Supreme Court strikes down landmark patient protection law

The ruling sparks talk again of federal patients' bill of rights legislation.

By Tanya Albert Henry — Posted July 12, 2004

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The U.S. Supreme Court in June struck down a Texas law that gave patients the right to sue their health plans for damages in state court. Now physicians hope they won't see a return of the toxic 1990s atmosphere in which they say it was more difficult to get insurers to pay for necessary care.

The high court ruled unanimously that the federal Employee Retirement Income Security Act of 1974 preempted the first-of-its-kind Texas law, which gave patients the right to recover money for injuries resulting from plans' denial of doctor-recommended treatments.

Some physicians say they've run into fewer hassles in getting insurance companies to reimburse for treatments after the Texas law passed in 1997 and then 10 states followed suit.

Opinions about the new ruling's potential effect on health plan attitudes is mixed.

"I don't think it is going to have a big impact unless it emboldens the HMOs to go back to their old ways," said Bruce Malone, MD, an Austin, Texas, orthopedic surgeon and Texas Medical Assn. trustee. "But I don't think the public will tolerate that."

Others are not as confident.

"It is going to have a devastating effect on patient care," said George Parker Young, the Texas attorney who represented the two patients involved in the case before the Supreme Court. "We're going to see a very quick return to the horror stories we heard in the late 1990s."

American Medical Association President John C. Nelson, MD, MPH, said the court's decision allows managed care plans to practice medicine without a license and without the accountability that physicians face.

"While the AMA appreciates those managed care plans that put patients ahead of profits ... [the ruling] significantly erodes patients' ability to obtain medically necessary care by placing patients at the mercy of managed care plans that play doctor."

The AMA, TMA and American Psychiatric Assn. filed a friend-of-the-court brief in the case supporting the patients. Dr. Nelson said the AMA will watch developments in the coming months closely.

"We don't know entirely what the outcome will be," he said. "It is important for physicians to go up to the plate and recommend the best treatments for their patients."

Health plans applaud ruling

The managed care and corporate communities don't share doctors' concerns. They said the ruling is a victory for patients and their employers because it will help keep medical costs down. If patients were allowed to sue for noneconomic damages in state courts, they said, health plans would increase premiums.

"There has been far too much reliance on courts to settle disputes," said Susan M. Pisano, spokeswoman for America's Health Insurance Plans. "It has a negative impact on quality. It has a negative impact on access to care. It has a negative impact on patient safety."

Health plans say ERISA provides the protections that patients need to challenge coverage decisions. The act requires companies to set up an internal review system under which subscribers can challenge decisions.

"By affirming the role of ERISA in employee benefits, the court has helped assure that millions of working Americans will continue to have access to quality health coverage provided by their employers," officials from Aetna, one of the insurance companies involved in the lawsuit, said in a statement.

In addition, patients are protected by the binding external review panels that nearly every state has created to resolve disputes when a patient is unhappy with an internal review outcome, said officials from CIGNA HealthCare, also a party in one of the lawsuits. The Supreme Court last year upheld those state laws.

"We view this process as a fair, efficient and equitable mechanism for consumers to resolve coverage issues," CIGNA stated.

But Young disagrees. He said he is a fan of external reviews but that they work only about 20% of the time. The problem now is that the worst-case scenario for a health plan is that it goes through the appeals process and then has to pay for what should have been done in the first place.

"There is no incentive for the HMO to do the right thing the first time," Young said.

Medical or coverage decision?

In its decision, the Supreme Court answered a question that had lingered after earlier ERISA rulings: When health insurers that administer plans for employers decide whether to pay for treatment, is it a medical decision or a coverage decision?

The right to sue in state court hinged on the answer because federal ERISA remedies would apply if a decision was simply about coverage. State laws, such as the one in Texas, would apply if it was a medical decision.

The ruling over the Texas law was the result of two lawsuits. In one, arthritis patient Juan Davila alleged that he almost died after the insurer required him to try two different drugs on a formulary before it would pay for Vioxx.

In the other suit, Ruby R. Calad sued CIGNA Healthcare of Texas Inc. after the insurer denied the longer hospital stay her physician recommended after a complicated hysterectomy. She was discharged and several days later went to the emergency department with complications.

The patients and physicians argued that the health plans made medical treatment decisions that they should be held accountable for under state laws, just as physicians are held accountable.

The health plans, however, don't see their determinations as medical treatment decisions. Instead, they argued successfully to the court, they made coverage decisions based on language in the subscribers' plans. Coverage decisions fall under ERISA, they and the court said.

"Upon the denial of benefits, respondents could have paid for the treatment themselves and then sought reimbursement through a(n) [ERISA] action or sought a preliminary injunction," Justice Clarence Thomas wrote for the court.

But doctors and patients' lawyers said that is an unrealistic view.

Even though health plan subscribers can still get the denied treatment and try to get reimbursed by their plans, most don't have the means "to whip out their gold card" and pay for an expensive procedure, Young said. Consequently, they won't get the care.

How patients would find a way to pay for treatment is the "$64,000 question," said Barry Senterfitt, a partner with the Austin, Texas, law firm Akin Gump Strauss Hauer & Feld.

But, he said, health insurance coverage is not meant to cover everything a patient wants, and that is why plans outline what they will and will not cover.

"HMOs don't deny treatment. They just decide whether a certain procedure will be covered," he said.

The Supreme Court ruling has renewed the push in Congress for patients' bill of rights legislation. In 2001 the Senate and House passed bills that differed on what remedies patients would be allowed in state court. A conference committee never reached a compromise.

Now, Rep. John D. Dingell (D, Mich.) has introduced a new measure that would give health plan subscribers the right to sue.

"Patients killed or injured as a result of their HMOs' negligence need a clear road map for action and accountability," Dingell said.

But most political insiders said the bill won't succeed because of election- year politics.

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Case at a glance

Venue: U.S. Supreme Court
At issue: Whether the federal Employee Retirement Income Security Act of 1974 preempts a Texas statute that sought to give health plan subscribers the right to sue their HMOs in state court and recover money beyond the cost of the procedure. The court said it does.
Potential impact: Physicians and patients say health plans now have no disincentive to deny medically necessary care, and that will hurt patients. Health plans say patients won't be hurt. Insurers say their subscribers can appeal decisions and that preventing lawsuits helps keep health insurance affordable.

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Review panels

Doctors view independent appeals as complementary to patients' ability to sue health plans, while plans view them as a substitute. Texas passed its appeals and right-to-sue provisions in 1997. These results from 2003 are an indicator of how often the independent panel overturns plan rulings.

Completed reviews 557
Decisions upheld 45%
Decisions overturned 45%
Decisions partially overturned 10%

Source: Texas Dept. of Insurance

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External links

U.S. Supreme Court ruling in Juan Davila v. Aetna U.S. Healthcare Inc., et al.; Ruby R. Calad v. CIGNA Healthcare of Texas, in pdf (link)

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