"I caused the death of a man. I saved a half million dollars. I was rewarded for this."

-- Dr. Linda Peeno, HMO claims reviewer

Unlike the chastened psychologist in the scenario, Managed Care Organizations (MCOs) have enjoyed substantial immunity from prosecution for negligence. This cloak of immunity derives from the Employee Retirement Income Security Act of 1974 (ERISA). When enacted, one purpose of ERISA was to protect the interests of employees in their employer-funded benefit plans by applying uniform federal regulation. Today, ERISA applies not only to pension benefit plans, it also applies to the health benefit plans of perhaps one-third to one-half the population in the United States.

The usefulness of ERISA to MCOs derives from preemption provisions, which have effectively deterred most negligence torts brought in state courts. An MCO contracting to administer an employee health benefits plan covered by ERISA is often fiduciary under ERISA. Preemption in this situation generally means that any state law relating to an employee benefit plan is preempted. A federal district court decision in a classic ERISA case, Corcoran v. United HealthCare, Inc., upheld the ERISA preemption in regard to state negligence and wrongful death actions. In federal court, a claim against an MCO based upon recovery of benefits, enforcement of contractual rights, or clarification of rights to future benefits, is protected from a state tort law analysis. In other words, MCOs are protected under the doctrine of complete preemption from liability arising from state law for negligence in administering a managed care contract. Moreover, federal law in this circumstance does not allow recovery of extra-contractual damages (e.g., medical expenses, wage loss, pain and suffering). As a result, a civil attorney working on contingency has had little financial motivation to pursue a negligence tort against an MCO.

The purpose of civil law in protecting against malpractice is often rendered impotent by the unintended consequence of a federal law proposed to protect employees. A decision by an MCO to deny coverage because a diagnosed condition is not contractually covered, as in the scenario, could represent an administrative action protected by the doctrine of complete preemption under ERISA. Under this doctrine, the defense attorney representing an MCO in a negligence tort in state court would file a pleading for complete preemption, which could result in moving the case to federal court. While a federal ruling against the defendant could occur, an adverse judgment would essentially involve only recovery of benefits, which would probably not deter further, similar actions by the MCO. Whether the MCO in the scenario would have to defend themselves in a state court against a negligence tort depends, at this time, upon the exact nature of the claim and upon the state in which the claim is filed.

Recent judicial rulings have begun to erode the usefulness of ERISA to MCOs. In Connecticut, a federal judge ruled on Moscovitch v. Danbury Hospital, Vitam Center, Inc. and Physicians Health Services Inc. in late 1998. This judge ruled that HMOs can be sued for negligence based upon the quality of care dictated by their practice guidelines. The first case (Pliocica et. al. v. NYLCare) filed under the now upheld Texas MCO malpractice law (SB386) awaits a hearing set for this year in state district court. Both of these cases involve the suicide of an MCO subscriber. Two recent developments have occurred in Pennsylvania. In late 1998, Pennsylvania State Superior Court upheld a plaintiff’s claim of corporate negligence and vicarious liability against an HMO, in Shannon v. McNulty, supporting recent legal theories about attacking the ERISA exemption. At the end of the year, the Pennsylvania Supreme Court ruled on Pappas v. Asbel, stating that this claim of negligence, alleging that HealthAmerica HMO failed to render reasonable care in providing triage service via telephone, is not preempted by ERISA. This ruling is important because the interpretation is broader than the prevailing distinction between denial of care and quality of care, with the former preempted, established in Duke v. U.S. Healthcare, Inc., in a 1995 3rd U.S. Circuit Court of Appeals ruling. Finally, a New York State Supreme Court Justice ruled for the plaintiff in Blaine v. Community Health Plan, at the end of the year. The ruling stated that ERISA preemption does not apply to malpractice actions when an HMO employs the health care providers.

While lawyers have succeeded in peering under the cloak of ERISA and exposing the greedy skeleton of cost-containment driven decision-making in health care, psychologists can facilitate the dismembering of ERISA’s unintended consequence. Psychologists and their organizations could collaborate with malpractice attorneys willing to develop cases against MCOs. At the state level, one means by which this can occur is through state organizations committing to developing mechanisms whereby promising claims can be brought to the attention of legal counsel or developed in collaboration with legal counsel. Another means to address the unintended consequence of ERISA is through lobbying for effective revision of state and federal public policy, which is addressed in the next and final part of this article.

On to Part 4....

Readers can learn more about ERISA and malpractice law in the following publications: