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Managed Care Tort Liability

Aetna v. Davila/ CIGNA v. Calad, 542 U.S. 200 (2004)

Also under ERISA preemption

Outcome:     Very unfavorable

Issue

The issue in these consolidated cases was whether federal ERISA law preempted the Texas Health Care Liability Act (THCLA), which allowed HMO beneficiaries to sue the HMOs for damages on non-contractual grounds because of an improper denial of benefits.

AMA interest

The AMA believes that HMOs should be liable for the injuries they cause patients on account of improper denials of medically necessary care.

Case summary

Davila

Juan Davila, an arthritic and diabetic post-polio patient, received Aetna HMO coverage through his employer's health plan.  His primary care physician had prescribed Vioxx for arthritic pain.  Before it would pay for the prescription, however, Aetna required Davila to enter its "step program," under which Davila first had to try two less expensive medications.  Only if he suffered a detrimental reaction to the medications or failed to improve would Aetna consider paying for Vioxx.

After three weeks on the cheaper medication, Davila was rushed to the emergency room, suffering from bleeding ulcers, which had nearly caused a heart attack.  The doctors kept him in critical care for five days.  Davila contended that, by requiring its step protocol, Aetna had failed to use ordinary care in making a "medical necessity" decision.

Calad

Through her husband's employer, Ruby Calad had received medical care from CIGNA Healthcare of Texas, Inc., also an HMO.  A CIGNA physician had performed a hysterectomy, with rectal, bladder, and vaginal repair.  A CIGNA nurse decided that Calad should be discharged after one day in the hospital and that the longer stay Calad's doctor had recommended was medically unnecessary under CIGNA's standard procedures.  Calad suffered complications from the early discharge and had to return to the emergency room a few days later.  She contended that CIGNA had failed to use ordinary care in determining that she should be discharged from the hospital.

Davila and Calad each sued in Texas state court, claiming violations of THCLA.  The HMOs removed their respective cases to federal court based on ERISA preemption.  Ultimately, their cases were appealed to the United States Supreme Court, where the issue was whether, by passing ERISA, Congress had intended to preclude state laws, such as THCLA, which provide remedies beyond those specified in ERISA.  The HMOs argued that the remedies enumerated in ERISA § 502 are intended to preclude all other possible remedies for an HMO's violation of its obligation to provide and pay for medically necessary treatment.  Thus, by implication ERISA "completely preempted" the THCLA remedies.

The Supreme Court, by a unanimous decision, held in favor of the HMOs.  It found that ERISA was intended to preclude state legislation that might provide additional monetary compensation to injured patients.  Two of the justices wrote a concurring opinion, in which they joined the "the rising chorus urging that Congress and [the Supreme] Court revisit what is an unjust and increasingly tangled ERISA regime."

Litigation Center involvement

The Litigation Center filed an amicus curiae brief to support patients' rights to secure their promised health insurance benefits under state law.  The brief argued that the explicit language of ERISA § 514 (b) contradicted the HMOs' position regarding preemption and that issues involving health care should be left to the separate states.

United States Supreme Court brief

Cicio v. Vytra Healthcare, 385 F.3d 156 (2d Cir. 2004)

Also under ERISA preemption

Outcome:     Very unfavorable

Issue

The primary issue in this case was whether the federal Employee Retirement Income Security Act (ERISA) preempted state laws that would otherwise hold HMOs liable when making improper coverage decisions based on “mixed” criteria of legal and medical analysis.

AMA interest

The AMA believes that ERISA should not preempt state laws that regulate medical decision making.

Case summary

Carmine Cicio received employer-sponsored health insurance coverage through Vytra Health Care, an HMO.  Mr. Cicio was diagnosed with multiple myeloma, a form of blood cancer.  His treating physician, Dr. Edward Samuel, asked Vytra to approve a double stem cell transplant for Mr. Cicio.  Dr. Samuel described this treatment as medically necessary and possibly life saving.  Vytra denied the request, stating that a double stem cell transplant was an “experimental/investigational” procedure and thus not covered under Mr. Cicio’s policy.  Mr. Cicio appealed Vytra’s decision, and Vytra ultimately approved a single stem cell transplant.  However, by that time the window of opportunity for an effective treatment had passed.  Mr. Cicio died approximately 6 weeks later.

