Pa. Finds No ERISA Preemption for HMO

However, it is unlikely to be the last word on the subject, with an apparently contradictory ruling coming from the 3rd Circuit just last week, and a likely appeal to the Supreme Court, which remanded the case to Pennsylvania only recently.

The decision now clears the way for the successors in interest to Haverford Community Hospital to prove that US Healthcare’s medical director was negligent in his medical handling of the case. 

But experts are expecting the HMO to take the decision back to the US Supreme Court, which remanded the decision to Pennsylvania in the wake of a decision handed down last year.

Beginnings

In the original Pappas case, the plaintiff had sued his doctor and Haverford Hospital for medical malpractice after a 1991 incident.

For about three hours, Pappas lay waiting to be treated while a Haverford emergency room doctor quibbled with his insurer over where the HMO would allow him to be sent for further treatment. 

The doctors finally opted for a hospital that was out of HMO US Healthcare’s network.  US Healthcare offered several options, including the one that eventually admitted Pappas. 

Unfortunately by then the prolonged compression of his spine resulted in permanent quadriplegia.

Pappas has since settled his suit against Haverford Community Hospital for an undisclosed amount.

Court “Trials”

US Healthcare moved for summary judgment on the grounds of ERISA preemption, a motion granted by the trial court.  However, the Superior Court reversed, finding that ERISA did not pre-empt the state law claims.

US Healthcare unsuccessfully appealed to the Supreme Court of Pennsylvania in 1998 to determine whether the third-party claims in Pappas fall within the scope of state actions pre-empted by ERISA. 

Failing there, the HMO turned to the US Supreme Court, which granted cert. in June 2000, but remanded the case to Pennsylvania’s Supreme Court for consideration in light of the US Supreme Court’s decision in Pegram v. Herdich.

The Pegram Legacy

In Pegram, the plaintiff-patient sued her HMO for waiting eight days to administer an ultrasound at an in-network facility. 

While waiting for an in-house facility, the plaintiff’s appendix ruptured.  She sued alleging that the program rewarded doctors for limiting care, and was an inherent breach of the fiduciary duties imposed by ERISA. 

The US Supreme Court ruled that treatment decisions made by an HMO, acting through its physicians, are not fiduciary acts.  However, the high court also set out principles that acknowledged the dual role of administrator and healthcare provider, with duties on either side, and some that are “mixed.” 

And Back Again

In reviewing the case again (Pappas II) decision, the Pennsylvania court found that the decision as to the location of treatment was one of those “mixed” decisions, that involved both eligibility determination and a treatment decision. 

This court found that “mixed” decisions are properly determined under state medical malpractice law.

The single dissenting justice was troubled about the ability to effectively and consistently draw a line between the two roles, as well as the likely impact on the financial viability of managed care providers.

Just last week the 3rd US Circuit Court of Appeals affirmed the ERISA preemption in Pryzbowski v. US Healthcare, dealing with a similar fact pattern.

– Nevin Adams