Supreme Court Deals Blow to Malpractice Plaintiffs

Respondent Juan Davila is a participant, and respondent Ruby Calad is a beneficiary, in ERISA-regulated employee benefit plans. Their respective plan sponsors had entered into agreements with petitioners, Aetna Health Inc. and CIGNA Healthcare of Texas Inc., to administer the plans. Under Davila's plan, for instance, Aetna reviews requests for coverage and pays providers, such as doctors, hospitals, and nursing homes, which perform covered services for members; under Calad's plan sponsor's agreement, CIGNA is responsible for plan benefits and coverage decisions.

Both respondents claimed their HMOs injured them when they were denied coverage for treatments their doctors had recommended. After receiving their HMOs' decisions, each respondent was required either to accept the HMO's approved treatment or pay for alternative treatments themselves.

Calad

Patient Calad, who had undergone a hysterectomy, was discharged from the hospital after just one day of recovery, even though her doctor recommended against it, because her insurer, Cigna, would not authorize an extended stay. She had to return to the emergency room for further treatment after complications developed following her discharge. She claimed she would not have suffered these complications had she been allowed to remain in the hospital as her doctor had recommended.

Davila

The other respondent, Juan Davila, was being treated successfully for arthritis with his doctor-prescribed medication. His insurer, Aetna, told him his prescription costs would no longer be covered if he did not first try switching to two other drug products. After switching to one of the other drug products, Davila claimed he nearly died from a reaction that required extensive hospitalization and treatment.

Separate Suits

Respondents brought separate suits in Texas state court against petitioners. Invoking THCLA ' 88.002(a), respondents argued that petitioners' refusal to cover the requested services violated the statutorily imposed “duty to exercise ordinary care when making health care treatment decisions,” and that these refusals proximately caused their injuries. Petitioners removed the cases to federal district courts, arguing that respondents' causes of action fit within the scope of — and were therefore completely pre-empted by — ERISA ' 502(a). The respective district courts agreed, and declined to remand the cases to state court. Because respondents refused to amend their complaints to bring explicit ERISA claims, the district courts dismissed the complaints with prejudice.

Both Davila and Calad appealed the refusals to remand to state court. The U.S. Court of Appeals for the Fifth Circuit consolidated their cases with several others raising similar issues. The Court of Appeals recognized that state causes of action that duplicate or fall within the scope of an ERISA ' 502(a) remedy are completely pre-empted and therefore removable to federal court. The next question was then whether the respondents' claims could possibly fall under ' 502(a)(1)(B), which provides a cause of action for the recovery of wrongfully denied benefits. It concluded, however, that ' 502(a)(1)(B) creates a cause of action for breach of contract, but that respondents' claims were not seeking reimbursement for benefits denied them, but rather requesting tort damages arising from an external, statutorily imposed duty of ordinary care. It then looked at ' 502(a)(2), which allows suit against a plan fiduciary for breaches of fiduciary duty, but concluded that the decisions for which petitioners were being sued were “mixed eligibility and treatment decisions” and, hence, not fiduciary in nature. Based on the principle that complete pre-emption is limited to situations in which states duplicate the causes of action listed in ERISA, the Court of Appeals concluded that the Texas statute fell outside the scope of ERISA ' 502(a). As such, the respondents' state court causes of action could go forward.

Supreme Court

On appeal to the Supreme Court, the Court noted that, ordinarily, determining whether a particular case arises under federal law turns on the “well-pleaded complaint” rule. Franchise Tax Bd. Of Cal. V. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9-10, 77 L. Ed. 2d 420, 103 S. Ct. 2841 (1983). In particular, the existence of a federal defense normally does not create statutory “arising under” jurisdiction, and a defendant may not generally remove a case to federal court unless the plaintiff's complaint establishes that the case arises under federal law. There is an exception, however, to the well-pleaded complaint rule: When a federal statute wholly displaces the state-law cause of action through complete pre-emption, the state claim can be removed. This is so because when the federal statute completely pre-empts the state-law cause of action, a claim that comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law. ERISA, the Court proclaimed in this decision, is one of these statutes.

