SUPREME COURT: Takes Up Legality of HMO Cost-Containment
The Supreme Court has agreed to determine whether it is legal for managed care plans to restrict treatment in order to save money - - a case that if decided against the health plan in question could make typical cost-containment strategies of HMOs nationwide unlawful. The case involves an Illinois woman whose appendix burst after she was made to wait eight days so that a test to determine the source of abdominal pain could be performed at an HMO-owned facility. The patient won an unchallenged $35,000 in compensatory damages under state law, but also filed a federal claim under the 1974 Employee Retirement Security Act (ERISA), charging that the HMO, Health Alliance Medical Plans of Urbana, Ill., had breached its fiduciary duty to protect its patients. Generally, the New York Times explains, ERISA is considered a "shield" for health plans, functioning as a "barrier to many lawsuits that would otherwise proceed in state court." But in this case, a panel of the Seventh Circuit Court of Appeals turned the law on its head, ruling that HMOs and their affiliated physicians are duty-bound by ERISA "to act as fiduciaries, that is, to act 'solely in the interest of the participants and beneficiaries' of an employer-provided medical plan." Health plans that provide incentives to physicians to keep costs down, the court held, may create a conflict of interest that forces doctors to violate this duty by acting against their patients' best interests.
The Supreme Court, which will probably not hear Pegram v. Herdrich until January, "was evidently convinced that the Seventh Circuit's approach was potentially of such dimension that it should not be left unreviewed." If the court finds against the Urbana HMO, "the principal organizational forms through which medical care is delivered today" will be considered unlawful, warned Judge Frank Easterbrook, one of the judges on the appeals court (Greenhouse, 9/29). "The fundamental assumption now is that HMOs will create incentives to save money and provide health care that's affordable," said attorney Carter Phillips, who is representing the HMO. "If the appeals court is right, HMOs as we know them will be hard pressed to survive" (Greenberger, Wall Street Journal, 9/29). The Times notes that "it is unusual for the [Supreme] Court to inject itself into the midst of an active legislative debate," but top Democratic and Republican aides said the court's decision to accept the case will not alter next week's planned Congressional debate on expanding patients' rights (Greenhouse, 9/29).