HMO’S
CAN’T BE SUED
FOR BREACH
OF FIDUCIARY DUTY UNDER ERISA
-
PEGRAM
V. HERDRICH
Patients who have health coverage as a benefit of their employment can only sue their health plans for wrongfully denying claims under a federal law called ERISA which limits recovery to the cost of the treatment. In an attempt to recover additional damages for emotional distress and punitive damages, patients and their attorneys have explored alternative legal theories of liability against health plans. One of those theories argued that a wrongful denial of claims was a breach of a plan's fiduciary duty owed to the patient under ERISA. However, in Pegram
v. Herdrich, the U.S. Supreme Court held that health plans cannot be sued for breach of fiduciary duty under ERISA.
In Pegram, a HMO physician instructed her patient to wait eight days for an ultrasound test at an HMO hospital rather than go immediately to a local hospital for the test. The patient then suffered a ruptured appendix and sued the HMO and her physician. A jury later found the physician liable for malpractice in failing to recommend an immediate ultrasound test.
Because the patient's health coverage was a benefit of her husband's employment, her health plan was regulated by ERISA. The court of appeal allowed the patient to sue her HMO for breach of fiduciary duty under ERISA because the HMO and its physicians could increase profits by denying claims such as wrongfully referring patients to HMO hospitals for tests rather than local hospitals even in emergencies.
The Supreme Court held that HMO's could not be sued for breach of fiduciary duty under ERISA. The Court noted that HMO's are like other risk-bearing organizations and must take steps to control costs such as providing financial incentives for physicians to provide more efficient medical care. It also noted that the check on the financial interest of physicians in an HMO was the physician's professional obligation to provide care with a reasonable degree of skill and judgment. The Court held that the wisdom of rationing of health care through HMO's in this manner should be left to Congress rather than the courts.
The Court held that HMO's are not true fiduciaries because a true fiduciary must pay all claims while HMO's must make coverage determinations, despite the fact that such determinations usually include decisions about treatment.
- July 2000
