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Liability for Erroneous Treatment Decisions

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Can Third-Party Payors 
be Liable for Erroneous Treatment Decisions?

Annotated Bibliography

Jeff Wilson
The University of Dayton School of Law
Spring 2000


n the past two decades several factors have conspired to drive up health care costs: new technologies which are expensive in and of themselves also serve to find ailments requiring treatment which, absent the new technologies would probably have gone undetected; the aging population is placing an increasing demand upon the health care system; consumers are demanding more and better care from their physicians; the cost of malpractice drives doctors to defensive medicine, and on the list goes.

Because of the increasing costs of health care, almost all Americans, if they can afford it, posses medical insurance of one sort or another. In an attempt to control rising costs, the insurance companies, third party payers, HMOs and MCOs and other third party payers have increasingly injected themselves into the physicians decision making process, denying care to patients if the company feels that it is not medically necessary, or limiting the doctor's choices for care options or prescription options, all in the name of controlling costs. When the intervention of the insurance company, through either the denial of care or the limitation of care creates an adverse result for the patient, who should be held responsible?

The answer to that question seems to center around the nature of the insurance that the patient has. If the patient is insured by privately purchased insurance, or if the patient's employer provides insurance by purchasing that insurance through a third party. If either situation is the case, then the odds are that when a patient sues an insurance company for its negligence in making decisions regarding the medical care that the patient will receive, he will be able to sue in state court. If he can sue in state court, generally, the courts have been willing to find that that the Insurer (or third party payor, Managed Care Organizations (MCO), or Health Maintenance organization (HMO)), can be held liable for there actions. This liability is found under a variety of theories, such as vicarious liability, ostensible agency, or corporate negligence.

However, if the patient is receiving his/her insurance coverage through his employer and that employer is self-insured, then there could well be a problem. This is because when an employer is providing insurance for its employees through a program which the company itself is funding, then that program is governed by a federal statute known as ERISA. This statute encourages employers to provide insurance to employees through self-funded programs.

Unfortunately, one of the unintended consequences of the operation of this statute has been to provided a way for HMO's and MCO's to duck responsibility for their decisions which they make when they are a program of the type that is covered by the ERISA statute. The HMO/MCO entities are able to do this because the statute operates as a shield which effectively denies access to state tort remedies to someone who has been wronged by an ERISA governed insurer. If the court finds that the decision that was made by the insurer was a decision that "related to" the management of benefits under the health plan, as opposed to being a medical decision, then the plan is governed by the Federal ERISA statute.

This decision then has two effects. First, it allows the insurer to remove the lawsuit from state court to Federal Court thus denying the patient the ability to sue under state tort law. Second, under the terms of the Statute, if the Federal Court happens to find that the insurer wrongfully denied the benefits under the plan, the only recovery that may be had by the patient is the cost of the denied benefit. Neither the patient, nor the patient's family, can recover any lost wages, or any other types of incidental or consequential damages. Thus, the result of a medical negligence lawsuit against an ERISA governed insurance plan is minimal at best.

Many of the articles contained in this annotated bibliography address the legal landscape as it exists for people who have been wronged by private insurers. However, the primary focus of the articles annotated here is to discuss the overall effect that ERISA has had upon the practice of medicine, the injustices that have been created by the statute, and a variety of suggestions as to what should be done to ameliorate the problem. This annotated bibliography is focused primarily on those programs that are covered by the ERISA statute.

Some of the articles were selected because they provide an excellent overview of the legal landscape regarding the nature of negligence lawsuits that have been filed against the third party payors, such as HMOs or MCOs. Also presented are articles which describe in detail the way that ERISA functions to provide a shield against medical negligence in tort to the insurance companies. Also included here are a couple of cases which describe both the present legal landscape regarding ERISA and also one case which represents a ray of hope that maybe the courts may be changing their opinion as to how the ERISA provisions which protect the insurance companies should be interpreted.

The articles in this bibliography do not just criticize the ERISA situation. They also provide suggestions for improving the chances of recovery for patients who have been wrongfully denied coverage or treatment by ERISA protected third party payors. These suggestions include a call for Congress to step in and change the ERISA statute sufficiently to allow the recovery of incidental damages when a court finds that a third party payor wrongfully denied a patient access to benefits under ERISA. Other suggestions call for Congress simply to allow lawsuits in tort at the state level against ERISA covered insurers when the lawsuit is specifically based upon the negligent denial of coverage by an insurer.