Bonnie Cicio, Mr. Cicio’s widow, sued Vytra and its medical director in the New York Supreme Court.  She alleged 18 causes of action, mostly based in tort, under New York state law.  Defendants removed the case to the United States District Court for the Eastern District of New York, contending that ERISA preempted Mrs. Cicio’s claims .  The trial court found that ERISA preempted the state law claims and dismissed the case.  Mrs. Cicio then appealed to the United States Court of Appeals for the Second Circuit.

The Court of Appeals, by a two to one decision, reversed the dismissal of the medical malpractice claim, holding that Mrs. Cicio could potentially sue the HMO and its medical director.  The court did not rule on whether New York law actually recognizes a cause of action for medical malpractice in this situation but only that ERISA does not preempt such cause of action if it does exist.  It found that ERISA does not apply to, and therefore does not preempt, determinations of medical necessity or utilization review.

The Court of Appeals also affirmed the dismissal of all counts in the complaint other than the medical malpractice claims.  It remanded those claims to the District Court for further determination.  The defendants’ attorneys sought en banc review (i.e. by all members of the court), but the Second Circuit denied that request.

The defendants then asked the United States Supreme Court to hear the case.  Following its ruling in the Aetna v. Davila and CIGNA v. Calad cases, the United States Supreme Court vacated the Second Circuit judgment and remanded the case to the Second Circuit for further consideration.

On remand, the Second Circuit vacated its prior decision and affirmed the district court's dismissal of Mrs. Cicio's lawsuit.

Litigation Center involvement

The Litigation Center filed two amicus curiae briefs to support Mrs. Cicio in the Second Circuit.

United States Court of Appeals for the Second Circuit brief (on remand)

Corporate Health Insurance, Inc. v. Texas Department of Insurance,314 F.3d 784 (5th Cir. 2002)

Also under ERISA preemption

Outcome:     Very favorable

Issue

The issue in this case was whether the Employee Retirement Income Security Act (ERISA) preempted the Texas Health Care Liability Act (THCLA).

AMA interest

The AMA opposes preemption of state laws that regulate medical care and decision making.

Case summary

Several insurance companies sued the Texas Department of Insurance for a declaration that the THCLA was preempted by ERISA and was therefore invalid.  The trial court held that certain portions of the THCLA were preempted while other portions were not.  Both sides appealed.

The United States Court of Appeals for the Fifth Circuit found that THCLA was partly preempted and partly not preempted by ERISA.  The court held that the following statutory provisions were not preempted because they implicated quality of medical practice, not insurance coverage: (1) the provision permitting suits against entities that failed to meet an ordinary care standard for treatment decisions; (2) the provision barring retaliation against physicians for advocating medically necessary care for patients; and (3) the provision proscribing indemnity clauses that would hold HMOs harmless for their own acts.  However, the court found that ERISA did preempt certain provisions for independent review of determinations by managed care entities.  The court also determined that the review provisions were severable from the remainder of the statute.

The State of Texas petitioned for rehearing en banc (i.e., by all the judges of the Fifth Circuit) and for a panel rehearing (i.e., by the some judges who had earlier ruled).  Those petitions were denied.  The Texas Attorney General filed a petition for certiorari with the United States Supreme Court, seeking to challenge that portion of the ruling that struck down the independent review provisions of the Texas statute.

In a two sentence order, the United States Supreme Court granted certiorari, reversed the Fifth Circuit judgment, and remanded the case to the Fifth Circuit for further consideration in light of its decision in Moran v. Rush-Prudential HMO, which had upheld the Illinois independent review law.  The Fifth Circuit then asked the parties for further briefing on how Moran should apply to the Texas independent review law, and it invited briefs from amici curiae.

Subsequently, the Fifth Circuit, modifying its earlier decision, held that ERISA does not preempt the THCLA independent review provisions as they apply to employees covered under insurance company-funded employee benefit plans, because the independent review law falls within the ERISA savings clause. 

Litigation Center involvement

The Litigation Center and the Texas Medical Association (TMA) filed two amicus briefs in the Fifth Circuit and an amicus brief in the Supreme Court, all of which argued for a narrow scope of ERISA preemption.

