health plans responsible for negligent patient care, "physicians would continue to have to face liability [for treatment decisions] while HMOs can escape responsibility," Jones said.
Pennsylvania Psychiatric Society President-elect Lee C. Miller, M.D., pointed out that while "one case will not change the world," he is encouraged to see "incremental progress in the judicial arena that could lead to a body of case law that affirms that managed care companies cannot hide forever behind the ERISA preemption."
ERISA was originally enacted to protect employees from abuses of their health and pension benefits on the part of their employers. Fee-for-service insurance was the rule and rarely questioned, while managed care was not yet a gleam in the eye of the insurance industry when the law took effect in 1974. Congress did not envision that third party payers would eventually seize from physicians the power to be the final arbiters of a patient's medical treatment. The result is the large loophole in the law that allows HMOs and managed care the ability to avoid answering for the treatment decisions the way physicians must.
The state law preemption was thus not a deliberate action by Congress to protect most of the insurance industry from suits by patients whom their decisions have harmed, though that consequence is the de facto result of the law's wording.
In another exemption, companies who self-insure are not covered by ERISA's provisions.