HMOs: Supreme Court Set to Hear Fiduciary Duty Arguments
The U.S. Supreme Court tomorrow will hear arguments on "whether an HMO or a managed health care plan -- like the employer that sponsors the overall benefits plan -- [also] functions as a fiduciary," the Los Angeles Times/Minneapolis Star Tribune reports. The case stems from a 1991 suit by Cynthia Herdrich, who charged that "because her doctor was paid a year-end bonus for limiting referrals for tests and treatments at out-of-network hospitals," the physician had failed to order tests that would have revealed her appendicitis. Herdrich's appendix ruptured, causing a severe, life-threatening infection. The Illinois HMO "had hidden incentives that basically say you can receive an annual bonus for not ordering diagnostic tests and not making referrals to specialists," attorney James Ginzkey said, adding, "That creates a blatant conflict-of-interest. ... At every step, they took the cheap way out." The lawsuit, which alleged that the HMO had "violated its responsibilities under a federal law that requires administrators of a benefit plan to put the interests of people covered by the plan first," touched on the "heart of the national furor over managed care: Can patients trust doctors who are paid bonuses by their health plans to cut medical costs?"
Managed care executives claim that a ruling in Herdrich's favor "would potentially unravel the entire health care system because these incentives are used not just by private health care plans but in the federal Medicare and Medicaid programs, and in state employees benefit plans" (Rubin/Savage, 2/22). A decision against HMOs likely would spark a rash of similar suits seeking to limit HMOs' cost-constraining efforts and thus causing premiums to rise, executives contend (Greenberger, Wall Street Journal, 2/22). But trial lawyers and patient advocates argue that a favorable ruling for Herdrich "would begin to address the alleged inequities" between patients' rights and HMOs. Managed care plans would have to disclose their operations and act in the "sole interest" of patients (Los Angeles Times, 2/22). Attorney Wayne Blackmon, a doctor and managed care expert, explained, "What's going on is there is a very costly hot potato being bounced back and forth by different people in the health care system. And what's at issue is who has to take responsibility for making decisions" (Wall Street Journal, 2/22).