Justices Limit Suits Against HMOs

State Patients' Rights Laws Struck Down

The Supreme Court yesterday struck down a Texas patients' rights law in a ruling that bars all states from letting patients sue managed-care companies whose refusal to pay for treatment allegedly results in death or injury.

By a vote of 9 to 0, the court ruled that a 1974 federal statute prohibits such state laws. The decision means that the citizens of Texas and nine other states -- Arizona, California, Georgia, Maine, New Jersey, North Carolina, Oklahoma, Washington and West Virginia -- will lose the individual right to sue health plans. As a result of the court's ruling, such a right can be created only by Congress , which has been deadlocked over the issue for years.

By closing off state courts as an avenue for disgruntled HMO clients, the ruling could reignite patients' rights as a national political issue. President Bush touted the Texas law in his 2000 campaign, but his Justice Department opposed it in the two cases decided jointly yesterday.

Bush supports a federal patients' bill of rights that would include a right to sue, but wants to limit damage awards more than the bill's supporters in Congress do. Sen. John F. Kerry (Mass.), the presumptive Democratic nominee to run against Bush in November, said the court's decision yesterday shows that the president is "standing in the way" of a federal law.

The federal law cited in the court's ruling, the Employee Retirement Income Security Act (ERISA), was intended by Congress to encourage the formation of employee benefit plans by subjecting them to federal regulation rather than a patchwork of state rules.

Writing for the court, Justice Clarence Thomas said ERISA's purpose would have been undermined if patients were permitted to sue managed-care companies for negligence or medical malpractice in state courts.

Supporters of the Texas law said it did not violate ERISA because it made managed-care firms accountable for coverage decisions that are partly medical, rather than the insurance judgments covered by the law.

But the court embraced the insurance industry's argument: that coverage determinations by its plan administrators are strictly decisions about what a given plan does and does not pay for. The Bush administration had echoed that position in its briefs and arguments to the court.

"The fact that a benefits determination is infused with medical judgments does not alter this result," Thomas wrote. Only when a treating physician makes the benefits determination directly can a patient sue in state court, the court ruled.

Both the potency of patients' rights as a political issue and the practical impact of the ruling on health care consumers remain to be seen. Health care plans abandoned many of their most restrictive benefit-determination practices during the 1990s, as both the threat of legislation and the demands of employers shopping for employee benefits pressured them to be more flexible.

Health plans generally agreed to pay for more specialist visits and expensive diagnostic tests -- in return for higher premiums.

Those increased costs, which employers have been passing on to employees, have now emerged as the public's chief health insurance-related concern, according to a February Kaiser Family Foundation survey. Few surveyed expressed a desire to sue managed-care firms -- which is consistent with the fact that relatively few lawsuits have been filed in the states that allow them.

James A. Klein, president of the American Benefits Council, which represents the employee-benefits industry, praised the decision, saying in a statement that it "is critical employers feel confident that ordinary benefits decisions will not subject them to the extreme costs associated with often unlimited remedies under many state laws."

But Ron Pollack, executive director of Families USA, a health care consumers organization, said the court's decision would reduce some of the pressure that made managed care change course in the first place. "Health plans will no longer be deterred from making improper decisions that could severely harm patients," he said in a statement.