SUPREME COURT: To Hear Physician Bonus Case
The U.S. Supreme Court later this month will hear arguments on a patient's rights case, in which the plaintiff claims that her HMO "failed to arrange for critical tests" that would have revealed her inflamed appendix because of the plan's physician-bonus system, the Washington Post reports. The first-of-its-kind case, Pegram v. Herdrich, comes before the court as Congress "enters final negotiations over how far the federal government should go in regulating managed care." The issue of whether patients can sue their HMOs is now the "most contentious aspect" of the current health care policy debate. "Ten years ago everyone was shrieking about how we were over-testing everyone, and the medical profession was being pilloried," said Carter Phillips, the attorney representing the Carle Association Clinic, the defendant in the case. But plaintiff Cynthia Herdrich contends that when a physician-run HMO offers its doctors rewards based on cost savings, it "necessarily compromises their loyalty to the patient and violates the HMO's obligations under federal law." If Herdrich emerges the victor, she will not win any monetary damages, but she would "force the HMO to end its incentive practice."
Circuit Court Denounces HMOs
In a "strongly worded indictment of HMOs," the Chicago-based U.S. Court of Appeals for the 7th Circuit ruled for Herdrich. Judge John Coffey wrote in his opinion: "An increasing number of Americans believe that dollars are more important than people in the evolving (HMO) system. ... 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 when exercising their discretionary authority to the detriment of their membership." In addition to Herdrich's malpractice suit, her attorneys have also filed court papers which argue that Carle Clinic and its doctors breached their fiduciary duty to plan participants under the Employee Retirement Income Security Act, a 1974 law that regulates private employee benefits plans. Although a lower court judge dismissed that claim, the 7th Circuit panel reversed the ruling in 1998, arguing that the HMO had a fiduciary duty to Herdrich. The ruling noted, "we hold that incentives can rise to the level of a breach [of that duty] where ... physicians delay providing necessary treatment to ... plan beneficiaries for the sole purpose of increasing their bonuses" (Biskupic, 2/17).