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HMO Incentives Not Grounds for Suit U.S. Supreme Court Rules Unanimously

MANAGED CARE July 2000. © MediMedia USA
News and Commentary

HMO Incentives Not Grounds for Suit U.S. Supreme Court Rules Unanimously

MANAGED CARE July 2000. ©2000 MediMedia USA

Use of financial incentives in HMOs' contracts with physicians may be losing favor, but it's not about to be declared outright illegal any time soon. The U.S. Supreme Court ruled unanimously that patients maynot sue a health plan just because it offers physicians incentives intended to limit health care services.

Cynthia Herdrich of Bloomington, Ill., sued her health plan, the Carle Clinic Association, after her appendix ruptured. Herdrich claimed that her physician delayed medical care so tests could be performed at a facility owned by the HMO. She had already won a $35,000 malpractice settlement.

Herdrich challenged the plan's exemption from liability under the federal Employee Retirement Income Security Act of 1974, claiming that by rewarding physicians for limiting care, the plan violated its fiduciary duty to act in the best interests of patients. The U.S. Seventh Circuit Court of Appeals agreed and sent the case to the Supreme Court, where arguments were heard Feb. 23.

The forcefulness of the justices' ruling would suggest that ERISA may be down but is certainly not out — to say nothing of the viability of financial incentives in HMOs' physician contracts.

"Since the provision of profit is what makes the HMO a proprietary organization, [this] remedy, in effect, would be nothing less than elimination of the for-profit HMO," Justice David Souter wrote.

The Seventh Circuit had ruled that rewards in and of themselves do not constitute a violation of fiduciary responsibility, but such violations could occur when physicians withhold care "for the sole purpose of increasing their bonuses."

Predictably, health insurance trade associations lauded the ruling. Even the AMA agreed that ERISA is no venue for arguing legal remedies to treatment decisions. Instead, the association said, patients-rights legislation would be a more appropriate vehicle for holding health plans accountable to members.

Don't look for Congress to take up that challenge, though. Last month, on a 51–48 vote, the Senate killed a House bipartisan patients-rights bill passed last October. The issue isn't likely to be addressed again until a new Congress convenes next year.

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