Other articles call for the courts simply to change the way they interpret ERISA so that the concept of enterprise liability can be successfully litigated in federal court. This would allow the insurer/third party payor to be accountable for when its own utilization review rules create a conflict of interest between the physician who is trying to treat a patient and keep his HMO masters happy at the same time. This conflict of interest is addressed by a number of articles, all of which agree that the increasing encroachment of the third-party payor into the medical decision-making process via the utilization review avenue should be curtailed. All the articles recognize it as a necessary evil. However, this encroachment should not impinge on physician autonomy to the point that the physician no longer feels that he/she can no longer make the best decisions for his patients.

Finally, there are some articles which argue that if all the players in the health care market place would be allowed to simply allocate their risks among themselves, the market would take care of itself. This would, it is argued, also account for the problems created by utilization review, and benefits denial etc. while, I do not personally think that concept would work due to the emotional capital that is always attached to health care, the articales are well reasoned and worth consideration.

The problems of third party payor intervention in the medical decision making process are deep rooted and complex. The articles presented here hopefully present a broad survey of the problem, that hopefully will enlighten and intrigue the reader. Hopefully they will also suggest some possible solutions to the problems.

The Following articles are included in this annotated bibliography:

The Class Action Suit As a Method Of Patient Empowerment In The Managed Care Setting,

Corcoran v. United Healthcare

ERISA Litigation and Physician Autonomy

Rethinking Malpractice Liability and ERISA Preemption in the Age of Managed Care

Groping For Reins: ERISA, HMO Malpractice, and Enterprise Liability

Health Care Choices: Private Contracts as Instruments of Health Reform

Herdrich v. Pegram

HMO Incentives t Doctors Get a Hearing with Some Doubts, Supreme Court Takes Up one Basis of Patient Suits

How Do Financial Incentives Affect Physicians Clinical Decision and the Financial Performance of Health Maintenance Organizations,

Liability for Managed Care Decisions: The Employee Retirement Income Security Act (ERISA) and the Uneven Playing Field

Notes: Medical Malpractice Law and Health Care Cost Containment: Lessons for Reformers from the Clash of Cultures

Paying the Piper: Third-Party Payor Liability for Medical Treatment Decisions

Redefining Quality by Reassigning Responsibility

Toward Controlled clinical Care Through Clinical Practice Guidelines: The Legal Liability for Developers and Issuers of Clinical Pathways

Megan L. Sheetz, Toward Controlled clinical Care Through Clinical Practice Guidelines: The Legal Liability for Developers and Issuers of Clinical Pathways, 63 Brooklyn Law Review 1341 (1997). 39 Pages

This article recognizes that one of the central methods used by the health care industry to try to reconcile the competing concerns of cost-containment and quality is the "clinical practice guideline" (CPG).(1) This article addresses the issue of whether the HMO's as developers and issuers of these guidelines should be held liable for their use, and if so, when and how. There are three theories of liability that are becoming increasingly viable as mechanisms for suing HMO's that develop and use CPGs as guides for the physicians within their organizations: vicarious liability, negligence (both simple and corporate) and contractual liability.(2). When HMOs force physicians, either as employees or independent contractors, to abide by the HMO's CPGs then liability should attach to the HMO. The author argues that by allowing this type of liability to attach to the HMOs it will discourage the HMO from usurping the physician's decision-making autonomy.(3).

The author also argues that when medically inappropriate decisions are made in the interest of controlling costs that a simple negligence theory would be effective tool to hold the HMO accountable.(4)

Finally, the author describes a new type of Malpractice defense that can be used by the physicians--the "HMO made me do it" defense.(5) This allows the physician who's decision making autonomy is impaired by the HMO's cost containment practice guidelines to shift the liability to the HMO when they can show that such a treatment decision is not made in good faith.(6)

The author agrees that there needs to be legal liability attaching to treatments decisions promulgated by HMOs. However, the author says a better solution is to improve the practice guidelines by establishing a national organization, subject to some sort of governing body, that would create, review implement and update the guidelines in order to insure that the guidelines are safe and effective.(7)

While many are clamoring that the HMOs/ MCOs should be held liable for treatment decisions, this author's point that maybe it is the organization that is designing the clinical practice guidelines that are being used by the HMO/MCO that should be held accountable is well taken and her suggestion that a national standard for these types of organizations be implemented is creative and unique. The difficulty will be getting the physicians to agree to be bound by those standards, since one of their chief complaints is the reductions in clinical autonomy that already exists under managed care.