The Court pointed out that Congress enacted ERISA to protect the interests of participants in employee benefit plans and their beneficiaries by setting out substantive regulatory requirements for such plans and by providing for appropriate remedies, sanctions, and access to the Federal courts. ERISA, it said, is meant to provide a uniform regulatory regime over employee benefit plans. To this end, ERISA includes expansive pre-emption provisions and detailed remedies that evidence Congress' intent to keep the system uniform for all. Therefore, any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive, and is therefore pre-empted.

Interpretation of the terms of respondents' benefit plans would, the Court stated, form an essential part of their state law claims and “THCLA liability would exist here only because of petitioners' administration of ERISA-regulated benefit plans. Petitioners' potential liability under the THCLA in these cases, then, derives entirely from the particular rights and obligations established by the benefit plans. So … respondents' THCLA causes of action are not entirely independent of the federally regulated contract itself.” Hence, respondents suits were brought only to rectify wrongful denials of benefits promised under ERISA-regulated plans, and involved no violation of a legal duty independent of ERISA. As such, the state causes of action fell fully within the scope of ERISA and were therefore completely pre-empted by ERISA ' 502 and removable to federal district court.

The Court of Appeals had come to a contrary conclusion for reasons the Supreme Court found erroneous. First, the Court of Appeals found significant the fact that respondents asserted a “tort claim for tort damages” rather than a “contract claim for contract damages,” and that respondents were not seeking reimbursement for benefits denied them. But, the Supreme Court held that distinguishing between pre-empted and non-pre-empted claims based on the particular label affixed to them would allow parties to evade the pre-emptive scope of ERISA simply by relabeling their contract claims as claims for tortious breach of contract. Nor could the fact that the state cause of action authorized remedies ERISA did not put it outside the scope of the ERISA civil enforcement mechanism because the limited remedies available under ERISA were part of Congress' comprehensive plan to ensure fair enforcement of rights while at the same time encouraging the creation and maintenance of such plans.

Patients and doctors had, of course, hoped for another outcome as they claim HMOs are often unconcerned with anything but the “bottom line.” A decision for the respondents in these cases would have meant not only that plaintiffs could recover large sums from their HMOs, but also that HMOs would have to pay a lot more attention to the health needs of the people covered under their plans. Doctors, whose medical decisions are often overridden by an HMO's refusal to cover the costs of a recommended treatment, will have to remain frustrated with a system that sometimes ties their hands. With this decision, HMOs have very little incentive to approve medically necessary, but expensive, treatments.

Conclusion

The Supreme Court's June 21 decision appears to be far from the final word on the subject of HMO liability to beneficiaries. In a statement issued following the decision, American Medical Association President John C. Nelson expressed his disappointment, saying, “By reserving the right to decide what is — and what is not — medically necessary, managed care plans can now practice medicine without a license, and without the same accountability that physicians face every day. While the AMA appreciates those managed care plans that put patients ahead of profits, today's Supreme Court action significantly erodes patients' ability to obtain medically necessary care by placing patients at the mercy of managed care plans that play doctor.”

The issue will now undoubtedly heat up debate in Washington, putting pressure back on Congress to do something to help patients get what they feel they deserve while at the same time not decimating the health care system that has developed in this country over the last few decades. Democratic presidential nominee John Kerry, for one, was quick to react to the ruling, issuing a statement the day the decision came out that made his opinion clear: “As President, I will push for a real Patients' Bill of Rights to ensure that Americans are protected from HMO misconduct and have access to reliable, high-quality health care.”

In a disappointing decision for malpractice plaintiffs and their medical caregivers, the U.S. Supreme Court ruled on June 21 that patients do not have a state law private right of action against their Health Maintenance Organizations (HMOs) when such entities make coverage decisions that impact the patient's health care. The decision means patients have little recourse against their HMOs, which under federal law are liable to plan beneficiaries only for the cost of services they wouldn't cover.

