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Supreme Court Limits Lawsuits Against HMO's

On June 21, 2004, the U.S. Supreme Court unanimously ruled that an HMO providing coverage under an employer’s group health plan cannot be sued under state law for its benefit determinations. Aetna Health Inc. et al. v. Davila. A Texas statute allowed plaintiffs to sue health plans for violating their “duty to exercise ordinary care when making health care decisions”. However, the Supreme Court ruled that ERISA, the federal law governing employee benefit plans (including health benefits), overrides or “preempts” the Texas statute and therefore plan participants cannot recover state law remedies such as consequential and punitive damages from HMO’s.

Two patients sued their HMOs under the Texas statute based on medical complications which arose after their health plans authorized payment only for a treatment different from what their physicians recommended. One patient had been taking Vioxx, then had severe complications after his HMO required him to try different drugs on its formulary before it would pay for the Vioxx. The other patient’s physician recommended a longer hospital stay than authorized by her health plan. After being discharged early, she returned to the emergency room with severe complications.

The Supreme Court stated that Congress intended for ERISA to provide the exclusive enforcement mechanism regarding employee benefit plans and therefore any state law that “duplicates, supplements or supplants ERISA civil enforcement” is preempted. Because the patients were seeking damages due to a wrongful denial of benefits under an employee benefit plan, they were within the scope of the ERISA enforcement mechanism and the Texas statute was preempted.

Under ERISA, a plaintiff can only recover the benefits which were wrongly denied, and cannot recover for any consequences of the wrongful denial (including pain and suffering or punitive damages). ERISA also does not permit jury trials. Accordingly, a plaintiff’s potential recovery under ERISA is substantially diminished.

In a concurring opinion, Justice Ginsburg states that there are many cases in which individuals who have been adversely affected by the decisions of a health plan cannot be “made whole”, because ERISA only provides for limited relief. Justice Ginsburg predicts that Congress will rectify this situation and expand the remedies that are available to such individuals. Legislation has already been introduced in this regard.

If you have any questions about this decision or issues related to employee benefit plans, contact one of the attorneys in Gordon Feinblatt’s Employee Benefits Group.