The U.S. Supreme Court Nov. 3 agreed to hear two consolidated cases on whether the Employee Retirement Income Security Act preempts state law claims by health maintenance organization participants who alleged their HMOs negligently failed to pay for their medical care (Aetna Health Inc. v. Davila, U.S., No. 02-1845, cert. granted 11/3/03; CIGNA HealthCare of Texas Inc. v. Calad, U.S., No. 03-83, cert. granted 11/3/03).

The consolidated cases will give the Supreme Court yet another chance to analyze the breadth of ERISA preemption and the impact the federal statute has on state law medical malpractice and negligence claims.

The high court touched on malpractice claims against HMOs in its 2000 ruling in Pegram v. Herdrich,530 U.S. 211, 24 EBC 1641 (2000), where the court held that mixed eligibility and treatment decisions made by HMOs are not subject to ERISA because such decisions are not fiduciary acts.

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The Pegram decision did not address ERISA preemption, although many federal courts have relied on dicta in Pegram when deciding whether ERISA preempts medical malpractice and negligence claims against HMOs.

Since Pegram, the Supreme Court twice has taken up cases addressing ERISA preemption of state HMO laws. In Rush Prudential HMO Inc. v. Moran, 536 U.S. 355, 27 EBC 2921 (2002), a sharply divided court found that ERISA did not preempt an Illinois law that called for independent medical reviews of decisions made by HMOs.

Most recently, in Kentucky Ass'n of Health Plans Inc. v. Miller, 123 S. Ct. 1471, 30 EBC 1129 (2003), the Supreme Court in a unanimous decision found that ERISA did not preempt Kentucky's "any willing provider" law.

Against the backdrop of Pegram, Rush Prudential, and Kentucky Association, the Supreme Court now will decide whether ERISA restricts HMO participants' ability to sue their HMOs for negligence. If ERISA preempts such claims, the remedies available to plaintiffs will be quite limited because ERISA does not permit punitive damages or other remedies often available under state law.

The Consolidated Cases.

The appeal comes from the U.S. Court of Appeals for the Fifth Circuit's decision in Roark v. Humana Inc.,307 F.3d 298, 28 EBC 2612 (5th Cir. 2002). The Roark decision was a consolidation of four individual lawsuits filed by HMO participants against their respective HMOs.

Gwen Roark, Ruby R. Calad, Walter Patrick Thorn, and Juan Davila all sued their respective HMOs, asserting they violated Texas law by denying or delaying their receipt of health benefits.

Roark, who was insured by Humana Inc., ultimately had her leg amputated after she was bitten by a spider. Roark's physician initially recommended that she use a vacuum-assisted closure device to help her spider bite wound heal.

Although Humana covered Roark's in-home nursing care and the closure device for some time, it later cancelled home nursing and agreed to pay only for visits to a local hospital's wound center. Roark eventually developed a serious infection that required doctors to amputate her leg. Roark and her husband sued Humana in a state court, alleging Humana violated the Texas Deceptive Trade Practices Act and the Texas Insurance Code.

Humana removed the case to federal court, arguing that the claims were preempted by ERISA Section 514. The U.S. District Court for the Northern District of Texas agreed and dismissed the claims (26 EBC 1727).

Calad, who was a beneficiary of a health plan offered by CIGNA HealthCare of Texas Inc., underwent a hysterectomy. CIGNA authorized coverage for only a one-day hospital stay despite the recommendation of Calad's doctor that she stay in the hospital longer.

When Calad suffered complications that caused her to return to the hospital a few days after her release, she sued CIGNA in a state court under the Texas Health Care Liability Act. CIGNA removed the case to federal court as preempted by ERISA. As it had done in Roark's case, the district court dismissed Calad's claims as preempted by ERISA (26 EBC 1721).

Walter Thorn, who received Aetna U.S. Healthcare insurance through his state employer, injured his hand in a car accident. Thorn had his ring finger amputated, but a few hours before the surgery Aetna refused to authorize its surgeon to operate. Although the surgery was later approved, Thorn alleged that Aetna's delay caused scarring that diminished his manual mobility.

Thorn joined Calad in her lawsuit, asserting that Aetna violated the Texas Health Care Liability Act. Aetna claimed the lawsuit was preempted by ERISA but, unlike its decision regarding Calad, the district court found that ERISA did not apply to Thorn's lawsuit because he was a participant in a government plan exempt from ERISA (26 EBC 1721).

Juan Davila was insured through Aetna. His physician prescribed the drug Vioxx for Davila's arthritis pain. Aetna required that Davila enter its "step program," whereby Davila would try a less expensive drug before trying Vioxx.

Three weeks after he started taking the less expensive drug, Davila was rushed to the emergency room where he was diagnosed with a bleeding ulcer. Davila sued Aetna, claiming it violated the Texas Health Care Liability Act. The district court held that the claim was preempted by ERISA.

The Fifth Circuit's Decision.

As to the claims of Calad and Davila, the Fifth Circuit found that the HMOs were not acting as plan fiduciaries when they denied medical treatment and thus ERISA Section 502(a)(2) did not completely preempt their Texas Health Care Liability Act claims. Section 502(a)(2) allows plan participants or beneficiaries to sue for "appropriate relief" for fiduciary breach.

In so ruling, the court relied on Pegram, where the Supreme Court found that mixed eligibility and treatment decisions made by HMOs are not subject to Section 502(a)(2) because such decisions are not fiduciary acts. "It seems beyond dispute that Calad's and Davila's claims involve such mixed decisions," the Fifth Circuit said.

Next addressing CIGNA's appeal of the district court's decision as to Thorn's claim, the appeals court agreed that ERISA did not preempt Thorn's claim because he was covered under a government plan.

But unlike the decision reached as to Calad and Davila, the Fifth Circuit found that ERISA did in fact preempt Roark's claims. First, the court found that Roark asserted a breach of contract claim that fell under Section 502(a)(1)(B). The court went on to note that, unlike in Calad and Davila's case, the lower court dismissed Roark's case under Section 514, which states that ERISA preempts all state laws that relate to an employee benefit plan.

Roark, HMOs Seek Review.

Roark filed a petition with the Supreme Court challenging the Fifth Circuit's decision. The petition was dismissed in September after Roark and Humana each agreed not to seek further review of the Fifth Circuit's ruling.

Aetna and CIGNA also filed separate petitions asking the high court to review the Fifth Circuit's rulings with regard to Calad and Davila. CIGNA argued in its petition for review that the Supreme Court should take up the case because the Fifth Circuit's ruling conflicted with the Supreme Court's ERISA preemption rulings as well as decisions rendered by other federal appeals courts.

Aetna argued in its separate petition that review of the Fifth Circuit's decision was "sorely needed to resolve the deepening divide" over ERISA Section 502(a)'s preemptive effect.

In their brief opposing Supreme Court review, Calad and Davila argued that "[d]espite Aetna's and CIGNA's dramatic pronouncements, [the Fifth Circuit's] holding is not a radical departure from this Court's precedent; it does not conflict with controlling Supreme Court authority; and it does not conflict with the views of any other circuit on this precise issue."

Robert N. Eccles of O'Melveny & Myers in Washington, D.C., is the counsel of record for CIGNA. Miguel A. Estrada of Gibson, Dunn & Crutcher in Washington, D.C., is the counsel of record for Aetna. George Parker Young of Fort Worth, Texas, is the counsel of record for Davila and Calad.

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Summaries of selected cases denied Supreme Court review appear in the Supreme Court section of this report.

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