High Court Paves Way for HMO Damages

The U.S. Supreme Court cleared the way Tuesday for Californians who receive Medicare to sue their HMOs if they are wrongly denied a needed medical treatment.

The justices refused to hear the health insurance industry’s claim that the federal Medicare Act bars suits for damages in state courts.

Instead, the justices left intact a May ruling by the California Supreme Court that held that managed care firms can be sued for damages if they are negligent or deceptive in caring for their patients.

The path-breaking decision came in the case of George McCall, a Costa Mesa, Calif., businessman who suffered from a lung disease. He was allegedly denied a chance by his HMO doctors to receive a lung transplant until it was too late.

He died at age 58. His wife, Barbara, sued the HMO, PacifiCare of California, and its doctors’ group, Greater Newport Physicians, after she learned her husband could have received a transplant paid for by Medicare if he had not been enrolled in the HMO.

In their appeal, lawyers for PacifiCare and three national health insurance groups said that the California state ruling allowing jury trials and damage suits would prove “dangerous and disruptive” if it were allowed to stand.

But in a one-line order, the high court dismissed the appeal in PacifiCare vs. McCall, 01-199.

“I’m pleased but not surprised,” said the family’s lawyer, Carol S. Jimenez of Los Alamitos, Calif. “The California Supreme Court’s decision was correct, and there was no reason to reopen the issue.”

The suit is set to go to trial in Orange County Superior Court on March 25.

Tyler Mason, a spokesman for PacifiCare, said the organization was disappointed by the court’s action Tuesday, “but we continue to believe there is a significant issue that must be resolved at the federal level.”

While the justices did not say why they turned down the case, they could choose to decide the issue after a trial.

Either way, the McCall case figures to write a new chapter in the continuing litigation over how federal law meshes with traditional state liability laws.

However, the outcome does not affect employees who want to sue their HMOs. Courts have said that a separate federal law that governs pensions and employee benefits bars workers who receive health care as a benefit from suing for damages in state court.

Congress is reconsidering that question in the pending “patients’ bill of rights” law.

Medicare pays for health care for 39 million elderly and disabled persons, about 1 in 7 Americans.

Under the Medicare Act, those who are unhappy with their level of benefits must take their complaints to the review board established by the federal agency that administers the program. They cannot go directly to court and sue for damages.

In the last decade, an increasing number of Medicare recipients, including 1 in 4 in California, have contracted with HMOs to provide their medical care.

“Doctors make money by treating you. HMOs make money by not treating you. That’s what makes them different,” said Russell S. Balisok, a lawyer in Universal City, Calif., who worked on the McCall case.

But until recently, it was unclear whether Medicare patients who were upset by their HMO could sue the managed care firm for damages, or whether they were barred from doing so by the Medicare Act itself.

In their May 3 decision, the state justices said Congress had not barred such lawsuits. Under traditional state liability law, consumers who are deceived by a company or are treated negligently are free to sue for damages, the state justices said.

In another case Tuesday, the U.S. Supreme Court signaled its interest in the question of whether the states can force drug makers to offer discounts to those who are poor and lack insurance.

Maine is the only state in the nation to have such a law, but the pharmaceutical industry has been fighting it. Its lawyers say the state mandate conflicts with federal law.

The justices asked U.S. Solicitor Gen. Theodore B. Olson to advise them on the issue before they vote on whether to hear the case (Pharmaceutical Research and Manufacturers of America vs. Concannon, 01-188).

In a third case Tuesday, the justices sided once again with a religious group that had run afoul of government officials.

In 1997, the sponsors of a prayer event at a city park in Tucson were charged $340 in fees by city officials. Such fees are waived for cultural groups but not religious ones.

The sponsors sued, alleging they were discriminated against because of their religious message. They lost in the U.S. 9th Circuit Court of Appeals.

In a one-line order, the justices overturned that ruling and told the appellate judges to reconsider the matter under a Supreme Court decision in June that said the sponsors of a Bible club had a free-speech right to meet in a public school building (Gentala vs. Tucson, 01-75).