ERISA and Davila and Calad

There is hardly an area of law more complex than the interpretation of the Employee Retirement Income Security Act of 1974 (ERISA). But complexity alone doesn't make necessarily for interesting reading. What has taken place in the 32 years since the passage of this statute is a way of interpreting the remedies provision of ERISA (referred to as sec. 502(a)(1)(B)) that precludes individuals who sue their HMO's for withholding treatments--some of them very expensive treatments--prescribed by their physicians from recovering consequential or punitive damages (i.e., "tortlike damages") for denial of treatments. Well, to take this out of the ethereal realms, let's look at the factual particulars of the Davila case (542 US 200 (2004)).

Davila's Facts

The case turned on the experiences of two people: Juan Davila and Ruby Calad. The former was insured through his employer by Aetna; the latter was insured through her husband's health insurance plan with CIGNA. Davila had arthritis. His treating physician recommended that he take Vioxx for it. Aetna's review process said that Aetna would only pay for Vioxx for patients who had first tried and failed to benefit from two less expensive drugs. As a result, Davila took Naprosyn, an alternative which had a higher risk of intestinal bleeding for those who took it. He indeed suffered from internal bleeding, was rushed to the emergency room, was on death's door until he could receive 7 units of blood and then remained there in critical condition for five days.

Ruby Calad, covered through her husband's policy with CIGNA, had a hysterectomy. CIGNA's policy specified a one-day hospital stay for a hysterectomy. Her physician recommended a longer stay. CIGNA refused to authorize such a stay. So, rather than pay for it out of her own pocket (if she was able), Calad left the hospital, suffered complications and had to return to the emergency room for treatment.

Both of these cases arose in TX, whose Legislature passed a 1997 patients' bill of rights, one of whose provisions stated that managed care entities (which treated both Davila and Calad) had a duty under TX law to "exercise ordinary care when making health care treatment decisions." Failure to exercise this ordinary care made these entities responsible for damages proximately cause by failure to adhere to that duty.

Armed with the TX statute, both Davila and Calad sued in TX state court, alleging, inter alia, that their managed care providers were negligent in providing care to their respective insured's. The conduct of the HMO's in these instances was increasingly typical of allegations made by patients who felt ignored and maltreated by these entities. That is, with the "managed care" revolution in the 1970s and 1980s, in order to try to cut costs, hospital stays were limited, and medical procedures were subject to internal utilization review. It is ironic to me that the greatest increases in health care premiums have come in the years when patients have argued convincingly that coverage has been whittled away most severely. In any case, Davila and Calad argued that their HMO's had, by denying them medically-preferred services, neglected their duty to them and therefore would be subject to the remedies (consequential and perhaps punitive damages) under the Texas statute (Texas Health Care Liability Act).

Sounds like they probably had a good case, don't you think? When your medical provider denies payment for services that your physican recommends, and then a cheaper alternative recommended by the HMO is pursued, which leads to significant medical problems for you, don't you think you have a good case for HMO negligence? Well, the rest of this essay explains why Davila and Calad not only lost their case but were not even able, according to the Supreme Court, to bring their case under TX law. Why, you ask? Well, here is the explanation.

Enter ERISA

The Court held that Davila's and Calad's claims were entirely preempted by the remedy provision of ERISA. This remedy provision, as has been pointed out by numerous courts and scholars, only permits a person to sue to get treatment that s/he is entitled to under his/her plan; it doesn't permit claims for alleged impropriety of denial of claims. In so doing this, ERISA has been construed in a way that allows HMO's to act according to whatever their utilization committees recommend, without having to honor other suggestions of independent committees or outside reviewers, even if state law requires it.

I think I need to say a word about ERISA to explain why this facially rather absurd result should be the law of the land. When ERISA was passed in 1974, its nearly complete focus was on the security of pension plans. It was passed because thousands of people had lost their pensions in the days preceding ERISA because the company simply could raid the pension plan, put onerous requirements on employees for vesting periods (e.g., some plans had vesting periods of 10 years, with many employees then being fired after 9 1/2 years of employment, with no pension benefits at all) or underfund the pension plans. ERISA was meant to provide a uniform federal remedy to protect pension plans when an employer decided to have such a pension plan. It didn't require employers to have such a plan; if they did, however, ERISA would apply.

But then, in the debates over the approval of ERISA, it was suggested (I don't know by whom) that ERISA also should apply to health insurance plans provided by employers. This wasn't considered controversial at the time, because the only model for providing health insurance benefits in 1974 was where the individual would go to the doctor, get medical service, have the insurance company billed and then have the insurer pay the physician. The remedy provision of ERISA, which allowed only limited remedies (i.e., to enforce the terms of the health insurance contract), was thought to be sufficient. After all, insurers didn't make treatment decisions. Your physician did. The insurance company simply paid for the treatments recommended by the physican.

But, in the late 1970s, the world changed in the American health care delivery system. The next essay discusses this change briefly, and then relates it back to the Davila case.

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