ERISA: Court Rules Physician HMO Has Fiduciary Duty
In a case "likely to widen an ever-increasing crack in the Employee Retirement Income Security Act," the 7th U.S. Circuit Court of Appeals has ruled that a woman can proceed with a lawsuit against her physician-owned HMO and its wholly-owned insurance company for the inherent financial incentives she claims compromised her medical care. If Cynthia Herdrich prevails, American Medical News reports, the decision will likely "cast a pall over provider-sponsored organizations by suggesting that any physician who acts as both owner and clinician has a conflict of interest actionable by law." Herdrich sued her physician, the Urbana, IL-based Carle Clinic Association medical group and its wholly owned insurer, Health Alliance Medical Plans, for making her wait eight days to run tests on her inflamed abdomen. Her case alleges that the medical group "wanted to save money" by shuttling her to another CCA facility, which could not squeeze her in for eight days. In the meantime, Herdrich's appendix ruptured. She successfully sued the 300-physician medical group for malpractice, with a jury returning a $35,000 award. In the suit against the doctor, the medical group and its insurer for breach of fiduciary duty, the case could not proceed without the green light from the appeals court and its ruling that the HMO and its owners were fiduciaries. The "divided judicial panel" took her side, ruling that "there was a genuine question as to whether physicians who profit by reducing care violate their obligation to act solely in the interest of the plan's beneficiaries."
Writing for the majority, Appeals Court Judge John Coffey said, "With a jaundiced eye focused firmly on year-end bonuses, it is not unrealistic to assume that the doctors rendering care under the plan were swayed to be most frugal." The minority panelists countered that the medical group does not constitute a fiduciary under ERISA because it neither manages employer's plans nor controls its assets. Writing for the dissenting panelists, Judge Frank Easterbrook said, "The panel's opinion puts all managed care systems at risk and commits this court to a long ... course of distinguishing 'good' managed care systems from 'bad' ones." The decision paves the way for the case to go to trial, American Medical News reports, unless the HMO appeals the case to the U.S. Supreme Court. "Either way, the result is likely to be closely followed [as a] trial could establish what constitutes fiduciary duty for a doctor with an ownership stake in an HMO, while a Supreme Court ruling could establish whether such liability exists at all under ERISA" (Klein, 4/19 issue).