Court's HMO Ruling Cuts Both Ways

The U.S. Supreme Court ruled Monday HMOs cannot be sued in federal court for giving bonuses to doctors who hold down costs at the expense of patient care. But if HMOs are celebrating, CBS News Correspondent Jim Stewart reports, it could be premature.

At first blush, it seemed like a total victory for HMOs; even their stock value went up on the news.

It was a unanimous decision, with Justice David Souter writing that "....no HMO organization could survive without some incentive connecting physician reward with treatment rationing."

HMOs responded loudly, by calling the decision a defeat for trial lawyers and a victory for managed care.

"The Supreme Court has indicated very clearly that this is not the place to resolve decisions about the shape of the health care system," said Karen Ignagni of the American Association of Health Plans.

But if the justices made it clear there's no room in federal court for these types of suits, they made it just as plain that patients have other options at the state level.

It all started with a lawsuit by Cynthia Herdrich. Herdrich said her appendix ruptured because her doctor waited eight days to conduct a test at a facility owned by the HMO. In short, she said, he put profit above her care. She'd already won a malpractice judgement against the doctor, but wanted to sue the HMO under a federal law as well for rewarding doctors who cut costs.

Such suits are not what Congress had it mind when it set up HMOs, the court said, but concluded that health care, in any event, is ".....a subject of traditional state regulation."

And that, say some experts....will come back to haunt the plans.

"In the last part of the opinion, the Supreme Court opens the door to a whole new wave of state lawsuits against the industry for medical malpractice," says Professor Gregg Bloche, of Georgetown University Law School.

In other words, HMOs may have lost as much as they won in this case. While giving them immunity from federal lawsuits, the court just as clearly threw blood on the water at the state level, where juries have rarely been kind to the health care industry.