Justices to Hear Challenge to HMO Shield

Patients and the managed health care industry will soon face off in the U.S. Supreme Court over whether patients can sue a health plan that puts its bottom line ahead of patient care.

The high court announced Tuesday that it will hear a case in which a lower court upheld the right to sue of a patient who alleged that she was injured because of the plan’s use of stringent cost controls.

The case is one of several moving through appellate courts across the country that challenge the federal law used to shield managed health care plans from lawsuits by injured patients.

“The cases are about accountability and who, if anybody, can be held responsible when--through the negligence of your health plan--you are injured,” said Phyliss Borzi, a research professor at the School of Public Health and Health Services at George Washington University.

For years, health plans and the employers who contract with them were held largely blameless when a patient was injured. But in recent years there have been several decisions by appellate courts suggesting that the law has been interpreted too broadly and that, in cases where the health plan delivers poor quality care that harms a patient, a patient can recover damages under state malpractice laws.

This case is somewhat different. Rather than attempting to subject a plan to state law, the suit alleges that under federal law the business practice of the patient’s health plan puts doctors in direct conflict with their duty to act in the best interest of patients when it rewards them for limiting access to diagnostic tests and specialists.

However, even if the patient prevails in this case, she is unlikely to win much in the way of damages. Under the Employee Retirement Income Security Act--the 1974 law that regulates how employers provide health benefits--the most a patient can receive if wrongly denied care is the cost of the benefit that was denied.

Thus, a woman whose plan refused to pay for a colonoscopy and who later was diagnosed with colon cancer and had to have her colon removed could recoup only the cost of the colonoscopy.

Nearly 125 million people are in health plans regulated wholly or partly by the federal government. Some state patient protection laws--such as requirements that plans cover contraception or give patients access to second opinions--apply to roughly 75 million of those individuals but the remaining 48 million only have recourse through federal law.

Consumer groups greeted the court’s decision to hear the case as one of a series of recent breakthroughs in the fight to protect patients’ rights.

“We’ve got California passing a bill holding HMOs liable and Congress debating the same kind of measure. And now the Supreme Court is going to open the question of whether these financial conflicts of interest violate the letter and spirit of the law and whether patients should have remedies,” said Jamie Court of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

On the other side, managed health plans also welcomed the court’s decision to hear the case, which had been decided by the U.S. 7th Circuit Court of Appeals. They had viewed the lower court’s ruling as potentially harmful to the industry because it could undermine many plans’ arrangements for controlling costs and providing standard patient care. It is common, according to health care lawyers, for managed care companies to withhold part of doctors’ salaries and put it into a pool used to give bonuses to physicians who provide the most economical care.

In its 2-1 decision, the appeals panel ruled that when doctors withhold or delay treatment because they have a financial interest--increasing their profits--patients can sue.

“The lower court’s decision was very sweeping and its analysis more political than legal,” said Karen Ignagni, chief executive officer of the American Assn. of Health Plans, which represents 1,000 health plans nationwide.

The case the court agreed to hear involves a potential nightmare dreaded by many managed care patients: that their doctor will refuse to give them costly care they need because the expense would cut into the doctor’s own profits.

In this case, Cynthia Herdrich of Bloomington, Ill., complained of abdominal pain to her doctor, who discovered an inflamed mass. The doctor delayed a referral for an ultrasound test for eight days, the suit alleges. In the interim, Herdrich’s appendix ruptured, resulting in peritonitis--an inflammation of the abdominal wall, according to the suit. She was required to go to a hospital in Urbana, Ill., 50 miles from her home, for treatment, the suit says.

Herdrich sued her doctor in state court for medical malpractice and won $35,000 in compensatory damages. In addition, she charged the plan with a breach of its fiduciary duty, alleging that the plan was structured so that doctors received bonuses based on how frugally they used such expensive care as diagnostic tests and visits to specialists.

The latter claim was moved to federal court, where a district judge ultimately dismissed it. However, the 7th Circuit reversed that decision and the health plan appealed the case (Lori Pegram M.D., Carle Clinic Assn. and Health Alliance Medical Plans, Inc., vs. Cynthia Herdrich, 98-1949).

The high court is expected to rule by next summer.