Court shields HMOs' tactics; Justices protect cost-cutting care, incentives to doctors; 'There must be rationing'; Unanimous ruling shifts attention to congressional action


WASHINGTON - Ruling that federal law gives HMOs a clear right to cut costs by providing less expensive treatment, a unanimous Supreme Court yesterday barred federal court lawsuits against managed-care doctors and organizations when they ration medical services.

Even if an HMO's doctors get paid a bonus or a share of the savings for lower-cost treatment, the court said, patients have no right under federal health benefits law to sue for damages for what they consider inadequate care.

"No HMO organization could survive without some incentive connecting physician reward with treatment rationing," Justice David H. Souter wrote for the court. Whatever the form a particular HMO takes, he said, "there must be rationing and inducement to ration."

The very idea behind the creation of HMOs, in Congress' mind, was to allow doctors and their medical groups to find ways to cut the costs of medical care, Souter added.

Patients treated by HMO doctors had hoped to have a broad legal remedy in federal court for cost-saving but inadequate care, instead of having to rely upon differing state malpractice laws. The ruling took away the federal option - unless Congress now changes federal law - while leaving available state law remedies.

Sen. Edward M. Kennedy, a Massachusetts Democrat and a leader in the effort to pass new federal legislation, commented on the ruling: "No other industry in America has immunity from liability for its mistakes, and HMOs don't deserve immunity either."

Sen. Don Nickles, an Oklahoma Republican who is leading the opposition in the Senate to new legal remedies against HMOs, said the kind of lawsuits barred by the Supreme Court "would effectively eliminate an entire system of health care coverage." He said "the best remedy for denials of care is to give patients access to doctors who are independent of health plans."

The court's decision barred a federal lawsuit by a Bloomington, Ill., woman, Cynthia Herdrich, against her doctor and an HMO because the woman's appendix ruptured after she was told to wait eight days for a procedure.

Her doctor ordered the wait so that a facility associated with the HMO in another city could perform an ultrasound examination. Her doctor was eligible for year-end bonuses for helping to hold down costs.

Ruling against Herdrich, the court said it was acting to head off "wholesale attacks on existing HMOs" that would result in an "upheaval" in the managed care industry. The courts, he said, are not equipped to make choices about "the appropriate level of expenditure for health care." That is for legislatures, Souter added.

"If Congress wishes to restrict its approval of HMO practice to certain preferred forms, it may choose to do so," the court declared.

The decision turned the spotlight back to Congress, where the House and Senate have stalled in attempting to draft a federal "patients' bill of rights" that would allow lawsuits against managed-care providers.

House and Senate negotiators have been struggling for nearly nine months to work out differences between two sharply differing versions of managed-care legislation.

The House measure would provide patients with the broadest rights, including the right to sue their health plan. The Senate measure would set up an external review procees to handle patient appeals, but stops short of allowing insurance companies to be sued.

Senate Democrats, frustrated by the lack of progress, forced a vote last week on the House version of the bill, which they prefer. It lost on a 51-48 tally, leaving prospects doubtful for compromise this year.

Senate Republican leader Trent Lott, however, was surprisingly optimistic yesterday, predicting that "within 30 days we will have a bill and it will be a good one."

Ron Pollack, executive director of Families USA, an advocacy group for health care consumers, said the court's decision was "a very timely reminder that we need federal patients' rights legislation."

The decision, he said, "underscores the fact that consumers can do little to hold their health plans accountable for decisions that wrongfully deny or delay needed care."

The decision was hailed by medical insurers. This "is a major victory for consumers who want and need affordable health coverage," said Chip Kahn, president of the Health Insurance Association of America.

"The Supreme Court unanimously recognizes that health plans must be able to encourage efficient, high-quality health care in order to provide the affordable health coverage that consumers demand," Kahn added.

While cutting back sharply on lawsuits under federal benefit law, the decision appeared to have widened the opportunity for patients to file malpractice lawsuits under state law to claim harm from rationed care.

The court indicated that federal health benefits law -- the 1974 Employee Retirement Income Security Act, or ERISA - would not displace state malpractice cases. Federal laws can take over an entire field, if Congress chooses to occupy the entire field, ousting similar lawsuits at the state level.

M. Gregg Bloche, a Georgetown University professor of law and public health, said the ruling gave "a strong signal that the court will allow treatment decisions to be the subject of state malpractice law," with patients free to sue HMOs under state law because HMOs would not be shielded by federal law.

Herdrich, the woman involved in yesterday's decision, while denied a chance to go forward on her federal claims against the doctor and HMO, had been allowed earlier to proceed with a state claim. She won $35,000 in damages.

Bloche, commenting on another aspect of the court decision, said it marked "the first time that any national governmental authority has come out openly and said HMOs ration care, that that is what they do."

Souter's opinion, in fact, amounted to a full-scale defense not only of rationing care, but of providing doctors with strong financial incentives for paring the scope of medical services.

He said it would be artificial to try to separate the decisions that doctors make for purely medical reasons and the decisions they make in order to try to save the HMO money.

Decisions about eligibility for coverage of a medical procedure "cannot be untangled from physicians' judgments about reasonable medical treatment," the ruling said.

So, the court concluded, decisions that are a mix of the two - coverage and treatment - are insulated from patients' lawsuits based upon the ERISA law.

Death-row inmate denied

In a separate ruling yesterday, the court rejected by a 5-4 vote a Virginia death-row inmate's claim that he was wrongly denied an opportunity to inform the jury that, if given a life sentence instead of the death penalty, he would never get out of prison.

Bobby Lee Ramdass of Fairfax, Va., had argued that he would never be eligible for parole under state law because he had been convicted three times. But the court found that his third conviction was not final at the time he tried to use that argument with the jury.

Although the decision had the potential of being a major ruling on tactics for trying to head off a death sentence, the ruling was limited to the Virginia man's case only. Justice Sandra Day O'Connor, who supplied a deciding fifth vote for the majority, wanted it confined to the specific facts involving Ramdass. The eight other justices split evenly on a more general discussion of the constitutional question.

Sun staff writer Karen Hosler contributed to this article.

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