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Supreme Court Wary Of HMO Suit

The Supreme Court Wednesday appeared unlikely to let people sue their health maintenance organizations for offering doctors financial bonuses to keep costs down.

In any HMO the interest "is to hold down health costs because unless they do so the HMO is going to go out of business," Justice David H. Souter said during arguments in a case brought by a woman who blames her ruptured appendix on inadequate care.

Such financial incentives are "the scheme that Congress has authorized," added Justice Sandra Day O'Connor. "Why should the courts get involved in this messy business" of deciding whether some financial incentives go too far?

James P. Ginzkey, the Illinois woman's lawyer, said he was not asking the court to outlaw all physician incentives. But lawsuits should be allowed, he said, when such financial bonuses reach "the level of undue influence so that it affects patient care."

Carter G. Phillips, the lawyer for the organization sued by Ginzkey's client, argued that the Carle Clinic Association was a "plain vanilla" type of HMO and that allowing a lawsuit against it would make all such organizations vulnerable.

"It is no exaggeration to suggest that the future of medical care in its delivery and its regulations are implicated" by this case, Phillips said. "If Carle's setup violates (federal law) then all managed care does as well."

Phillips added that patients have "perfectly valid remedies" in state court and that an expansion of the right to sue under federal law would undercut those remedies.

Cynthia Herdrich of Bloomington, Ill., collected $35,000 in damages under state medical malpractice law.

But she is challenging the common HMO practice of paying bonuses to doctors who manage to cut costs.

In a lower court, her lawyers won the right to sue her HMO because a delayed diagnosis made her burst appendix more severe.

Justice Stephen G. Breyer said he found it "hard to believe" that when Congress passed a 1974 law governing employee benefits, it "wanted to gut its own HMO legislation," passed a year earlier, by allowing lawsuits over financial incentives used by HMOs.

Breyer asked Ginzkey how courts should decide which financial incentives would be allowed and which would not. Ginzkey said it may have to be decided on a case-by-case basis.

A decision in the case is expected by July.

The case stakes out one of many fronts in the war over managed care. Other lawsuits against HMOs accuse them of violating a racketeering law by concealing financial incentives provided to doctors to hold down treatment costs.

Some states have decided to let patients sue HMOs, and Congress is considering patients' rights legislation that could set new standards for managed care and might allow patients to sue their HMOs.

At issue in today's case is how HMOs are affected by a federal law that governs employee benefit and pensions, the Employee Retirement Income Security Act. The law requires employee-benefit plan managers to act solely in beneficiaries' best interest.

Herdrich's lawsuit said her appendix ruptured in 1992 because her doctor at Carle Clinic delayed diagnostic tests for eight days so the tests could be performed at a facility owned by the HMO. She was awarded $35,000 for medical malpractice under state law.

Herdrich also alleged that Carle Clinic, which is owned by its doctors, violated its duty to act in beneficiaries' interests by giving doctors financial rewards to minimize costs.

A federal appeals court dismissed that claim, but the 7th U.S. Circuit Court of Appeals said the issue could go to trial.

Carle Clinic argues that it cannot be sued under the federal law because its doctors do not act as plan managers. It cannot violate ERISA to operate a health plan through a design that uses cost-containment measures, the health plan argues.

CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report

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