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July 2004 - AETNA V. DAVILA |
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On June 21, 2004, the Supreme Court issued a unanimous opinion in the case of Aetna v. Davila, holding that the Employee Retirement Income Security Act (ERISA) completely pre-empts state statutes allowing individuals to sue HMOs for injuries that may have been caused by the HMO’s treatment coverage decisions. The two individuals named in the consolidated case, Davila and Calad, sued their respective HMOs, Aetna and CIGNA, in state court for failure to exercise ordinary care in making coverage decisions. Both brought suit under the Texas Health Care Liability Act. Davila sued because Aetna refused to pay for the Vioxx his physician prescribed for his arthritis pain. Instead, he took Naprosyn which Aetna approved. As a result of taking Naprosyn, Davila allegedly suffered an intestinal reaction causing hospitalization and extensive treatment. Calad, a beneficiary of CIGNA, underwent complicated hysterectomy surgery for which her doctor ordered a hospital stay of longer than the usual one day. CIGNA’s discharge nurse ruled that Calad did not meet the plan’s criteria for an extended stay and denied coverage for any extra days. Calad left the hospital after one day, suffered post-surgical complications, and had to be re-hospitalized and undergo further treatment. Aetna and CIGNA successfully removed the cases to federal district court arguing ERISA pre-emption of the state law claims. Davila’s and Calad’s motions to remand to state court were denied, and the district court dismissed their complaints with prejudice for their refusal to alter their complaints to assert claims under ERISA. Davila and Calad appealed to the Fifth Circuit which agreed with them that their claims that their HMOs failed to exercise ordinary care under state law did fall outside of ERISA and, therefore, could be brought in state court. In contrast, the Supreme Court determined that Davila’s and Calad’s claims fell squarely within the purview of ERISA and, thus, were completely pre-empted by the federal law. The Court found that the basis of the dispute was essentially a breach of an ERISA-regulated contract and that the plaintiffs’ potential remedies existed only under ERISA. Namely, they could have sought reimbursement after paying for the prescribed treatment themselves or could have sought a preliminary injunction. In its decision, the Court refused to entertain the notion of exceptions to ERISA’s broad pre-emption power. The Court distinguished its decision in Pegram v. Hendrich on the basis that this case did not involve a mixed treatment-eligibility decision. The Court’s decision leaves only the remedies allowed under ERISA for patients who sue their HMOs based on coverage decisions, which are limited. It seems that under ERISA the extent of monetary damages available is limited to the value of services denied by an HMO, and that large monetary damages for injured patients are precluded. The implications of this are discussed below. Employees Individuals who have been injured as a result of denials of coverage by their HMOs are now foreclosed from bringing suit for anything more than actual damages or equitable relief. This may increase the likelihood of improper coverage decisions since HMOs will no longer be as fearful of lawsuits challenging their determinations. Some benefits to insured employees may accrue as a result of the decision in Davila. Since the threat of litigation with large damage awards against HMOs has been removed, it is possible that the price of premiums will be reduced and/or the number of benefits may increase based on the same premium. Employers Employers who offer HMOs to their employees will also benefit if HMOs reduce the prices of their coverage or offer more coverage for the same price in response to this decision. Employers will not only save on costs, but may be able to offer more comprehensive benefits packages to attract talented employees. Health Care Providers As a group, the consequences to health care providers of this decision are probably the most severe. The incentive for an HMO to decide a close coverage decision in favor of an individual is considerably diminished, which will only bring about more difficult ethical decisions for health care providers. These coverage battles will most likely be played out over high-cost and experimental treatments, where HMOs may be inclined to deny coverage initially and wait for the issue to be litigated. The inability to collect anything other than reimbursement of actual costs may also prove to be a disincentive to an individual patient to pursue a suit. Health care providers may find themselves providing more and more uncompensated care to the extent that they are unable to resist pressure to provide treatments that an HMO may not cover. The exact repercussions of the decision, both positive and negative, will only become evident with the passage of time. At this point, it seems that the only clear winners from this decision are the HMOs, who now benefit from the security that they cannot be sued for large monetary damages. Many hope that Congress will pass legislation to clarify and expand the remedies available under ERISA. Until then, the Court’s decision in Aetna v. Davila will stand. |