United States Court of Appeals for the Fifth Circuit brief (on remand)

Neade v. Portes, 739 N.E.2d 496 (Ill. S.Ct. 2000)

Also under Ethics, Patient rights, and Payment issues (for physicians)

Outcome:     Favorable

Issue

The issue in this case was whether a physician is liable for breach of fiduciary duty to patients for not disclosing any financial incentives to limit care.

AMA interest

The AMA believes that the primary burden of disclosure of financial incentives relating to a patient’s treatment lies with the HMO, not with physicians.

Case summary

The Illinois Appellate Court, relying in part on the AMA’s Council on Ethical and Judicial Affairs (CEJA) Opinion 8.132, held that a physician and a managed care organization have a fiduciary duty to disclose to their patients any financial incentives to limit medical care. 

The Illinois Supreme Court reversed, holding that no cause of action exists for breach of fiduciary duty against a physician.  The Court ruled that the alleged breach of a fiduciary duty for failure to disclose an interest in a Medical Incentive Fund was merely a “re-presentment” of plaintiff’s medical malpractice claim.  Concerning CEJA Opinion 8.132, the Court stated that Illinois law places the burden of disclosure of “financial inducements” on HMOs, not on physicians.

Litigation Center involvement

The Illinois State Medical Society and the Litigation Center filed an amicus brief which supported the CEJA opinion, while emphasizing the practical burdens a physician faces in making the disclosures mandated in the appellate court decision.  The brief also argued that, under the circumstances of this case, the court should not equate the physician’s legal and ethical obligations, as the primary duty to disclose financial incentives should rest with the health plan.

Pappas v. Asbel, 768 A.2d 1089 (Pa. S. Ct. 2001)

Also under ERISA preemption

Outcome:     Very favorable

Issue

The issue in this case was whether the Employee Retirement Income Security Act (ERISA) preempted a state law under which a managed care organization was liable to its insured for negligent denial of medically necessary care.

AMA interest

The AMA believes that managed care organizations should be held liable for the injuries they cause patients on account of improper denials of medically necessary care.

Case summary

Basile Pappas was insured by U.S. Healthcare.  He sought treatment at Haverford Community Hospital for an epidural abscess.  Despite the treating physician’s recommendation that he be transferred to a university hospital, U.S. Healthcare refused to pay for the transfer.  As a result, he was not transferred, and he suffered permanent spinal damage.

Basile and his wife, Theodora Pappas, filed a medical malpractice action against David Asbel, D.O. and Haverford Community Hospital.  The defendants, in turn, sued U.S. Healthcare, alleging that U.S. Healthcare bore sole responsibility for Basile’s injury under Pennsylvania law.  U.S. Healthcare moved to dismiss the complaint filed by Asbel and Haverford, claiming that the action “related to” a health benefits plan governed by and was therefore preempted by ERISA.

The Pennsylvania Supreme Court ruled that ERISA did not preempt the claim against U.S. Healthcare.  Congress did not intend to preempt state laws that govern the provision of safe medical care, the court held.  The United States Supreme Court reversed and then remanded the case to the Pennsylvania Supreme Court for further consideration.

On remand, the Pennsylvania Supreme Court confirmed its earlier decision.

Litigation Center involvement

The Litigation Center and the Pennsylvania Medical Society filed amicus briefs to the Pennsylvania Supreme Court in the original appeal and upon remand from the U.S. Supreme Court.  Their briefs argued that ERISA should not preempt claims derived from substandard care.

Pegram v. Herdrich, 530 U.S. 211 (2000)

Also under ERISA preemption

Outcome:     Very favorable

Issue

The issue in this case was whether mixed treatment and eligibility decisions by HMO physician-employees are “fiduciary” decisions under the federal Employee Retirement Income Security Act (ERISA).

AMA interest

The AMA believes that physicians should not be deemed ERISA fiduciaries simply by rendering clinical care to ERISA plan participants.

Case summary

Patient Cynthia Herdrich sued Lori Pegram, a physician-owner of Carle Clinic and Carle (an HMO) for malpractice and fraud in an Illinois court, based on Dr. Pegram’s having determined that Herdrich, who had an inflamed mass in her abdomen, would have to wait eight days for an ultrasound at a Carle-staffed facility more than fifty miles away, instead of being treated more promptly at a local hospital.  Before the eight days elapsed, Herdrich’s appendix ruptured, causing peritonitis. 

