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Gannett News Service
Feb 24, 2000
by Betsy Neus
Supreme Court Hears HMO CaseWASHINGTON -- Supreme Court justices listened skeptically Wednesday
as attorneys for a woman who won a malpractice claim against her
doctor argued that the bonuses given by the woman's HMO to its
doctors harmed the care that its patients received.
Attorney James Ginzkey argued that the lawsuit filed by Cynthia
Herdrich, who didn't get tests needed in time to diagnose an inflamed
appendix that later burst and hospitalized her, would only affect
her HMO. But the justices seemed to think the case could drag
them into a much larger role in determining how HMOs should operate.
"Why should the courts get into this slippery slope problem
when Congress has built a scheme to deal with it?" asked
Justice Sandra O'Connor. "Why should the courts get involved
in this messy business?"
The case of Pegram vs. Herdrich revolves around the issue of whether
Herdrich's managed care plan, CarleCare HMO of Urbana, Ill., put
its financial interests ahead of her health. Her attorneys claim
that bonuses paid to doctors who were also owners of the plan
created a conflict of interest -- technically, a breach of the
fiduciary duty given to the plan under the federal law governing
The bonuses were a reward for keeping costs down, a primary goal
of managed care plans, and attorneys for the plan argued that
calling the bonuses a conflict of interest could lead to the dismantling
of other cost-containment measures used by managed care plans.
If Herdrich and her attorneys win, said HMO attorney Carter Phillips,
"then managed care as we know it will be in violation of
The case of Herdrich, formerly of Bloomington, Ill., and now of
Loveland, Colo., is timely. Congress is about to begin work on
the final stages of legislation that may expand a patient's right
to sue his HMO, and the issue of how to punish managed care plans
that do wrong by their patients has been a hot one for the last
The managed care industry's trade association is convinced that
a decision in favor of Herdrich will crush the managed care system,
but other observers believe that the court could also rule in
a way that applies only to her case and her HMO, having no effect
on the system at large.
Oddly, if Herdrich loses her case, it could be an advantage for
HMO patients, said Jamie Court, co-founder of Consumers for Quality
Care, an HMO watchdog group. "It's a novel way of thinking
about the scope of federal law," he said. "If the court
rejects (her argument), in the future, it may let state law prevail."
State law, unlike federal law, allows patients to sue for emotional
and punitive damages when suing doctors. Herdrich has already
won a $ 35,000 malpractice suit in state court.
If she wins the Supreme Court case, she receives no financial
windfall. Ginzkey said that he wanted to see CarleCare bonus money
go back to the plan for patient care. A ruling from the high court
is expected this summer and could send the case back to lower
courts for trial.
"I would just like to hear the justices say that as a result
of the incentive clauses, that that hindered the care I received,"
said Herdrich, who attended the arguments. She no longer belongs
to an HMO.
The justices were most concerned about the fine line being drawn
regarding an HMO's fiduciary duty. Generally, federal law considers
plan administration -- such as determining benefits, and approving
and denying claims -- to be part of a fiduciary's role. Medical
decisions are generally considered separate, although the line
becomes less clear when doctors also act as administrators.
Even those who say that CarleCare was not acting as a fiduciary
-- its own lawyers, as well as the government's -- admit it's
hard to find the boundaries sometimes.
"So you concede that some incentive plans are OK, and the
government concedes that some are not," Justice Steven Breyer
said to Ginzkey.
"It's a difficult line to draw, but the fact that it's difficult
to draw doesn't mean you don't," Ginzkey replied.
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