MANAGED
CARE LIABILITY TO CONSUMERS OF HEALTH CARE (CONTINUED)
X.
MEDICAL MALPRACTICE CLAIMS NOT PREEMPTED WHERE DISPUTE IS OVER THE ADMINISTRATION BENEFITS
UNDER THE PLAN – THE QUANTITY OF BENEFITS PROVIDED
While as these
cases demonstrate, claims for medical malpractice against managed care companies are
making some inroads on ERISA preemption, they are by no means a complete panacea. Courts
applying the "quality vs. quantity of benefits test" continue to find ERISA
preemption where the dispute appears to be over whether the plan provided benefits, as
opposed to whether the benefits provided were adequate. Like the 5th Circuit in
Corcoran, judges granting ERISA preemption often express reluctance to do so.
One federal
judge recently cited what he characterized as a "growing body of anecdotal
evidence" to state that "managed care plans deny necessary, and even life
threatening medical treatment in the name of cutting costs." Andrews-Clarke v.
Travelers Ins. Co., 984 F. Supp. 49, 60 (D. Mass. 1997). Stating that "these
tragic events cry out for relief," the judge held that ERISA barred the
plaintiff’s claims against an insurer and its agent for medical malpractice, wrongful
death, breach of contract and emotional distress, for repeatedly refusing to pre-approve a
patent’s enrollment in a thirty-day inpatient alcohol detoxification and
rehabilitation program despite explicit coverage under his health care policy. The health
plan contract allowed up to 30 days rehabilitation but approved only five for the
plaintiff’s decedent, who committed suicide 24 hours after discharge.
Plaintiffs in Danca
v. Emerson Hospital, No. 98-10029-PBS (D. Mass. May 21, 1998), plaintiffs sued
numerous defendants, including Private Healthcare Systems, Inc. alleging negligent medical
treatment and improper processing of benefit claims. The plaintiff, diagnosed with bipolar
disorder and acute psychosis , sought treatment at a psychiatric facility recommended by
her treating physician. Defendant PHS declined to pre-certify admission to that facility
but offered an alternate facility which Plaintiff accepted. Her treatment at the approved
facility was unsuccessful, her condition deteriorated and she suffered injuries due to a
suicide attempt.
The court held
the plaintiffs’ claims preempted, finding that despite their characterizations to the
contrary, they were essentially seeking a remedy for a breach of an obligation under the
plan to provide certain benefits, namely hospitalization at the recommended hospital The
court further concluded that, had the plaintiffs sought review of PHS’ benefit
determination before the injury occurred, alleging an imminent threat to life or health,
the court would have had the statutory authority to provide prospective relief for
benefits allegedly due under the plan, perhaps averting this catastrophe.
The 9th Circuit
in Parrino v. FHP Inc., et al., held that plaintiff’s claims for breach of the
implied covenant of good faith and fair dealing and civil conspiracy, dealt with defects
in a health plan administrator’s procedures for processing health insurance claims
and were preempted by ERISA. Stephen Parrino had been diagnosed with a brain tumor. His
treating physicians removed the tumor and prescribed proton beam therapy to reduce the
chance of recurrence. FHP initially refused to pay for the therapy claiming it was
experimental and unnecessary. After further review, FHP approved the therapy within two
days of this approval. Parrino was diagnosed with a reoccurring tumor and ultimately died.
The court nonetheless affirmed the judgment of the district court dismissing Parrino's
state law claims as being preempted by ERISA.
The Plan in Huss
v. Green Spring Health Services, Inc. erroneously informed plaintiff who was seeking
psychiatric help for her son, that he wasn’t covered by the health plan. Her son
committed suicide a week later. The Court held the case was preempted by ERISA, in that
plaintiff’s allegation that defendants wrongfully advised plaintiff she was not a
policyholder, went directly to the administration of the benefits plan.
Finally, in Person
v. Physicians Health Plan plaintiff’s decedent’s physician recommended heart
surgery but the plan denied to pay for the surgery on grounds of medical necessity.
Decedent died of cardiac arrest. Plaintiff sued for negligent diagnosis and negligent
denial of coverage, and breach of contract. The court held the claim against the plan was
preempted "plaintiff is seeking redress about what PHP did not do in carrying out its
employee benefit plan/administrative responsibilities, rather than about what a physician
or hospital did or did not do in fashioning medical treatment."
As these cases
demonstrate, managed care’s integration of medical decision making and payment for
medical care has made plans vulnerable to claims of medical malpractice. In the past, when
health care delivery and payment were separate, carriers could more easily argue that
whether the patient received proper medical care was up to the patient and physician
– and that the plan only decided whether to pay for the care, not whether the patient
should have the care. Now that plans are determining what care should be rendered, and
making decisions that affect the quality of care, court are more willing to find that the
plan itself, whether through direct negligence or vicarious liability theories, is liable
for medical malpractice. More importantly, the more the plan is involved in medical
decision making, the less likely courts seem to permit ERISA preemption.
From the
standpoint of consumers and the plaintiff’s bar, medical malpractice claims are thus
a way to avoid the confines of ERISA and bring a claim against the plan in state court. In
states with medical malpractice tort reform laws, medical malpractice claims against
health plans may escape ERISA only to come up against the caps on malpractice awards and
other limits imposed on health care providers. For example, in California, plaintiffs in
medical malpractice actions are limited to $250,000 in general damages, and may not allege
punitive damages without a motion demonstrating sufficient evidence to support such
damages. These restrictions may not seem much better than ERISA remedies to plaintiffs
seeking millions of dollars to "punish" the health plan for its acts.
