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SUPREME COURT SKEPTICAL OF PATIENT’S CLAIMED RIGHT TO SUE FOR BREACH OF FIDUCIARY DUTY
On February 23, 2000. the Supreme Court of the United States heard oral arguments in Lori Pegram, M.D., et. al. v. Cynthia Herdrich, While it is difficult to predict how the Court will rule based on the questions posed at oral argument, I was left with the impression that the Court was unwilling to hold that establishing financial incentives to reduce health care costs could constitute a breach of fiduciary duty under ERISA. I believe the Court will reverse the decision of The U.S. Court of Appeals for the Seventh Circuit sustaining the claim when it renders its opinion later this year. Carter G. Phillips argued on behalf of Carle Clinic Association, the HMO seeking reversal of the Seventh Circuit decision, which held that a health plan could be liable for breach of its fiduciary duty to Plan members for its decision to establish a financial incentive system that rewarded participating doctors with bonuses for holding down the cost of care. Mr. Phillips conceded there had been an error in judgment on the part of the treating physician in deciding to defer an ultrasound test that would have disclosed the patient had appendicitis. He pointed out, however, that the patient already recovered $35,000 damages for medical malpractice, and wondered what further remedy could be afforded to her in this case. Mr. Phillips argued that the plaintiff’s claim should fail because ERISA does not permit challenges to a health plan’s decision about the need for medical treatment. Claims for damages allegedly resulting from the failure to provide treatment, he argued, are best left to resolution under tort law principles in the state courts. There is nothing to suggest that Congress intended to confer the right to sue for this under ERISA. Noting the prevalence of the use of financial incentives to reduce health care costs in the industry, Mr. Phillips asserted that if his client violated ERISA, "then all managed care does as well". Justice Breyer agreed, saying he finds it hard to believe that Congress wanted to gut its own 1973 HMO legislation when it passed ERISA the very next year. James Ginzkey represented the plaintiff. Justice Scalia asked whether his real complaint was that ERISA preempted state law claims. Mr. Ginzkey said no, he was suing under ERISA for a breach of fiduciary duty. One Justice remarked that he wasn’t quite sure why Mr. Ginzkey was there either, and the gallery erupted in laughter. When pressed by the Court to describe just what was the breach of fiduciary duty in this case, he replied "the mismanagement of funds". According to Mr. Ginzkey, the HMO doctors treating the patients also owned the Plan; they decided what procedures would be performed, what claims would be covered, and then shared in a bonus pool accumulated from the savings. Under these circumstances, he argued, the adoption of a financial incentive system that rewards doctors for denying care to patients is a breach the fiduciary duty owed to the Plan’s beneficiaries. For a remedy, plaintiff wants all the funds paid to reward these doctors returned the Plan for the benefit of its members. The Court questioned whether or not certain cost control measures aren’t necessary to discharge the Plan managers’ fiduciary duty to conserve its resources for the benefit all members. Justice Ginsberg noted that what is in the best interests of a particular claimant might not be in the best interest of other members of the Plan. Mr. Ginzkey said that he was not asking the Court to "outlaw financial incentives" altogether, but felt that those which operate to exert "undue influence" on health care decisions should be disallowed. Mr. Ginzkey cited a 1997 survey of California doctors reporting that a certain percentage of doctors felt they were unduly influenced by financial rewards in making health care decisions for patients. The Court was not receptive to the "undue influence"standard for determining whether a breach of fiduciary duty exists. Chief Justice Rehnquist called it "extremely vague" and Justice Sandra Day O’Connor said that the federal courts would embark on a "slippery slope" if they had to decide whether certain financial incentives go too far. In all, it appears the Court is very reluctant to recognize a claim under ERISA for breach of fiduciary duty based on a decision to implement incentives to control costs, even under the circumstances presented in this case. A favorable decision would foreclose one avenue typically employed in litigation in an effort to avoid ERISA preemption. |
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