Jack K. Kilcullen, Groping For Reins: ERISA, HMO Malpractice, and Enterprise Liability, 22 American Journal of Law and Medicine 7, (1996). 43 pages

This article takes the position that as the health care system is increasingly characterized by the HMO/physician partnership, where the physician is providing care as guided by the HMO. This partnership is essentially now a single entity and the physician should not be left holding the entire responsibility for difficulties in patient care, and enterprise liability should be increasingly used as "an essential component of any form of managed care liability."(8)

The author holds that the health care system can be described as a medical enterprise--an organization consisting of the physician, all of the support people like laboratories, nurses, administrative people etc, all of whom can perform jobs that can have harmful effects on the patient if done negligently. The patients have very little bargaining power to control the types of treatment they can receive. Thus, the existence of these two elements 1) the medical enterprise which can have profound effects on the patient; and 2) a patient who has limited bargaining power to affect his situation; establishes that the medical enterprise is in a good position to manage the delivery of health services to the patient in such a way as to distribute the risks.(9) This is why these organizations should share the risks of harm that are currently being born by the patients, especially in those areas where ERISA is preempting patient action against the managed care organizations in state courts.

The author argues that some form of enterprise liability should be incorporated into the ERISA. Enterprise liability would make the health care plan itself the entity responsible for errors made by it employees--be they providers, nurses, or administrative people such as utilization review personnel.(10) Doing this would close the loophole presently existing in ERISA which allows an HMO to effectively shield itself from liability for patient harm, while fairly distributing the risks among the providers of the care.(11)

This article is a soundly reasoned recognition that the new dynamic of the health care market has eliminated the totally autonomous physician, and has put in its place a large organization, of which the physician is but a cog in the machine. If the machine does damage, or malfunctions, the blame should fall on the machine, not the cog.

Kathy L. Cerminara, The Class Action Suit As a Method Of Patient Empowerment In The Managed Care Setting, 24 American Journal of Law and Medicine 7 (1998). 43 pages.

Citing the increasing reduction of patient empowerment in today's managed care climate the author puts forth the notion that for certain types of patient injuries, the class action lawsuit may provide a legitimate redress to their complaint.(12) Furthermore the author views the patients as being victims of the ERISA system which frequently serves to bar patients that have been adversely affected by an HMO utilization review decisions, either physically or financially, from recovering in tort in state court.(13) The author calls it a "zone of no liability" for the HMO's.

The author holds that where the adverse result of an HMO decision is purely one of clinical injury, that the class action lawsuit is probably not going to be an injured patients best line of attack.(14) However, when the injury is more one of a denial of access to a particular type of medical treatment,(15), or simply that as a result of cost containment activity the patient's HMO is not providing access to quality care,(16) the class action suit may well provide the clout that HMO patients need to redress their issues.

The author validly concludes that patients are lacking adequate empowerment in today's managed care environment and that the changes that have been brought about by the managed care environment and ERISA frequently leave the patient without adequate means of redress.(17)

The weapon of the class action suit, while not always the right tool, is still appropriate in certain situations and can be used to hold HMO's accountable for their actions. However, I feel the author was overly optimistic in her assessment of how successful class action lawsuits will be against HMO's. Most adverse results created by HMOs, whether clinical or financial, a very case specific, and probably would not be amenable to class action.

E. Haavi Morreim, Redefining Quality by Reassigning Responsibility, 20 American Journal of Law and Medicine 79, (1994) 25 pages

This article focused on the conflict between the need of the physician to deliver health care resources to the patient, the changing health care economy which forces the third party payer to restrict the unlimited delivery of resources, and the needs of the patient.

The article cited traditional American Tort law view that medical care should be uniformly delivered to all, without consideration of the patient's ability to pay. In discussing the legal responsibilities of the physician, the article stated (correctly, in my view) that physicians are often still expected to conform to the Tort standard of delivery of care, while being denied the resources necessary conform to that standard.(18)

The Physician should not be held to the same standard of liability when he/she is not able to command those resources.(19)

The article had an interesting, if somewhat cynical characterization of the Physician/HMO/patient conflict. It characterized it in terms of the physician needing to acquire the use of the resources of other in order to serve the needs of their patients. The author then reiterated his premise that the legal system should recognize that physicians cannot deliver resources that others are controlling.(20)

Therefore, it seems unreasonable to say that when a physician is forced to limit access to certain resources, or cannot provide extended access to existing resources because of financial considerations imposed upon the physician by a third party payor, the legal system should not be able to impose liability upon the physician, if the physician can show that he/she was adhering to the standard of care to the best of his/her ability.(21)

Peter D. Jacobsen and Scott D. Pomfret, ERISA Litigation and Physician Autonomy, Journal of the American Medical Association, February 16, 2000, Vol. 283, no.7, page 921. 5 pages

The authors state that at present, the ERISA essentially insulates HMOs and other managed care organizations from liability for their utilization review decisions and treatment protocols that the HMOs impose on plan physicians. In order to recover damages an injured patient thus has no choice but to go after the physician. The physician at present is held responsible for "cost containment provisions over which they have no control."(22)

This article argues strongly in favor of additional legislation at the Federal level which would either 1) eliminate the ERISA preemption which shields the managed care organizations from tort suits in state court or 2) expand the list of available remedies under ERISA.(23) Currently the remedy for patient who is seeking redress for denied care is limited to what the cost of that care would have been. The patient cannot recover for damages incurred as a result of that care.

