THE
CHANGING LIABILITY LANDSCAPE FOR MANAGED CARE PLANS (CON'T)
By Brock D. Phillips
6. End of ERISA Preemption for Claims of Malpractice
Since the U.S. Supreme Court's decision in Pilot Life Insurance Co. v. Dedeaux both federal and state courts have grown accustomed to the notion that claims against insurers and health plans are preempted by ERISA when the coverage is obtained through qualifying employment. This decision constituted a sea change in the evolving law of bad faith since in many states, bad faith claims held the promise of emotional distress and even punitive damages. ERISA had (and still has) no provision for such damages. The only damages recoverable under an ERISA claim are the cost of disputed benefits and attorneys' fees. The Pilot Life decision greatly discouraged claims against health plans over disputed benefits and the carriers saw their inventory of such cases decline significantly.
Managed care plans sued for medical malpractice under state or common law tort theories have been quick to invoke ERISA preemption. The courts were initially inconsistent in their consideration of the question of ERISA preemption of medical malpractice type tort claims against health plans. Through the mid-1990's decisions could be found which supported virtually every possible conclusion.
However, by 1999, it is quite apparent that courts are unlikely to hold that a claim for medical malpractice asserted against a managed care plan is preempted by ERISA. The, courts have distinguished between disputed claims for plan benefits, which are preempted, and claims for ordinary negligence or malpractice, which more and more courts are holding are not preempted by ERISA. Examples of three recent cases which demonstrate this trend follow.
Pappas et al v.
Asbel, D.O. & U.S. Healthcare
In this case the Pennsylvania Supreme Court struck down an ERISA preemption defense, saying that negligence claims against an HMO do not "relate to" an ERISA plan. Pappas had been admitted to Haverford Community Hospital complaining of paralysis and numbness in his extremities. He was covered by HMO-PA, operated by U.S. Healthcare. A staff physician diagnosed an epidural abscess pressing on Pappas' spinal column, and declared it a neurological emergency after consulting with both neurologists and a neurosurgeon. The physician made arrangements for immediate transfer of Pappas to Jefferson University Hospital, but when the ambulance arrived for the transport, the physician was informed that U.S. Healthcare was denying authorization for transfer to Jefferson, instead directing that the patient be taken to Hahnemann University, Temple University or Medical College of Pennsylvania
(MCP). The physician contacted Hahnemann, which delayed more than 2 hours before telling him it would not have information on its ability to accept the patient for at least another half-hour. At that point the physician arranged for the patient to be transferred to
MCP, more than four hours after initial admission. Pappas is now a permanent quadriplegic from compression of his spine by the abscess.
Pappas sued physicians as well as Haverford Hospital, both of which cross-complained against U.S. Healthcare for its role in delaying the transfer. U.S. Healthcare filed a motion for summary judgment asserting ERISA preemption. The matter went to the Supreme Court of Pennsylvania which cited the U.S. Supreme Court decision in the case of New York State Conference of Blue Cross & Blue Shield Plans
v. Travelers Ins. Co. for the proposition that the scope of ERISA preemption is not is broad as earlier cases suggested. The Pennsylvania court observed that congress did not intend to preempt state laws which govern the provision of safe medical care.
U.S. Healthcare petitioned the U.S. Supreme Court to take the case, and in June of 2000, the court vacated the judgment and remanded the case to the Pennsylvania Supreme Court for further consideration in light of its decision in Pegram
v. Herdrich (see below). As Pappas was largely decided on state law negligence grounds, it is unclear how the Pennsylvania Supreme Court will apply the Pegram analysis (mixed coverage and treatment decisions by HMO's are not subject to a fiduciary standard under ERISA) in reconsideration. This decision should be closely watched.
Blaine v. Community Health Plan
In this case a New York State judge ruled that neither ERISA nor New York Public Health Law § 4410 insulate a health plan from liability claims. The judge observed that the plan is in the same position as any other health care provider with direct responsibility to the patient.
Blaine was initially treated by a Community Health Plan physicians' assistant for back pain. Pregnancy complicated her back problems and she underwent a discectomy and claims additional surgery will be needed. Blaine alleges her injuries were caused by staff negligence in failing to provide her with various diagnostic tests, and further, she claims the Plan did not adequately supervise the assistant, nor did it have appropriate written policies governing the use and operations of physicians' assistants.
The court found that the absence of a physician to treat Blaine resulted from CHP's unilateral determination of medical treatment. It held that the claim was not over the withholding of benefits and therefore was not preempted by ERISA. The judge determined that CHP erased the line between administrative and treatment functions, and may not avoid its responsibilities to its patients by taking advantage of the confusion it created in presenting itself and its employees as medical providers by now saying that to ask about its failure to provide adequate care would be to inquire into its administration of the plan.
Nealy v. US Healthcare HMO
In the Nealy case a New York appellate court agreed with briefs by the U.S. Dept of Labor and New York State, holding that ERISA does not preempt a state law malpractice claim brought against a primary care physician. Nealy was brought by the widow of a 37 year old Bronx man who died of a massive heart attack while awaiting referral to an "in plan" cardiologist. Mr. Nealy had been treated by another cardiologist while covered under an indemnity plan, but when his employer switched coverage to US Healthcare, an HMO product, Mr. Nealy was denied permission to continue care with his treating cardiologist, who was not on the HMO's panel. He was eventually given a referral to an "in plan" cardiologist but died before he could get in to see that physician. In reaching its decision the New York court relied on the more recent U.S. Supreme Court decision of New York State Conference of Blue Cross & Blue Shield Plans
v. Travelers Ins. Co.
There are still some jurisdictions in which controlling decisions hold claims for medical malpractice are preempted by ERISA. Some of those cases include:
Kuhl v. Lincoln National Health Plan, 999 F.2d 298 (8th Cir. 1993);
Jass v. Prudential Health Care Plan, 88 F.3d 1482 (7th Cir. 1996);
Tolton v. American Biodyne, 48 F.3d 937 (6th Cir. 1995); and
Corcoran v. United Healthcare Inc., 965 F.2d 1321 (5th Cir. 1992).
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