Pegram and Carle removed the case from state to federal court, claiming that ERISA preempted the fraud counts.  Herdrich amended her complaint to allege that the provision of medical services at Carle, which rewarded physician owners for limiting medical care, entailed an inherent or anticipatory breach of an ERISA fiduciary duty, since the physicians were in effect incentivized to make medical decisions in their own interest, rather than in the exclusive interest of their patients.

The trial court dismissed the ERISA count, based on a determination that Pegram’s decision had not been made as an ERISA fiduciary. (A jury awarded Herdrich $35,000 on her original malpractice claims, however.)  Herdrich appealed the dismissal of the ERISA claim to the Seventh Circuit Court of Appeals, which reversed, holding that Herdrich had adequately stated a claim in that incentives to physicians can rise to the level of a breach of fiduciary duty.

Pegram and Carle appealed to the United States Supreme Court, which reversed the Seventh Circuit.  The Supreme Court held that mixed treatment and eligibility decisions by HMO physicians are not fiduciary decisions under ERISA, and therefore Herdrich had not stated on ERISA claim.


Litigation Center involvement

The Litigation Center filed an amicus brief arguing that physicians should not be deemed ERISA fiduciaries.

Roark v. Humana, 307 F.3d 298 (5th Cir. 2002)

Also under ERISA preemption

Outcome:     Neutral

Issue

The issue in this case, which originally comprised four consolidated lawsuits, was whether the federal Employee Retirement Income Security Act (ERISA) preempted a claim under the Texas Health Care Liability Act (THCLA) for negligence by a health maintenance organization (HMO).  In each of the separate lawsuits, the plaintiffs alleged that their physicians had recommended necessary medical treatment, but the HMOs had negligently refused to cover them.  They claimed tort (i.e., non-contractual) damages.

AMA interest

The AMA supports a narrow, interpretation of the preemptive scope of ERISA in cases involving state laws that regulate medical decision making.

Case summary

The plaintiffs originally filed their lawsuits in state court, but the HMOs removed those cases to federal court.  The HMOs pointed out that each plaintiff received HMO coverage through an employer-sponsored plan.  Therefore, the HMOs argued, the federal courts had jurisdiction to hear these cases by virtue of “complete preemption” under ERISA § 502.  They further argued that, due to “conflict preemption” under ERISA § 514, the THCLA liability provisions were invalid and the cases should be dismissed.

After various rulings in the lower courts, all four cases were appealed to the Fifth Circuit.  A panel of the Fifth Circuit ruled that ERISA § 502 did not completely preempt three of the four lawsuits.  The federal courts therefore lacked jurisdiction to hear those cases, and the panel did not reach the ERISA § 514 conflict preemption issue in those suits. 

As to the fourth case, brought by Mrs. Roark and then, after she died, by her estate, the panel noted that the pleadings had raised legal theories different from those of the other three cases.  Accordingly, the panel held that the federal courts did have jurisdiction over the fourth suit by virtue of complete preemption under ERISA § 502.  The panel further held that ERISA § 514 conflicted with and therefore preempted the THCLA liability provisions. Ultimately, it ruled, the case had been properly dismissed.

Following the Fifth Circuit panel decision, Mrs. Roark's estate petitioned for en banc review by the entire Fifth Circuit.  So did the HMO defendants in the first three cases, which had been consolidated with her appeal.  The Fifth Circuit denied the petition.

Mrs. Roark's estate then petitioned the United States Supreme Court for further review.  Ultimately, the Roark case settled and the Supreme Court dismissed the petition for certiorari.

Litigation Center involvement

The Litigation Center, acting on behalf of the AMA and the Texas Medical Association, filed an amicus curiae brief to support the Roark petition for en banc review by the Fifth Circuit. 

The Litigation Center, acting through the AMA and the Texas Medical Association, also filed an amicus curiae brief to support the estate's certiorari petition to the United States Supreme Court.

United States Court of Appeals for the Fifth Circuit brief.

United States Supreme Court brief.