The article operates under the assumption that the injection of the third party payor into the medical decision-making process interferes with the physician's professional autonomy, and that this interference is not a good thing. The desire of the authors is to see that autonomy restored to the physician without destroying the cost-containment goals of the managed care organizations. But, when the HMO creates adverse results for patients while in search of cost containment, the authors feel that the HMO, not the physician, should be left holding the bag.(24)

This is precisely the result I would like to see. I recognize that unlimited spending on every patient is not a feasible option. But physicians, if they are properly applying their professional knowledge and judgement, should not be exposed to liability when the MCO is able to reduce the effectiveness of the physician's decisions in order to save money.

This article is a wonderful primer on the general legal landscape of physician/HMO liability and ERISA preemption of tort suits. The author's (both attorneys) admit in their conclusion that they were operating on the assumption that a return of clinical autonomy to the physician is a desirable result. This is not necessarily a valid assumption, when one considers that complete clinical autonomy helped create the inflationary medical economy that existed prior to the advent of the MCO. However, this assumption does not fatally weaken their general conclusion that the ERISA preemption loophole needs to be closed by Congress.

Jan Crawford Greenberg, HMO Incentives t Doctors Get a Hearing with Some Doubts, Supreme Court Takes Up one Basis of Patient Suits, Chicago Tribune, Feb. 24, 2000 page 4, 2 pages.

This article reported on the Supreme Court's hearing of the appeal of Herdrich v. Pegram, 154 F.3d 362 (7th Cir. Ill. Aug 18, 1998). Herdrich sued her HMO for denial of coverage on a theory that when Physicians are responding to HMO incentives based on reduced referrals by physicians, that the physicians are essentially acting as plan managers, and as such they have a fiduciary duty to act in the beneficiary's best interests. Herdrich claimed that in denying her proper care the physician breached that duty, that the HMO should be liable for that breach. The Seventh circuit agreed with Herdrich.(25)

However, according to this newspaper account of the Supreme Court's hearing of the appeal, the Supreme Court is not so receptive to this theory.(26) If this article's impression of the Supreme Court's skepticism proves accurate, this does not bode well for the well being of patients under HMO plans, nor for the physicians who are trying to provide patient care while remaining in compliance with the HMO's cost control guidelines.

It again highlights the need for the national legislature to address the gaping loophole that exists in the ERISA legislation. When third party payers are denying care, or creating disincentives for the physicians to provide adequate care, the ERISA preemption clause is rendering the patient defenseless and without an adequate means of legal redress for his harm. If the Court will not protect the patient, then Congress should.

Herdrich v. Pegram, 154 F.3d 362 (7th Cir. Ill.)(Aug.18, 1998), Rehearing denied, 170 F.3d 683 (7th Cir. Mar. 8, 1999), Cert. granted 120 S.Ct. 10.(1999) 22 pages

This is an important case in which the 7th circuit stated that a woman who claims that her physician was acting as an fiduciary for her HMO when the physician delayed tests in order to comply with an incentive plan designed to reduce physician referrals. The woman claims that as a result of that delay, her appendix burst and she developed peritonitis.(27)

The theory is that since the physician was an agent of the HMO, under ERISA § 404(a)(1) she had a fiduciary duty to act in the best interests of the patient. The patient claimed that the physician was acting in the best interests of the health plan instead by delaying necessary tests until it could get them at a cheaper rate and in so doing breached her fiduciary duty to the patient.(28)

The court held that the woman could claim under ERISA that the physician, while acting as a plan manager for the HMO committed a breach of fiduciary duty to her, and as such the woman had standing to sue her HMO in Federal court under ERISA.(29)

The court also sent out a warning to health plans that create financial incentives such as bonuses to physicians who delay or withhold treatments as a cost saving measure. The court said that such incentives to physicians can become breaches to fiduciary duty on the part of the health plan.(30)

While I am glad to see this result, I am not convinced it will stand. The 7th circuit opinion regarding the breach of fiduciary duty seemed to rely as much on quotations from newspaper columnists such as Charles Krauthammer,(31) as it did on precedent from the law. The language of the opinion was scathing and provocative. The court spoke of Plan physicians casting a "jaundiced eye" toward year-end bonuses when making medical decisions for their patients.(32) The court devoted three pages of its opinion to discussing its (an by imputation the nation's) frustration with the way managed care organizations are controlling costs at the expense of patient care.(33) I have to wonder how much the court was simply catering to public opinion against HMO's when it made this opinion.

