U.S. Courts Rule Patients Have Right to Sue HMOs

The Patient’s Bill of Rights may have died in Congress, but the patient’s right to sue a health-care network for substandard medical care is alive again, thanks to a pair of recent federal court rulings.

In one ruling, the widow of a New York man who died of cancer won the right to sue her late husband’s health-care plan for having refused to pay for a stem cell transfusion that his doctor said might have saved his life.

In the second, a U.S. appeals court cleared the way for two Texans to sue for damages. One case involved a woman who suffered complications after being sent home one day after surgery. In the second, a diabetes patient said he nearly died from internal bleeding after he was denied a costly prescription drug.

Until this year, health maintenance organization-covered employees and their families had been barred from suing health-care plans because of Supreme Court decisions interpreting the federal law that governs pensions and benefits. But the two appeals courts ruled the law does not shield an HMO for its medical decisions.

The rulings revived one of the fiercest debates of the 1990s over managed care and patients’ rights. They are being challenged by the health-care industry and major business groups in a series of appeals before the Supreme Court.

Allowing lawsuits “will do nothing but drive up the national health-care costs even higher,” said Stephen Bokat, general counsel for the U.S. Chamber of Commerce.

But advocates for the patients and survivors said the law should not protect HMOs when their bad decisions result in injuries and deaths.

“We are only asking the company be held responsible for a negligent decision,” said David L. Trueman, a patients-rights lawyer in New York who represents Bonnie Cicio, the widow who sued over her husband’s death. “This is a big deal. The issue is whether millions of consumers can sue to fight the abuses of managed care.”

The justices could act on one of the appeals to clarify the law as soon as Monday.

The dispute involves employer-sponsored health plans. More than 130 million Americans are insured for health care through an employer or union.

Before the 1990s, most employers bought insurance policies for their workers, and disputes over coverage were typically handled by state regulators -- and in the worst cases, through lawsuits in state courts.

But in the last decade, many employees were enrolled in a managed care network or HMO. And when disputes arose, they learned they were not free to sue the HMO for damages in a state court.

This no-suits rule grew out of an interpretation of a pension reform law enacted by Congress in 1973. In that measure, lawmakers set out to ensure that workers would receive the pensions and benefits they had been promised by employers. In return, employers won the assurance that this national law would prevent states from mandating more benefits for workers.

In the mid-1980s, the Supreme Court handed down several little-noted decisions saying that the 1973 federal law preempted, or trumped, all laws and claims arising from state courts. To their surprise, plaintiffs’ lawyers discovered that the federal pension reform law had the effect of blocking all damage suits against HMOs in a state court, where victims can win huge verdicts for negligent care.

As a result, victims of alleged substandard care had virtually no remedy in court. Blocked from state courts, they could sue in federal courts, but only to “recover benefits due,” as the law put it. This amount was often trivial. For example, if a patient were denied a medical test and later died from a disease that could have been detected, the surviving family member could sue to recover the value of the test -- a few hundred dollars -- but not for hundreds of thousands of dollars to make up for the loss of a loved one.

This bar on suing HMOs spurred a revolt in Congress. Proposals for a Patient’s Bill of Rights, to include a range of patient protections, were introduced and debated in 1998, 1999 and 2001. But the effort to rewrite the federal law stalled over the issue of damages suits. While consumer advocates said victims of shortsighted treatment decisions deserved the right to sue, insurers and employers said lawsuits would raise costs and defeat the aim of managed care. If HMOs could be sued and possibly forced to pay millions of dollars in damages for denying a treatment, they would be unable to limit health-care costs, the insurers said.

“If you are going to be threatened with suits all the time, then the whole system [of managed care] will collapse,” said Bokat of the U.S. Chamber of Commerce.

Leaders of the health-insurance industry thought they had won the fight in Congress and were surprised to learn they were losing it in some federal courts.

“I think the lower federal courts are confused. It is a little discouraging to see them veering off in a new direction,” said Stephanie Kanwit, counsel for the American Assn. of Health Plans.

The industry groups hope the Supreme Court will agree to hear one of the pending appeals and then rule that the federal benefits law erects a barrier to all lawsuits in state courts.

But the justices have struggled over the issue. While federal law governs employee benefits, matters of insurance and medical care are typically governed by state law.

In the New York case, the U.S. 2nd Circuit Court of Appeals in Manhattan said the health-care plan’s decision to deny Carmine Cicio a transfusion may have “violated a state law duty of professional care.” If so, the appeals court said, his widow had the right to sue for damages for this negligent medical care.

In its appeal in Vytra Healthcare vs. Cicio, the managed care network urged the high court to reverse this ruling and to make clear that state court juries are not empowered to second-guess the decisions made by a health-care network.

In the two Texas cases, the U.S. 5th Circuit Court of Appeals in New Orleans also ruled HMOs can be sued for providing “substandard care” to patients. Lawyers for Aetna Health Inc. and Cigna Health Care have urged the court to reverse those decisions.