The Supreme Court's ruling that patients can't sue HMOs for giving doctors financial incentives to contain costs closed the door to consumers at the federal level, experts say.
At the same time, Justice David Souter's ruling redirected patients and their lawyers to fight in the state courts and in the legislatures--both state and federal.
"If Congress wishes to restrict its approval of HMO practice to certain preferred forms, it may choose to do so," Souter wrote. "But the federal judiciary would be acting contrary to the congressional policy of allowing HMO organizations if it were to entertain an ERISA fiduciary claim portending wholesale attacks on existing HMOs solely because of their structure, untethered to claims of concrete harm."
In other words, Souter was saying that it isn't for the courts to make health-care policy decisions, analysts say. That role, Souter says, belongs to Congress.
"I think there's a broader message there," says Bill Reed, an attorney and president and chief operating officer at Baker, Donnelson in Jackson, Miss. "I think they are pretty clearly saying that if the healthcare system is to be overhauled, it ought . . . to be undertaken by the Congress and not the courts.
"If you can't control costs, HMOs won't work," Reed continues. "There may be a way to replace the financial incentive with a combination of cost control devices. I don't think that's something you want a judge doing."
The unanimous ruling in the case of Herdrich vs. Pegram involved Illinois resident Cynthia Herdrich, who went to her physician with abdominal pain. The physician diagnosed her with appendicitis but then referred her to an in-network clinic for a diagnostic ultrasound. Herdrich was told she would have to wait eight days for the appointment. While she waited, her appendix burst, causing peritonitis.
Herdrich successfully sued her physician for malpractice and won $35,000. She then sued her HMO, Urbana, Ill.-based Carle Health Insurance Management Co., claiming that it breached its fiduciary duty by giving her physician financial incentives to keep costs down.
An appeals court upheld Herdrich's claim, and the HMO appealed to the Supreme Court, which handed down its ruling June 12.
In his ruling, Souter wrote that Congress created HMOs and, by doing so, gave its blessing to the rationing of healthcare and financial incentives to keep costs down. ERISA does protect HMOs from suits of this type, Souter ruled.
"No HMO organization could survive without some incentive connecting physician reward with treatment rationing," Souter wrote. "This is not to suggest that the Carle provisions are as socially desirable as some other HMO organizational schemes; they may not be."
Souter goes on to say, however, that it isn't for the courts to decide.
"Courts are not in a position to derive a sound legal principle to differentiate an HMO like Carle from other HMOs," he wrote. "We proceed on the assumption that the decisions listed in Herdrich's complaint cannot be subject to a claim that they violate fiduciary standards unless all such decisions by all HMOs . . . are to be judged by the same standards and subject to the same claims."
Souter essentially says that if the court were to let the appeal's court opinion stand, "you can't have HMOs," Reed says. "He's basically saying that you can't have HMOs (because) they're structured around financial incentives . . . The entire premise of an HMO is that the financial risk is going to be borne by the provider. There's got to be financial incentives or disincentives to impact the level of care . . . or they'd go broke."
The court's ruling reinforces that these types of issues need to be settled at the legislative level, says Stephanie Kanwit, a partner with Epstein, Becker and Green in New York.
But Congress has proved unwilling to tackle the thorny issue of patients' right to sue their HMOs, at least until after the November election. The House passed a patient bill of rights last year, but the Senate killed a similar bill in May.
Which party occupies the White House and controls the Congress is likely to determine what, if any, patient bill of rights will see the light of day during the next congressional session.
The ruling also is expected to increase the pressure on states, through their legislative and court systems, to handle this issue.
The states already seem to be stepping up to the plate: Seven have passed legislation giving patients the right to sue their health plans under certain circumstances, four of them since January. In addition to the four that passed bills, 24 states considered bills that would give patients the right to sue their HMOs (see June, page 52).
The American Association of Health Plans praised the Supreme Court ruling. Representatives did not return phone calls seeking further comment.
The court reaffirmed its desire to have states deal with these issues. On June 19, the justices ordered a lower court to consider whether a man can sue his Pennsylvania HMO for allegedly rendering him a quadriplegic by providing inadequate care.
Also that day, the justices turned down an appeal from an HMO that wanted to avoid being sued by a New Jersey couple whose infant daughter died after being sent home from the hospital one day after birth.
The Herdrich case was the first of what promises to be a long line of cases against health plans to come before state and federal courts.
Reed says it's difficult to predict whether this ruling will stem the flow of cases filed against health plans. "The only thing that slows down the flood of cases is the prospect of not recovering any money," he says. But the Herdrich ruling "clearly takes away a big piece of the plaintiff's claim."
However, Kanwit argues that the ruling "completely takes the wind out of their sails," she says, referring to the dozens of lawsuits filed in state and federal courts against health plans alleging everything from mail fraud to racketeering.
"It makes no sense to me at all that the wool has been pulled over (the public's) eyes," she says, referring to the suits that claim HMOs deceive enrollees. "It's common knowledge," she says, "that HMOs make money by rationing care. To say that people don't know . . . is really kind of insulting to individuals."