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Medical Malpractice Newsletter

HMO Liability in Medical Malpractice Cases

Some state medical malpractice laws granted patients the right to sue their Health Management Organizations (HMOs) for actions which injured them. As a result of their active roles in medical care decisions, HMOs have been held liable for medical malpractice in state court for negligently administering health care benefits. However, when an HMO is not the employer of the treating physician and it denies coverage for a recommended treatment in favor of an alternative treatment, the Employment Retirement Income Security Act of 1974 (ERISA) preempts state law tort claims. Thus, actions against HMOs must be brought in federal courts, where remedies for such actions are limited.

Claims Against HMOs That Refuse to Pay for Recommended Care

In Aetna Health v. Davila, a U.S. Supreme Court case decided on June 21, 2004, two plaintiffs brought actions against their HMOs for refusing to pay for physician recommended treatment:

  • Plaintiff Juan Davila’s doctor prescribed Vioxx for his arthritis pain but his HMO, Aetna, refused to pay for the medication. Davila took Naprosyn instead and suffered a severe drug reaction.
  • Plaintiff Ruby Calad’s doctor recommended an extended hospital stay after surgery, but her HMO, CIGNA, would not pay for the extension. Calad was discharged and she later suffered complications.

Both plaintiffs asserted their cause of action under a Texas state tort law, alleging that the denial of coverage by their HMOs proximately caused their injuries. The HMOs sought to remove the case to Federal court and moved to dismiss on grounds that the state law was preempted by the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA Preempts State Law Tort Claims Against HMOs

Some states, including Texas, had provided individuals with a state law action for breach of duty of care against HMOs that denied coverage of recommended medical care. However, in Davila, the U.S. Supreme Court eliminated that option. Section 514 of ERISA declares that all state laws will be void to the extent that they “relate to” employer-sponsored health plans. Consistent with the Court’s prior broad interpretation of that section, Davila held that ERISA prohibits individuals from suing their HMOs in state court.

The Court reasoned that the purpose behind ERISA was to protect the interests of individuals with employment benefits and to ensure a uniform application of its standards. Thus, the Davila Court concluded that it was Congress’ intent for ERISA to completely preempt the field of employee benefit plans. Remedies under ERISA are exclusive and limited.

ERISA Provisions Limit Remedies Against HMOs

HMOs have less potential liability under ERISA because it precludes recovery of compensatory and punitive damages. Patients denied coverage under their employment HMO plans can either:

  1. Pay for the treatment themselves and sue under ERISA for reimbursement; or
  2. Appeal or contest the HMO’s decision and seek a preliminary injunction.

Thus, even where an HMO wrongfully denied plan benefits, the only real recovery available under ERISA is the cost of the denied benefit. In her concurrence, Justice Ginsburg acknowledged this problem, echoing the Court’s past concerns with ERISA’s regime that “virtually all state law remedies are preempted but very few federal substitutes are provided.”

Plans Covered By ERISA

An increasing number of Americans are enrolled in HMO plans which are part of employment benefit packages. Davila and other Supreme Court decisions have made ERISA’s preemptive reach vast and powerful. It is therefore important to get a clear understanding of the employer-sponsored pension, health, and other benefit plans that are covered by ERISA.

ERISA applies to ALL:

  • Plans offered by private employers
  • Plans offered by employee organizations (such as unions)

ERISA does not apply to the following exceptions:

  • Plans offered by federal, state, local government employers
  • Plans offered by church employers
  • “Special benefit plans” established solely to meet workers’ compensation, unemployment compensation, or disability insurance laws
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