Background

The cases came to the Supreme Court via Texas, which had in 1997 passed a law as part of its patients' bill of rights, Texas Health Care Liability Act (THCLA), Tex. Civ. Prac. & Rem. Code Ann. '' 88.001-88.003 (2004 Supp. Pamphlet), allowing Texas citizens to bring suit against their HMOs in state court. In these consolidated cases, two individuals sued their respective health HMOs for alleged failures to exercise ordinary care in the handling of coverage decisions, in violation of a duty imposed by the Texas law. The Supreme Court decided it would hear the two consolidated cases last fall — Aetna Healthcare of Texas v. Davila, 02-1845, 2003 U.S. LEXIS 8002; 72 U.S.L.W. 3307; 2003 Cal. Daily Op. Service 9538 (11/3/03) and Cigna Healthcare of Texas v. Calad, 03-83, 2003 U.S. LEXIS 8003; 72 U.S.L.W. 3307 (11/3/03).

Respondent Juan Davila is a participant, and respondent Ruby Calad is a beneficiary, in ERISA-regulated employee benefit plans. Their respective plan sponsors had entered into agreements with petitioners, Aetna Health Inc. and CIGNA Healthcare of Texas Inc., to administer the plans. Under Davila's plan, for instance, Aetna reviews requests for coverage and pays providers, such as doctors, hospitals, and nursing homes, which perform covered services for members; under Calad's plan sponsor's agreement, CIGNA is responsible for plan benefits and coverage decisions.

Both respondents claimed their HMOs injured them when they were denied coverage for treatments their doctors had recommended. After receiving their HMOs' decisions, each respondent was required either to accept the HMO's approved treatment or pay for alternative treatments themselves.

Calad

Patient Calad, who had undergone a hysterectomy, was discharged from the hospital after just one day of recovery, even though her doctor recommended against it, because her insurer, Cigna, would not authorize an extended stay. She had to return to the emergency room for further treatment after complications developed following her discharge. She claimed she would not have suffered these complications had she been allowed to remain in the hospital as her doctor had recommended.

Davila

The other respondent, Juan Davila, was being treated successfully for arthritis with his doctor-prescribed medication. His insurer, Aetna, told him his prescription costs would no longer be covered if he did not first try switching to two other drug products. After switching to one of the other drug products, Davila claimed he nearly died from a reaction that required extensive hospitalization and treatment.

Separate Suits

Respondents brought separate suits in Texas state court against petitioners. Invoking THCLA ' 88.002(a), respondents argued that petitioners' refusal to cover the requested services violated the statutorily imposed “duty to exercise ordinary care when making health care treatment decisions,” and that these refusals proximately caused their injuries. Petitioners removed the cases to federal district courts, arguing that respondents' causes of action fit within the scope of — and were therefore completely pre-empted by — ERISA ' 502(a). The respective district courts agreed, and declined to remand the cases to state court. Because respondents refused to amend their complaints to bring explicit ERISA claims, the district courts dismissed the complaints with prejudice.

Both Davila and Calad appealed the refusals to remand to state court. The U.S. Court of Appeals for the Fifth Circuit consolidated their cases with several others raising similar issues. The Court of Appeals recognized that state causes of action that duplicate or fall within the scope of an ERISA ' 502(a) remedy are completely pre-empted and therefore removable to federal court. The next question was then whether the respondents' claims could possibly fall under ' 502(a)(1)(B), which provides a cause of action for the recovery of wrongfully denied benefits. It concluded, however, that ' 502(a)(1)(B) creates a cause of action for breach of contract, but that respondents' claims were not seeking reimbursement for benefits denied them, but rather requesting tort damages arising from an external, statutorily imposed duty of ordinary care. It then looked at ' 502(a)(2), which allows suit against a plan fiduciary for breaches of fiduciary duty, but concluded that the decisions for which petitioners were being sued were “mixed eligibility and treatment decisions” and, hence, not fiduciary in nature. Based on the principle that complete pre-emption is limited to situations in which states duplicate the causes of action listed in ERISA, the Court of Appeals concluded that the Texas statute fell outside the scope of ERISA ' 502(a). As such, the respondents' state court causes of action could go forward.

