LIABILITY
FOR COVERAGE DENIALS BY MANAGED CARE PLANS (CON'T)
Brock D. Phillips
The U.S. Supreme Court, in a decision announced in June of 2000, reversed the 7th Circuit, holding that the mere existence of financial incentives in a managed care plan is not, in and of itself, an actionable breach of fiduciary duty under ERISA. The foundation for the court's opinion was its conclusion that when a plan makes mixed treatment and eligibility decisions, it is not acting as a fiduciary for its insured/member. The court acknowledged that a clear dividing line between coverage decisions and treatment decisions is not easy to find in HMO type products.
What we will call pure "eligibility decisions" turn on the plan's coverage of a particular condition or medical procedure for its treatment. "Treatment decisions," by contrast, are choices about how to go about diagnosing and treating a patent' s condition: given a patient's constellation of symptoms, what is the appropriate medical response?
These decisions are often practically inextricable from one another, as amici on both sides agree. See Brief for Washington Legal Foundation as Amicus Curiae 12; Brief of Health Law, Policy, and Ethics Scholars as Amici Curiae 10. This is so not merely because, under a scheme like Carle' s, treatment and eligibility decisions are made by the same person, the treating physician. It is so because a great many and possibly most coverage questions are not simple yes-or-no questions, like whether appendicitis is a covered condition (when there is no dispute that a patient has appendicitis), or whether acupuncture is a covered procedure for pain relief (when the claim of pain is unchallenged).
After clarify the theoretical nature of these types of decisions, the Court concluded that Congress could not have intended to expose plans to liability on a claim of breach of fiduciary duty for every such decision. The Court correctly observed that such a decision would fly in the face of Congress's support of the concept of HMO's as expressed in over 20 years of congressional support for HMOs. To steer clear of this problem, the Court simply concluded that these mixed eligibility and treatment decisions are not fiduciary in nature and therefore not subject to claims of breach of fiduciary duty. The decision also contains considerable dicta discussing the history of managed care and the legitimate social and financial functions it serves.
Some have suggested that the U.S. Supreme Court's Pegram decision supports a further narrowing of ERISA preemption and encouragement for the application of state law to challenge plan decisions. This observer sees scant support for such a claim in the Court's decision. While it is true that the Court, in
Travellers, Debuono, and Dillingham seemed to be moving towards a constriction of the scope of ERISA preemption, there is little to further support this trend in the Pegram decision.
A second post-Shea case of interest is Ehlmann v. Kaiser Foundation Health Plan. In that case the 5th Circuit upheld the lower court ruling of a
U.S.D.C. judge in Texas granting dismissal to multiple health plans which were all named as defendants in a lawsuit charging the plans with breach of fiduciary duty for not disclosing physician compensation arrangements. Plaintiffs conceded that there is no express duty under ERISA to disclose provider compensation schemes, but argued that a duty to do so is implied under ERISA's fiduciary duties. The 5th Circuit rejected this argument in a ruling handed down in January 2000. In its relatively terse opinion, the 5th Circuit ruled ERISA does not explicitly require plans to disclose physician compensation or incentive arrangements and the imposition of any such requirement must come from Congress, not the courts. This ruling seems in conflict with the 1997 Shea
v. Esensten decision out of the 8th Circuit. The 5th Circuit decision makes reference to the Shea decision but distinguishes it on rather poorly articulated grounds and then appears to flatly disagree with the 8th Circuit.
The attorneys who represented the plaintiffs in the Ehlmann case have filed a new action invoking the Texas Managed Care Liability Act. Filed in March of 1999, the case of Dudley
v. Hardwick, M.D. is filed in Texas state court in Tarrant County. The case charges that financial disincentives to treatment caused Dr. Hardwick to fail to properly manage Ms. Dudley's on-going breast cancer.
Endnotes
[1] Hartford
Accident and
Indemnity Co. v. Michigan Mutual Ins. Co. 462
N.Y.S.2d 175,93 A.D.2d 337; Farmers
Ins. Group, Inc. v. Trimble, 691 P.2d 1243;
[2] Hartford
Accident and
Indemnity Co. v. Michigan Mutual Ins. Co. 462
N.Y.S.2d 175,93 A.D.2d 337; Benke v.
Mukwonage-Vernon Mut. Ins. Co., 329 N.W.2d 243, 110 Wis.2d 356
[3] Surdyka
v. DeWitt, App. 784
P.2d 819 (Colo.); Curry v.
Fireman’s Fund Ins. Co. 784 S.W.2d 176 (Kentucky);
National Union Fire Ins. Co. of Pittsburgh Pa. V. Dominguez, App. 793
S.W.2d 66 (Texas); Linthicum v.
Nationwide Life Ins. Co. 723 P.2d 675 (Arizona); Life Ins. Co. of Miss. V. Allen, 518 So.2d 1189 (Miss.)
[4] Poling
v. Wisconsin Physicians Service App. 357
N.W.2d 293, 120 Wis.2d 603 (Wisconsin);
[5].
Medical Insurance Exchange of California 1995 California Large Loss Trend
Study.
[6]
Tex. Civ. Prac.
& Rem. Code §88.001 et seq.
[7]
Corporate Health Insurance Inc., et al. v. The Texas Department of
Insurance, et al., No. 98-20940, 5th Cir.) decided 20 June 2000
[8]
Illinois
Supreme Court No. 86830, 2000 WL 637290 (May 18, 2000)
[9]
107 F. 3d 625 (8th Cir. 1997)
[10] 154
F.3d 362 (7th Circuit 1998) reversed by the U.S. Supreme Court
No. 98-1949, decided 12 June 2000.
[11] 5th
Circuit decision number No. 98-11020 dated 4 January 2000; 20
F.Supp.2d 1008 (N.D. Tex. Oct 20, 1998)
