A court ruling that upholds the right of health plans not to tell subscribers about financial incentives paid to doctors has HMO industry representatives claiming the case will set a precedent for similar cases.
The 5th U.S. Circuit Court of Appeals ruled Jan. 4 that Kaiser Permanente, Aetna USHealthcare and Cigna HealthCare didn't violate their fiduciary duty to tell enrollees about financial incentives to physicians.
In the lawsuit, a Texas woman sued the three HMOs for failing to act in the interests of patients. Mary Ellen Ehlmann asserted that the HMOs were required not to mislead patients and to fully disclose information about incentives for physicians. The suit further claimed that patients were harmed by rewarding physicians for keeping tests and referrals to a minimum. Ehlmann was not claiming that she was personally injured by the lack of disclosure.
The district court agreed that the HMOs had no duty to disclose its financial arrangements, and Ehlmann appealed.
The appeals court ruled the Employee Retirement Income Security Act of 1974 doesn't require HMOs to disclose incentive information. The court said Congress--not the courts--must interpret whether ERISA requires health plans to disclose that information.
"Congress has made the modifications it deems appropriate," the ruling stated. "This court will not add a specific disclosure requirement."
The ruling comes as the number of class action lawsuits against HMOs is mounting. During the first week in October, at least four cases were filed, claiming everything from breach of fiduciary duties to mail fraud and extortion.
In December a group of lawyers who successfully sued the tobacco industry locked the HMO industry in its cross hairs.
In a statement, Aetna's chief legal officer, David Simon, says the decision is "yet another blow to the viability of the recent class actions brought against HMOs." Aetna is the nation's largest health insurance company.
A Cigna spokesman said the company was "pleased" but referred questions to the Health Insurance Association of America. Kaiser didn't return calls seeking comment.
"This decision should signal trial attorneys that, at the very least, this aspect of class actions is without merit," says Richard Coorsh, spokesman for HIAA. "We remain optimistic that other claims on other theories will also be subject to the same review. It is our hope . . . that health plans will not be faced with the impediment of dealing with class action suits which may be based upon arguments without merit."
George Parker Young, a Texas attorney representing the plaintiffs, called Simon's statement "silly," adding, "Mr. Simon . . . either didn't read the opinion or hasn't read the class action complaints."
Young says that the court's ruling was narrow and didn't apply to pending cases. He says he will ask the 5th Circuit to rehear the Ehlmann case--after the U.S. Supreme Court rules later this year on a similar case--and reconsider in light of the high court ruling.
This month the Supreme Court will hear arguments in a 1992 case in which an Illinois woman, Cynthia Herdrich, sued her HMO after her appendix burst. The HMO doctor diagnosed Herdrich with appendicitis but told her she had to wait eight days for a diagnostic ultrasound. The appendix burst while she waited, causing peritonitis.
Herdrich won $35,000 in compensatory damages, but her claims that the HMO breached its fiduciary duty and violated provisions of ERISA were thrown out.
The 7th Circuit Court of Appeals reinstated that claim, and the HMO appealed to the Supreme Court.
Young says a victory in his case would have made the other pending suits against health plans easier. The 5th Circuit ruling doesn't make other class action suits any more difficult to win because the Ehlmann case is based on different legal theories, he says.
The Ehlmann case is binding only in Texas, Mississippi and Louisiana and only in cases that have similar claims, says Lester Perling, a partner in the Fort Lauderdale, Fla., office of Broad and Cassel law firm.
The case would have national implications only in cases with similar facts, says Perling, who is not involved in the Ehlmann suit. If other judges find that the case is well reasoned, it could impact future decisions in other circuit courts, he says.
"It's never surprising when a court doesn't find liability under ERISA," he says.