Justices Seem Leery of Patient’s Right to Sue HMO

The Supreme Court wrestled Wednesday with the complexity of a federal law that governs managed health care but appeared leery of interpreting it to allow patients to sue plans that give bonuses to doctors who hold down costs.

Hearing oral arguments in a case that could affect the 125 million Americans who are in group health plans, the justices suggested that giving patients the right to sue their health maintenance organizations in federal court is something best left to Congress.

“Why should courts get into this slippery slope problem?” asked Justice Sandra Day O’Connor. “Why should the courts get involved in this messy business of what is an undue [financial] arrangement and what isn’t?”

The case pits a doctor-run HMO against former patient Cynthia Herdrich, who alleged that, by paying her doctor bonuses for cutting costs, the health plan violated the fiduciary-duty provision of the Employee Retirement Income Security Act.

The case is being watched closely by the health care industry. Its representatives say that, if the justices affirm the lower court’s decision in favor of Herdrich, many of the industry’s standard financial arrangements with physicians would be deemed illegal and efforts to control health care costs would be undermined.

“It is no exaggeration to say the future of medical care is implicated by the court’s decision in today’s case,” Washington attorney Carter Phillips told the justices. “The question is whether the court needs to have that kind of dramatic effect on managed care,” added Phillips, who is representing Carle Clinic, Herdrich’s former HMO.

That argument appeared to hit a chord with the justices.

“The interest of the HMO and of every employee, doctor or non-doctor, is to hold down health costs. Unless they do so, the HMO is going to go out of business,” said Justice David H. Souter.

Herdrich’s lawyer insisted that he was not asking the justices to outlaw all physician incentives. But when he was pressed by Justice Stephen G. Breyer about which incentives should be banned, he was unable to draw a distinct line.

“It’s difficult to say,” said James P. Ginzkey, an attorney from Bloomington, Ill. He added, however, that if an incentive were large enough to have an “undue influence” on the physician, then it should be deemed to run afoul of the federal law.

Breyer pressed that argument. If an HMO paid a doctor $3,300 a year to take care of each patient and told the doctor he could keep whatever he did not spend on care, he asked, would that violate the federal law?

Breyer’s hypothetical question was a description of a standard payment arrangement used by many HMOs.

Ginzkey responded that those sorts of payments did not constitute a violation of federal law.

The justices also appeared puzzled over whether Herdrich was in fact harmed by the HMO’s bonus plan and, if she was, whether she should win any monetary damages.

Lori Pegram, Herdrich’s doctor, twice misdiagnosed her severe abdominal pain. The second time she diagnosed an ovarian cyst and said it was not an emergency. Herdrich was then required to wait for a regular appointment a week later at the HMO’s network hospital.

In fact, Herdrich’s appendix had ruptured and she needed emergency care. Herdrich sued the doctor for malpractice and won $35,000.

The HMO’s lawyers contended that Herdrich’s injury has been remedied by the malpractice judgment and that the bonus arrangement played no role in her doctor’s diagnosis.

Since the federal ERISA most commonly is used by patients only to recover the cost of a treatment that was wrongly denied, the justices appeared to have trouble understanding what remuneration Herdrich seeks and to whom it would be paid.

Ginzkey said that the lawsuit sought bonuses that the health plan’s doctors had been paid for withholding care and that the money would be used to lower premiums or increase benefits for patients enrolled in Herdrich’s former health plan. Because Herdrich no longer subscribes to the plan, she would not benefit financially even if she wins her case (Pegram vs. Herdrich, 98-1949).

A decision is expected by July.