Clark C. Hivighurst, Health Care Choices: Private Contracts as Instruments of Health Reform, Chapter 8, pages 265-302, AEI Press, 1995.

A central premise of the author is that the financial and legal problems that exist in the health care system today could be addressed by setting up a system whereby all the interested parties, namely the payers, providers and consumers, have all their roles and responsibilities and liabilities expressly defined by a contract or a set of contracts.(34)

In Chapter eight, the author proposes a solution to the question of who is liable when health care is denied or limited by cost containment measures of a health benefit plan. He proposes that an integrating contract should set out in advance what should happen when adverse results occur. Such a contract should contain contractual limitations on damages,(35) and contractually stipulated methods for dispute resolution such as Alternate Dispute Resolution.(36)

This is basically an application of the contract principal of risk allocation among the parties. The parties agree in advance as to what the resolution methods, remedies and solutions will be in the event of an adverse result form a treatment decision.(37) These trade offs would need to be properly supported by consideration. These methods can allocate the liability questions when they occur by operation of contract, where the terms and conditions were agreed to by all the parties involved. If the system would work as supposed, it makes sense, but the great weakness here would be the risk of contracts of adhesion. Furthermore, this would also create the risk of a tiered medical system which insures that the wealthy get better care than do the poor. Still, the author's proposals are tightly reasoned and worthy of further consideration.

Jonathan J. Frankel, "Notes: Medical Malpractice Law and Health Care Cost Containment: Lessons for Reformers from the Clash of Cultures" 103 Yale Law Journal 1297. (1994) 34 pages.

The health care delivery system in our country has undergone a rising spiral of uncontained costs, which the various third party payor systems have attempted to bring under control through a variety of cost containment systems. Many of these systems center around some form of utilization review implemented by the third-party payers to control costs incurred by the physicians.

In that context, Mr. Franked argues that the traditional legal liability paradigms of malpractice and negligence no longer function in that legal/medical landscape.(38) A new medical practice culture has developed as a result of the utilization review methodology, and has eroded the edges of what has traditionally been medical authority or autonomy.(39) The traditional standard of medicine has been to treat the patient to achieve any benefit without regard to what it will cost,(40) while utilization review doctrines demand that the physician operate within a cost containment context.(41)

The author argues that many of the utilization review decision made by the third party payers are, in effect, medical treatment decisions.(42) When third party payer's treatment decisions restrict the available treatment choices available to a physician the malpractice liability of the physician should be extended to the third party payor in some form of enterprise liability theory.(43) The best aspect of the authors argument however is his acknowledgement that the system is probably not ready for pure enterprise liability, and he thus argues that the liability should be distributed between the payor and the physician in some apportioned manner, by first asking whether the care given to a patient was on par with the existing standard of care, and then asking who was responsible for the decision regarding what treatment was delivered.(44)

The apportionment argument is the what makes the author's proposal attractive, for it takes into account the increasingly blended nature of the system, and affords some protection for the doctor if the insurance company is the major contributor to a bad decision, and protects the insurance company when it is the doctor who was at fault. This is a better suggestion, theoretically at least, than a pure enterprise liability proposal, which would possibly lead to increased premiums for consumers.

David D.Griner, Paying the Piper: Third-Party Payor Liability for Medical Treatment Decisions, 25 Georgia Law Review 861 (1991). 61 Pages.

While this article is nine years old as of this writing, it functionally describes one of the major issues in the health care market today, namely the impact of utilization review upon the way health care treatment decisions are made.