XI.
CLAIMS FOR BREACH OF FIDUCIARY DUTY RELATED TO PLAN PROVIDER INCENTIVES
As the cited
cases demonstrate, medical malpractice claims are by no means a guaranteed way around
ERISA preemption. Plaintiff’s attorneys are therefore continuing to seek ways to hold
plans liable for injuries to consumers allegedly caused by health plans. The unique
characteristics of managed care have provided attorneys with facts on which to base claims
against plans for theories other than medical malpractice. For example, the increasingly
common plan practice of providing physicians financial incentives to limit care resulted
in an Eighth Circuit ruling against a health plan in Shea v. Esenstein, 107 F.3d
625 (8th Cir.), cert. denied, 1997 U.S. LEXIS 6044 (U.S. Oct. 14, 1997).
Mrs.
Shea’s husband died of heart failure after his primary care provider advised him that
his symptoms did not justify a referral to a cardiologist. Plaintiff argued that Mr.
Shea’s primary care physician was rewarded by the HMO for not making referrals to
specialists. She argued that if her husband had known that his physician had a financial
incentive to make fewer referrals, he would have disregarded his physician’s advice,
sought a cardiologist’s opinion at his own expense, and would still be alive.
Plaintiff asserted both ERISA and state law (wrongful death) claims against the HMO. In an
interesting ruling, the Eighth Circuit held that Plaintiff had stated a claim against the
HMO for breaching its fiduciary obligation under ERISA to disclose all the material facts
affecting her husband’s health care interests:
"When an
HMO’s financial incentives discourage a treating doctor from providing essential
health care referrals for conditions covered under the plan benefit structure, the
incentives must be disclosed and the failure to do so is a breach of ERISA's fiduciary
duties."
The Seventh
Circuit in Herdrich v. Pegram 154 F. 3d. 362 (7th Cir. 1998) also found
a breach of ERISA fiduciary duty where a plan’s physician financial incentives
allegedly lead to plaintiff suffering a delay in diagnosis and ruptured appendix:
"With a
jaundiced eye focused firmly on year-end bonuses, it is not unrealistic to assume that the
doctors rendering care under the Plan were swayed to be most fugal when exercising their
discretionary authority to the detriment of their membership."
Recently, the
full court of the Seventh Circuit declined to review Herdrich. A strongly worded dissent
to the denial of en banc review was authored by Judge Frank H. Easterbrook and joined by
Chief Judge Richard A. Posner and two other judges. The question of whether HMOs are
gatekeepers of medical services and therefore play a fiduciary role, or merely provide a
benefit promised under an ERISA plan that they do not administer, is "more than
enough to justify convening the full court," the dissent said.
While both Shea
and Herdrich have strongly criticized a basic component of managed care, the value
of the remedy for breach of a fiduciary duty under ERISA is unclear. The damage for such a
breach is supposed to be for the ERISA fiduciary to disgorge profits made by the breach,
in this case the hidden incentive system, however, it is unclear how that can be
determined, or whether that is the appropriate remedy under the circumstances. The
attorneys for the plaintiffs in both cases admit that the remedy is uncertain, and at
least one health plan lawyer claims it’s the employer, not the plan, that is the
fiduciary under ERISA. Consequently, it is unclear whether breach of fiduciary duty
against an ERISA plan, at least as to physician financial incentives which might affect
the quality of care, will remain a useful theory.
XII.
CLAIMS UNDER THE ADA
Recently a
Texas court denied Humana’s motion to dismiss an action by subscribers brought under
the Americans with Disabilities Act. The seriously ill plaintiffs allege their plans made
it difficult to see their physicians and receive necessary medical care. Plaintiff’s
theory was that the plans wanted to make it so difficult for them to obtain health care
that they would leave the plan, taking their expensive medical conditions with them.
XIII.
RICO CLAIMS AGAINST MCOS?
Recently the
U.S. Supreme Court permitted a plaintiff to pursue a claim for violation of the Racketeer
Influenced and Corrupt Organizations Act against a managed care company in Humana v.
Forsyth. The case did not involve denial of payment or inadequate health care,
rather, it alleged Humana overcharged its members by basing their co-payment percentages
on the billed amount of the claim, rather than on the actual amount of the bill Humana
paid under its contract with the provider. Now that the precedent has been set, however,
it is anticipated that plaintiffs will begin to allege RICO violations where they can show
a fraud that affects all policyholders.
XIV.
LEGISLATIVE EFFORTS AMEND ERISA
Several states
have or are in the process of enacting "Patient Bill of Rights" legislation
which include the right to sue the patient’s managed care plan. Not surprisingly,
these statutes are met with claims of ERISA preemption by the health care plans they are
attempting to regulate. In 1997, the Texas legislature enacted laws permitting medical
malpractice suits against health plans, and allowing for external review of adverse
benefit determinations. In response, several health plans claimed that the legislation is
preempted by ERISA. In Corporate Health Insurance, Inc. v. Texas Department of
Insurance (1998) 12 F.Supp.2d 597, the District Court held the malpractice suits were
not preempted by ERISA, but that the independent review procedures were preempted. An
appeal to the Fifth Circuit is pending.
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