High court to rule on the right to sue HMO in state court

Appeal challenges law assigning jurisdiction to less-generous U.S. courts

November 04, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

The Supreme Court agreed yesterday to decide whether patients can sue HMOs in a state court for refusing to pay for care recommended by a doctor.

The issue is at the core of the tension between insurers' efforts to rein in health care costs and patients' fears that they might be denied needed treatment.

The case involves two patients from Texas who sued their health maintenance organizations for complications they said they suffered because of their HMOs' cost-related decisions.

A federal appeals court upheld the right of those patients to sue in state court under a Texas law. Their insurers, Aetna and Cigna, appealed, arguing that the suits must by tried in federal courts where, unlike state courts, damages are severely limited.

"This case has the potential to finally tell us the answer to the limits of federal pre-emption of state attempts to review decisions of medical necessity by health plans," said George Parker Young, who represented the patients in the Texas case.

The case is the latest court challenge testing the relative power of health plans and of officials who want to regulate them, said Steven B. Larsen, former Maryland insurance commissioner, now a lawyer in private practice specializing in insurance law.

"In many respects, it's still more of the same," Larsen said.

He said the court's decision will have the most direct impact on the states that have laws allowing their residents to sue HMOs.

Maryland and 39 other states lack explicit laws allowing HMOs to be sued in state courts, according to the Kaiser Family Foundation. But even those states could be affected by the Texas case. This is because some state lawsuits have been pursued without explicit state legislation and because a broad Supreme Court decision could affect a number of areas of state regulation of HMOs, experts said.

One of the Texas patients was Juan Davila, whose doctor prescribed the arthritis drug Vioxx. His insurer, Aetna Inc., said it wouldn't pay for Vioxx until Davila tried a lower-cost drug first. Davila claims the cheaper drug caused bleeding ulcers and that he still suffers from the complications.

The other Texas case involved Ruby Calad, who was sent home from a hospital the day after a hysterectomy. Her doctor recommended a longer stay, but her insurer, Cigna Healthcare, wouldn't pay for it. She, too, said complications forced her to seek additional treatment.

The legal debate centers on the federal Employee Retirement Income Security Act of 1974, known as ERISA, which gives the federal government control over a number of employee benefits issues and was enacted before HMOs became a common fixture.

The Davila-Calad case is the latest to test what kinds of rules state regulators and state courts can impose on HMOs, and what types are "pre-empted," or reserved for federal review, under ERISA.

"It's a wonderful case study in federalism," said David M. Funk, a Baltimore insurance lawyer who represented Cigna in an ERISA case in Maryland courts. "The Supreme Court is really struggling with where the line should be drawn. ... "

The Supreme Court last year upheld state systems that provide independent reviews of medical necessity decisions - such as an appeals process run by the Maryland Insurance Administration - but in 2000 the high court put limits on the right to sue in federal courts.

"ERISA has a horrible impact on a lot of consumers," said Brendan Bridgeland of the Center for Insurance Research, a consumer group based in Boston.

Under ERISA, a patient who sues successfully in federal court can collect for the cost of the denied treatment - say, the Vioxx for Davila - but not for damages, making the right to sue in state courts important for patients, Bridgeland said.

In its petition to the Supreme Court seeking review of the case, Aetna argued that HMOs need flexibility in deciding what care is medically necessary.

"The very reason for the HMOs' existence is to maximize the cost-efficiency of the health care services provided to their members," Aetna said in its filing. "Cost-efficiency necessarily involves the institution of cost-management policies like the one at issue in this case, which holds certain more expensive prescription medications in reserve and gives more readily accessible medications a chance to work."

Stephanie Kanwit, legal counsel to the national trade group for health insurers, said Congress intended, in ERISA, to prevent states from having "alternative damage systems," in part as a way of limiting litigation costs.

"Remember who's picking up the tab - the employers and the consumers," she said. Her group, called AAHP/HIAA, was formed by a merger last month of the American Association of Health Plans and the Health Insurance Association of America.

Kanwit said there is an important legal distinction to be made between medical decisions - made by physicians and subject to review under malpractice law - and administrative decisions, made by insurers about the limit of coverage. The latter, she said, are not subject to review in state courts because of ERISA.

Young, the lawyer for the Texas patients, asked, "How can they say a medical necessity decision is not a medical decision? That's goofy. That's double-speak."

The Associated Press contributed to this article.

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