The author stresses that the shift in payment methods form the traditional fee--for -service methodology to cost-controlling methods like utilization review by the third-party payors have increased the involvement of those payers in the medical decision making process decision making process, creating the potential for conflict between the physician and the payor.(45) This ultimately begins to threaten the autonomy of the physician's clinical decision making capacity.(46)

The author describes a variety of theories under which lawsuits have attempted to hold third-party payors responsible for the results of their decisions under theories of vicarious liability(47) and corporate negligence(48) but ultimately holds forth the concept that simply attacking the third party payors under the traditional elements of negligence would be an effective tool for holding a third party payor responsible when its negligent decisions made via prospective utilization review create patient harm. Thus the author feels that third party payors should be held independently negligent when their decisions harm a patient.(49) He argues that the threat of liability on independent negligence grounds would be an effective tool to insure that third-party payors act responsibly when making prospective utilization review treatment decisions.(50)

The author concludes, correctly in my opinion, that the increase in utilization review as a cost control mechanism has injected the third-party payor into the decision making process at the potential expense of the patient. An effective way to control this would be to hold the payor liable for its decisions when they are made in a negligent fashion.(51) The author acknowledged that ERISA preemption could create problems for this theory(52) and nine years later, he has proven to be correct. The ERISA loophole effectively shields those third party payors from vulnerability to tort lawsuits brought in state court and still severely limits what recovery can be obtained in federal court. His call for legislative action to correct the loophole(53) has thus far still fallen on deaf ears.

Suzanne M. Grosso, Features: Rethinking Malpractice Liability and ERISA Preemption in the Age of Managed Care, 9 Stanford Law and Policy Review 433, (1998) 18 pages.

Here is yet another law review article calling for the judiciary to narrow its interpretation of the ERISA preemption clause in order to stop the third party payors from using it as a shield against liability for their cost containment measures which result in improper denials of care.(54) Specifically, this article calls for the narrowing of the judicial interpretation of the preemption clause in order to allow the managed care organizations to be reached under the theory of enterprise liability.(55)

She begins her argument by recognizing that the concepts of cost control and the physician's traditional approach of delivering care without regard to its cost are naturally in conflict.(56) Yet, the physician is the one on the hook for malpractice if he ignores quality of care issues.(57) She then recognizes that cost containment is necessary in today's health care arena, and therefore, the duty of care element of malpractice should be adjusted to incorporate the cost containment measures that are imposed upon the healthcare practitioner.(58) This is a just approach to a seemingly intractable problem. She states that responsibility personal negligence of the physician should still remain upon the physician, but that when it is the MCO's negligent implementation of its cost containment policy that creates patient harm, that the MCO should bear the consequences.(59)

She argues that enterprise liability would promote efficiency by encouraging sound management of MCO cost containment polices.(60) It would return to the physician the autonomy to practice medicine in the way that they were trained.(61) By implementing enterprise liability it would reduce the number of times when adverse patient results a created due to physicians attempting to comply with cost containment measure that were not in the best interests of the patient, thus reducing extra health care expenses resulting from correcting the mistake.(62)

Recognizing that enterprise liability cannot happen without the court's narrowing of the ERISA preemption interpretation or action by Congress to change the ERISA procedures, the author devotes several pages of her article to an extremely clear on cogent explanation of how the ERISA preemption clause and the Judicial system's interpretation of it work together to negate the concept of enterprise liability suits against the MCOs.(63) In the course of this discussion she notes that Eros's regulation of health care plans was meant to be "wholly procedural(64) and that although congress intended ERISA to preempt state laws to the extent they relate to any employee benefit plan(65) it should not preempt substantive state law to the extent of shielding MCO's for state Tort claims. She makes a policy argument that such shielding provides a disincentive for the MCO's to improve quality and efficiency of their product to a consumer of health care.(66) She then argues the negligent tort type claims against HMOs should not be preempted because they are concerned with quality control issues that only would indirectly affect the economics of employee benefit plans and as such do not fall under the 'relating to' language of ERISA § 1132.(67) She further argues that ERISA preemption language in §1132 was aimed at the MCO functions that are administrative and managerial in nature. Therefore, Congress could not have intended that it should apply to protect negligent acts by MCOs.(68) However, it seems that Congress' continued silence on the matter might suggest otherwise.

The author's calls for some sort of change or corrective action regarding ERISA preemption of state law claims deserve to be heard and deserve a response. The continued ability of the third party payors to hide behind the ERISA shield created by Congress and the courts needs to be curtailed. Unfortunately neither Congress nor the courts seem to be prepared to listen.

Wendy K. Mariner, Liability for Managed Care Decisions: The Employee Retirement Income Security Act (ERISA) and the Uneven Playing Field, 86 American Journal of Public Health 863. (1996) 6 pages.

The uneven playing field referenced in the title of this excellent article is the field upon which patients who are insured by health care plans which do not come under the federal regulation of ERISA can bring suit against their health care plan when that plan makes negligent decisions regarding the patients medical care. Patients whose insurance coverage is provided by ERISA governed plans do not have that option.(69)

This assessment is followed by a discussion of how ERISA preemption works and some examples from case law. She specifically notes that the Federal courts historically have interpreted the ERISA preemption provision very broadly(70) and that this broad interpretation has operated to preempt a broad variety of lawsuits.(71).

