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HMO and Managed Care Law

Brief - Supreme Court gives ERISA preemption to plans making mixed decisions - Aetna Health Inc. v. Davila, Aetna Health Inc. v. Davila, --- U.S. ----, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004)

This case was just released. This brief will be expanded but is being provided as breaking news.

Pegram established that persons making decisions about plan benefits that involve both medical information about the patient and information about the benefits - mixed decisions - could be sued for medical malpractice. (For a detailed analysis of this, see: Health Care's "Thirty Years War": The Origins and Dissolution of Managed Care by Thomas R. McLean & Edward P. Richards cite as 60 N.Y.U. Ann. Surv. Am. L. 283 (2004))

In the Davila decision, the United States Supreme Court, in a unanimous decision, limited Pegram its very special facts - the treating physician in Pegram was also a principle in the health plan. In Davila, the Court found that unless the treating physician him or herself is making the decision, or someone under the treating physician's control, then Pegram does not apply. Thus, as happened in the cases decided in Davila, if a plan gatekeeper makes the decisions, then you cannot sue the gatekeeper for medical malpractice.

This completely turns Pegram on its head, and provides nearly complete protection for the plan. You can still sue, in federal court, for the value of the benefit denied. This is a meaningful remedy if you pay for the benefit and want to be reimbursed, but not if you forgo the benefit and are injured. The court made a point that in each case the plaintiff did not contest or appeal the decision of the gatekeeper, but it did not indicate if that would have changed the outcome.

Before Pegram, the best way for states to deal with this problem was licensing and practice requirements for gatekeepers. (For a detailed analysis of this approach, see: Edward P. Richards, "The Police Power and the Regulation of Medical Practice: A Historical Review and Guide for Medical Licensing Board Regulation of Physicians in ERISA-Qualified Managed Care Organizations", 8 Annals of Health Law 201 (1999))

The court implored Congress to fix ERISA, saying the combination its broad reach and limited remedies is unfair. Unfortunately, it is unlikely that this will happen because the claimed affected on medical insurance costs. Pegram did not create a lot of new litigation and the court could have let it stand. It is as logical a reading of ERISA as is this case. It is now up to the states to control the power of gatekeepers, something it is fully empowered to do. The difficult balancing act for the states will be controlling the power of the gatekeepers without undermining their quality control function. In cases such as Rush, the disputed treatment was unproven and unnecessary, and properly denied.


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