Supreme Court

On appeal to the Supreme Court, the Court noted that, ordinarily, determining whether a particular case arises under federal law turns on the “well-pleaded complaint” rule. Franchise Tax Bd. Of Cal. V. Construction Laborers Vacation Trust for Southern Cal. , 463 U.S. 1, 9-10, 77 L. Ed. 2d 420, 103 S. Ct. 2841 (1983). In particular, the existence of a federal defense normally does not create statutory “arising under” jurisdiction, and a defendant may not generally remove a case to federal court unless the plaintiff's complaint establishes that the case arises under federal law. There is an exception, however, to the well-pleaded complaint rule: When a federal statute wholly displaces the state-law cause of action through complete pre-emption, the state claim can be removed. This is so because when the federal statute completely pre-empts the state-law cause of action, a claim that comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law. ERISA, the Court proclaimed in this decision, is one of these statutes.

The Court pointed out that Congress enacted ERISA to protect the interests of participants in employee benefit plans and their beneficiaries by setting out substantive regulatory requirements for such plans and by providing for appropriate remedies, sanctions, and access to the Federal courts. ERISA, it said, is meant to provide a uniform regulatory regime over employee benefit plans. To this end, ERISA includes expansive pre-emption provisions and detailed remedies that evidence Congress' intent to keep the system uniform for all. Therefore, any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive, and is therefore pre-empted.

Interpretation of the terms of respondents' benefit plans would, the Court stated, form an essential part of their state law claims and “THCLA liability would exist here only because of petitioners' administration of ERISA-regulated benefit plans. Petitioners' potential liability under the THCLA in these cases, then, derives entirely from the particular rights and obligations established by the benefit plans. So … respondents' THCLA causes of action are not entirely independent of the federally regulated contract itself.” Hence, respondents suits were brought only to rectify wrongful denials of benefits promised under ERISA-regulated plans, and involved no violation of a legal duty independent of ERISA. As such, the state causes of action fell fully within the scope of ERISA and were therefore completely pre-empted by ERISA ' 502 and removable to federal district court.

The Court of Appeals had come to a contrary conclusion for reasons the Supreme Court found erroneous. First, the Court of Appeals found significant the fact that respondents asserted a “tort claim for tort damages” rather than a “contract claim for contract damages,” and that respondents were not seeking reimbursement for benefits denied them. But, the Supreme Court held that distinguishing between pre-empted and non-pre-empted claims based on the particular label affixed to them would allow parties to evade the pre-emptive scope of ERISA simply by relabeling their contract claims as claims for tortious breach of contract. Nor could the fact that the state cause of action authorized remedies ERISA did not put it outside the scope of the ERISA civil enforcement mechanism because the limited remedies available under ERISA were part of Congress' comprehensive plan to ensure fair enforcement of rights while at the same time encouraging the creation and maintenance of such plans.

Patients and doctors had, of course, hoped for another outcome as they claim HMOs are often unconcerned with anything but the “bottom line.” A decision for the respondents in these cases would have meant not only that plaintiffs could recover large sums from their HMOs, but also that HMOs would have to pay a lot more attention to the health needs of the people covered under their plans. Doctors, whose medical decisions are often overridden by an HMO's refusal to cover the costs of a recommended treatment, will have to remain frustrated with a system that sometimes ties their hands. With this decision, HMOs have very little incentive to approve medically necessary, but expensive, treatments.

Conclusion

The Supreme Court's June 21 decision appears to be far from the final word on the subject of HMO liability to beneficiaries. In a statement issued following the decision, American Medical Association President John C. Nelson expressed his disappointment, saying, “By reserving the right to decide what is — and what is not — medically necessary, managed care plans can now practice medicine without a license, and without the same accountability that physicians face every day. While the AMA appreciates those managed care plans that put patients ahead of profits, today's Supreme Court action significantly erodes patients' ability to obtain medically necessary care by placing patients at the mercy of managed care plans that play doctor.”

The issue will now undoubtedly heat up debate in Washington, putting pressure back on Congress to do something to help patients get what they feel they deserve while at the same time not decimating the health care system that has developed in this country over the last few decades. Democratic presidential nominee John Kerry, for one, was quick to react to the ruling, issuing a statement the day the decision came out that made his opinion clear: “As President, I will push for a real Patients' Bill of Rights to ensure that Americans are protected from HMO misconduct and have access to reliable, high-quality health care.”