Supreme Court rules in favor of HMOs

August 1, 2000

Pharmaceutical Representative

The U. S. Supreme Court decided unanimously that health maintenance organizations cannot be sued for providing physicians with financial incentives to keep costs down. The case, Herdrich v. Pegram, involved a woman who complained of abdominal pain only to be told that she would have to wait eight days for an ultrasound. Her appendix subsequently ruptured, causing peritonitis. Upon recovery, she sued her HMO in state court, claiming that they had violated their fiduciary duty under the Employee Retirement Income Security Act.

The U. S. Supreme Court decided unanimously that health maintenance organizations cannot be sued for providing physicians with financial incentives to keep costs down. The case, Herdrich v. Pegram, involved a woman who complained of abdominal pain only to be told that she would have to wait eight days for an ultrasound. Her appendix subsequently ruptured, causing peritonitis. Upon recovery, she sued her HMO in state court, claiming that they had violated their fiduciary duty under the Employee Retirement Income Security Act.

The Supreme Court held that the plaintiff failed to state an ERISA claim, but left HMOs vulnerable to lawsuits in the state courts.

Industry applauds decision

Karen Igniani, president of the American Association of Health Plans, called the decision a "resounding victory for maintaining affordable care" and an "equally resounding defeat for suit-happy trial lawyers."

"The Court's decision today validates the principle that the legal system is not the place to make healthcare work," said Igniani. "Rather, we should all work together to make sure that patients have a way to quickly and fairly resolve disputes when they disagree with health plan coverage decisions. We will continue to advocate strongly for a patient's right to an outside, independent review."

Added Chip Kahn, president of the Health Insurance Association of America, "The Herdrich decision makes clear that a health plan's use of incentive payments and other devices to encourage affordable healthcare is not a violation of the Employee Retirement Income Security Act. In so ruling, the high court dealt a body blow against one of the key tenets of several baseless class-action suits launched recently against many health plans. It is our hope that the trial bar will heed the message of Herdrich and recognize that consumers are ill-served by expensive litigation that would drive up coverage costs and dramatically increase the number of uninsured Americans." PR

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