NCPA - National Center for Policy Analysis

Patients Already Have The Right To Sue HMOs

June 19, 2001

The Senate this week begins debating competing versions of the "Patients' Bill of Rights," which would allow participants in Health Maintenance Organizations (HMOs) and other managed care plans to sue when they are denied care claimed to be medically necessary. Yet according Greg Scandlen, an NCPA senior fellow, the Senate is debating an issue the U.S. Supreme Court has settled.

Under the Employee Retirement Income Security Act (ERISA) of 1974, employer-sponsored health plans are regulated by the federal government, rather than the states. However, last year the Supreme Court ruled in Pegram v. Herdrich that employer-sponsored health plans are subject to malpractice laws and may be sued in state court when they exercise medical judgment about the necessity of a proposed treatment. Disputes about a health plan's contracts are still exempt from state action, says Scandlen, but patients may sue in federal court.

As a spokeswoman for the American Trial Lawyers Association, Sharon J. Arkin, testified before Congress in April, "The courts have carved out an exception and held that malpractice claims against an HMO are not preempted by ERISA."

Thus HMOs are being sued right and left.

  • Partly due to the litigation explosion, HMOs are no longer relying on "gatekeepers" or "capitated" payments to physicians to control costs.
  • They are dropping utilization review and preadmission certification requirements.
  • In many cases, they have stopped being HMOs at all, becoming instead "point-of-service" plans or "preferred provider organizations."

The removal of "budget constraints" is one of the factors driving up health-care costs again. After several years of premium increases lower than the inflation rate, premiums are rising again at three to four times the overall cost of living. Small employers are seeing rate hikes as high as 30 percent!

Source: Greg Scandlen (NCPA senior fellow), "'Patients' Rights' Misses Today's Issues," New York Post, June 16, 2001.