High Court Rules for HMOs in Patient Suits

The Supreme Court (search) said Monday that patients who claim their HMOs wouldn't pay for needed medical care cannot sue for big malpractice (search) damages, an issue at the heart of the long debate over efficiency versus service in managed health care.

The court was unanimous in saying that two HMO (search) patients in Texas cannot pursue big malpractice or negligence cases against their insurers, as they claimed a Texas patient protection law allowed them to do.

The case involves an issue that has stymied Congress, which has tried and failed to pass national patients' rights legislation. Some states have passed their own patient protection laws in the meantime, but the scope of protection varies.

• Click here to read the Supreme Court ruling (FindLaw)

The biggest question unresolved until Monday was whether patients could seek hefty damage awards in state courts, or whether they are limited only to federal courts, as insurers claimed.

The choice is significant, because state court juries can often be generous to sympathetic victims. Insurers have claimed that patients could only go to federal court, and then only to recover the value of whatever benefit the HMO denied.

The ruling weakens the Texas patient protection law and those of other states.

The court based its ruling on the language of a 30-year-old federal law, originally meant to protect employee pensions and other benefits, but now applied to the managed care industry.

The law, the Employee Retirement Income Security Act (search) or ERISA, forces the HMO patients at issue in the case to sue only in federal courts, Justice Clarence Thomas wrote for the court.

The insurance industry had argued that ERISA trumps state patient protection laws or other state laws that allow medical negligence suits in local courts, and lower courts were divided on the issue.

The case concerns a gray area of medicine and insurance, in which decisions about what treatment to pursue and what coverage to offer are mingled. The situation arises frequently in managed care, where doctors belong to a closed network of providers overseen by administrators who may not be doctors but who nonetheless decide what the company will pay for.