Aetna Health Inc., et al. v. Davila, Juan / Cigna HealthCare of Texas, Inc. v. Calad, Ruby, et al. (06/21/2004)

Questions presented: Whether the Employee Retirement Income Security Act of 1974, 29 U.S.C. ?? 1001 et seq. ("ERISA"), as construed by the Supreme Court in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987), and its progeny, completely preempts state-law claims by ERISA plan participants or beneficiaries who assert that a managed care company tortiously "failed to cover" (i.e., pay for) medical care?

BY AYESHA TEJPAR, MEDILL NEWS SERVICE

A doctor writes a prescription, but the medication isnt covered by health insurance. Its a situation all too common for millions of Americans. But when the denied medication and treatment turned out to be life altering, it became a situation some Texas patients found worth fighting for.

Juan Davila, of North Texas, received insurance coverage through his employers health plan. Davila, who was a post-polio patient, suffered from diabetes and arthritis. In April 2000, his physician prescribed Vioxx for his arthritis pain. Studies show that Vioxx has lower instances of internal bleeding and ulcerations compared to similar drugs. But Davilas insurance provider, Aetna Health Inc., told Davila to first try two less expensive drugs. Aetna would only cover Vioxx if the other alternatives did not work.

Three weeks after he started taking a less expensive drug, Davila was rushed to the emergency room after he reportedly suffered bleeding ulcers that almost caused a heart attack. Doctors told him he was hours away from dying from internal bleeding and he now will no longer be able to take any pain medication that is absorbed through the stomach.

Ruby Calad, from Houston, underwent surgery for a hysterectomy. She was insured by CIGNA HealthCare of Texas, Inc. through her husbands employer. CIGNA would pay for only one days stay in the hospital, even though Calads physician recommended longer care. Calad suffered complications, forcing her to return to the emergency room a few days after being released.

Both Davila and Calad sued their respective health insurance providers in state court under the Texas Liability Act, which allows patients to sue HMOs for damages if there is a failure to use "ordinary care" to make health care treatment decisions.

Under the Texas law, health care treatment decisions are defined as decisions "made when medical services are actually provided by the health care plan and which affect the quality of the diagnosis, care or treatment provided to the plans insureds or enrollees."

The HMOs moved to remove both the cases and two others to federal court, arguing that because the health coverage existed under each of their employer's ERISA plans, the cases arose under ERISA, a federal law.

ERISA, the Employee Retirement Income Security Act of 1974, was enacted by Congress to make uniform federal standard for pension plans, but the statute covers most employee benefit plans, including health insurance. The statute states, "the provisions of [ERISA] shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."

Though Davila, Calad and the two others moved to have their cases returned to state court, the U.S. District Court for the Northern District of Texas denied the motions and dismissed the cases, citing the ERISA preemption, which makes HMOs under ERISA plans beyond state enforcement.

Reviewing each of the cases individually, but putting them through the same analysis, a unanimous 5th Circuit Court of Appeals reversed as to both Davila and Calad, holding that the cases did not fall under ERISA, and therefore that they could be heard in state heard.

The court distinguished between the HMOs as fiduciaries of the health plans and as involved directly in the decisions regarding medical care.

It took guidance from the 2000 Supreme Court opinion in Pegram v. Herdrich. In Pegram, Herdrich, sued her doctor for medical malpractice and her HMO, claiming it encouraged and rewarded physicians for limiting medical care. Though the Court ruled in Pegram that a patient could not hold an HMO liable for its physicians malpractice, it did not address whether a patient could hold his or her HMO directly liable for its own medical malpractice.

In Pegram, though, the Court characterized an HMO's role as falling into three types of decisions: eligibility decisions, treatment decisions, and mixed eligibility and treatment decisions. Eligibility decisions are simple "yes-or-no" questions about whether a certain procedure is covered. Treatment decisions are choices about how to treat the patients medical conditions. In Pegram, the Court concluded Herdrichs case involved the more complicated mixed decision "whether one treatment option is so superior and needed so promptly that a decision to proceed would meet the medical necessity requirement." The Court decided in that case that claims regarding "mixed eligibility and treatment decisions" do not fall within ERISA.

"It seems beyond dispute that Calads and Davilas claims involve such mixed decisions," wrote Judge Jerry E. Smith. "CIGNA agrees its plan covers hospital stays after a hysterectomy, and Aetna agrees its plan includes a range of arthritis drugs, so we are not presented with a simple yes-or-no coverage questions. Instead, we are presented with the type of "when and how" medical necessity questions whether Calad was provided enough treatment (enough days in the hospital) and whether Davila was prescribed the correct treatment (naprosyn instead of Vioxx) that fall within Pegrams rule."

And in Calad's and Davila's cases, it was the HMOs, not the doctors, they allege made the erroneous medical decisions.

In seeking review by the U.S. Supreme Court, the HMOs argued that the 5th Circuit's opinion would undercut their ability to provide cost-efficient uniform treatment.

"Cost-efficiency necessarily involves the institution of cost-management policies like the one at issue in this case, which holds certain more expensive prescription medications in reserve and gives more readily accessible medications a chance to work," Aetna argued in its petition to the Court.

Aetna advised the Court that Congress designed the ERISA preemption to eliminate the inevitable disputes concerning benefit coverage.

Since Pegram, the Court twice has taken up cases addressing ERISA preemption of state HMO laws; holding in Rush Prudential HMO Inc. v. Moran that ERISA did not preempt an Illinois law that called for independent medical reviews of decisions made by HMOs, and in Kentucky Association of Health Plans Inc. v. Miller that ERISA did not preempt Kentucky's "any willing provider" law.

In their brief opposing Supreme Court review, Calad and Davila argued that the 5th Circuit 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."

Nonetheless, on Nov. 3, 2003, the Court accepted review in both cases and consolidated them for an hour of oral argument. The Court also allowed the American Association of Health Care Plans, Inc., to submit an amicus brief in the case.