She does note however, that some courts are beginning to believe that ERISA may not preempt a claim against ERISA governed insurers based on vicarious liability for the individual negligence of its physicians.(72) She discusses some individual cases where the courts began to focus on the quality of the medical care that was being provided under the plan.(73) It would seem, judging from the author's assessment of these cases that there is some hope that a change in the legal landscape may be taking place, with 3 of the 12 circuit courts of appeals looking favorably upon the concept of HMO vicariously liability for the malpractice of the their employees and agents.(74) But, she still notes, and rightly so, that this really does nothing for when the MCO itself is the source of the negligent act.(75) In that instance preemption is still the likely result.

The author cleverly observes that the business practices of the HMOs are changing more rapidly than the jurisprudence can seem to move to catch up to them.(76) She observes that as HMOs continue to update the menu of services that they offer to subscribers, they increasingly are controlling the quality and type of medical care being offered. She argues that they should be held liable when they are negligent in the provision of or control of this care.(77)

She finally makes two suggestions to correct this "uneven playing field."(78) First, she suggests that congress amend ERISA either to 1) permit state claims of negligence under ERISA governed plans(79) or 2) to allow the types of recovery (that are presently limited to the cost of the benefit that was originally denied) to be expanded to allow additional types of recovery such as lost wages or, non-economic damages etc.(80) This would allow the Federal government to retain its desired oversight of the employee benefit plans while still addressing a gross inequity that presently exists. Second she suggests that courts should abandon the current philosophy that all decisions mad by HMOs which affect the cost of patient care are benefit determinations.(81).

Alan L. Hillman, Mark V. Pauly, and Joseph J. Kersten, How Do Financial Incentives Affect Physicians Clinical Decision and the Financial Performance of Health Maintenance Organizations, 321 New England Journal of Medicine 86 (1989) 6 pages.

This is a study which examined whether the financial incentives to reduce costs which are placed upon physicians by managed care organizations have any effect on the treatment decisions of the physician.(82) Specifically the study looked at primary care physicians. It found, generally, physicians in group model HMO's hospitalized their patients less,(83) and interestingly it was noted that the physicians in the for-profit HMO's hospitalized their patient less than physicians in the not for profit HMOs.(84) If the primary car physician is placed at risk for the number or cost of out-patient tests, it was noted that those tests were performed less and instead the patients were bought back into the primary care physician's office more frequently.(85) It also noted that when physicians were place at financial risk for making more referrals than the HMO was willing to pay for (by holding the physician responsible for deficits in a general referral fund) that the physicians tended to demonstrate a demonstrate a decrease in scheduled visits to primary care physicians overall.(86).

One of reasons HMO financial incentives to physicians are a concern to the general public is the fear that they will create a disincentive to the physician to provide an appropriate level of care if that level of care will negatively affect that physicians financial situation. This study was included in this bibliography, despite its age, because it demonstrated that those incentives do affect the way physicians make medical decisions.

When such financial incentive, such as incentives to decrease referrals, result in a conflict of interest between the needs of the patient and the financial interest of the physician, it is almost a certainty that at some point, a patient is going to lose out and a negative medical result will be the outcome.

Corcoran v. United Healthcare, 965 F.2d 1321 (5th Cir. 1992).

This case is included this Bibliography because it is the lead case regarding ERISA preemption of state law medical malpractice claims. The case centers around the fact that a woman and her newborn child were sent home from the hospital, against the recommendation of the attending physician because the ERISA governed health care plan refused to certify they requested extra time in the hospital. While the child was at home it went into distress and died.(87) The Corcoran's sued the health plan in state court for negligence.(88) but ultimately lost at the Fifth circuit federal appeals court. The court ruled that "even though the health care plan was in a sense giving medical advise(89) that advice was in the context of making a determination regarding "the availability of benefits under the plan.(90) Therefore, such an action was preempted by ERISA.

Since that time the courts in general have found just about all malpractice tort claims brought in state court against ERISA covered plans to be preempted. There always seems to be a way to bring the actions of the insurer within the cozy confines of the "availability of benefits" language and thus within the preemption clause.

This result is harsh. It has resulted in a nearly impenetrable shield protecting the ERISA covered insurance plans. Congress can hardly have intended such a result, and should act to correct the problem.


1. Megan L. Sheetz, Toward Controlled clinical Care Through Clinical Practice Guidelines: The Legal Liability for Developers and Issuers of Clinical Pathways, 63 Brook. L. Rev. 1341, 1341 (1997).

2. Id. at 1366.

3. Id. at 1370-1371.

4. Id. at 1373-1375.

5. Id. at 1376-1377.

6. Id.

7. Id. at 1378-1380.

8. Jack K. Kilcullen, Groping For Reins: ERISA, HMO Malpractice, and Enterprise Liability, 22 Am. J. of L. and Med. 7,10 (1996).

9. Id. at 15.

10. Id. at 48.

11. Id. at 49-50.

12. Kathy L. Cerminara, The Class Action Suit As a Method Of Patient Empowerment In The Managed Care Setting, 24 Am. J. of L. and Med. 7, 7-8 (1998).

13. Id. at 25-27.

14. Id. at 51-52.

15. Id. at 53-54.

16. Id. at 52-53.

17. Id. at 58.

18. E. Haavi Morreim, Redefining Quality by Reassigning Responsibility, 20 Am. J. of L. and Med. 79, 85-86. (1994).

19. Id. at 86-87.

20. Id. at 89.

21. Id. at 90-91.

22. Peter D. Jacobsen and Scott D. Pomfret, ERISA Litigation and Physician Autonomy, 283 J. of the Am. Med. Assoc. 921, 925. (February 16, 2000).

23. Id. at 925.

24. Id. at 925-926.

25. Jan Crawford Greenberg, HMO Incentives t Doctors Get a Hearing with Some Doubts, Supreme Court Takes Up one Basis of Patient Suits, Chicago Tribune, (Feb. 24, 2000), page 4

26. Id.

27. Herdrich v. Pegram, 154 F.3d 362, 373-374 (7th Cir. Ill.)(Aug.18, 1998), Rehearing denied, 170 F.3d 683 (7th Cir. Mar. 8, 1999), Cert. granted 120 S.Ct. 10.(1999)

28. Id. at 374.

29. Id. at 380.

30. Id. at 373.

31. Id. at 376.

32. Id. at 372.

33. Id. at 375-378.

34. Clark C. Hivighurst, Health Care Choices: Private Contracts as Instruments of Health Reform, 166, 163. AEI Press, (1995).

35. Id. at 277.

36. Id. at 272.

37. Id. at 290.

38. Jonathan J. Frankel, "Notes: Medical Malpractice Law and Health Care Cost Containment: Lessons for Reformers from the Clash of Cultures" 103 Yale L. J. 1297, 1303-1304. (1994)

39.Id. at 1314.

40.Id. at 1316.

41. Id. at 1317.

42. Id. at 1320.

43. Id. at 1324.

44. Id.

45. David D.Griner, Paying the Piper: Third-Party Payor Liability for Medical Treatment Decisions, 25 Georgia L. Rev. 861, 883 (1991).

46. Id at 885.

47. Id at 891-893.

48. Id at 895-897.

49. Id at 897-906.

50. Id at 908.

51. Id at 921.

52. Id at 922.

53. Id.

54. Suzanne M. Grosso, Features: Rethinking Malpractice Liability and ERISA Preemption in the Age of Managed Care, 9 Stan. L. and Pol'y Rev. 433, 433 (1998).

55. Id.

56. Id.

57. Id. at 436.

58. Id.

59. Id. at 436-437.

60. Id. at 437

61. Id.

62. Id. at 438.

63. Id. at 440-444.

64. Id. at 441.

65. Id.

66. Id.

67. Id. at 446.

68. Id. at 448.

69. Wendy K. Mariner, Liability for Managed Care Decisions: The Employee Retirement Income Security Act (ERISA) and the Uneven Playing Field, 86 Am. J. of Pub. Health 863, 864 (1996).

70. Id.

71. Id.

72. Id. at 865.

73. Id. at 865-866.

74. Id. at 866.

75. Id.

76. Id. at 867.

77. Id.

78. Id. at 867-868.

79. Id. at 867.

80. Id.

81. Id.

82. Alan L. Hillman, Mark V. Pauly, and Joseph J. Kersten, How Do Financial Incentives Affect Physicians Clinical Decision and the Financial Performance of Health Maintenance Organizations, 321 New Eng. J. of Med. 86, 86. (1989).

83. Id. at 90.

84. Id.

85. Id.

86. Id.

87. Corcoran v. United Healthcare, 965 F.2d 1321, 1324 (5th Cir. 1992)

88. Id.

89. Id. at 1331.

90. Id.

Date Added to Web: June 07, 2000


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Professor Vernellia R. Randall
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The University of Dayton School of Law
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