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H.M.O.'s Using Federal Law To Deflect Malpractice Suits

Health maintenance organizations, which care for more than 60 million people, are telling courts across the country that they cannot be held responsible for medical malpractice in cases involving patients who receive care through employer-sponsored health plans.

The H.M.O.'s argue that they are protected against malpractice claims and lawsuits by a 1974 Federal law that regulates employee benefits.

But Labor Secretary Robert B. Reich, who enforces the Federal law, called that argument absurd, saying it would deprive many consumers of the right to sue for injuries caused by the negligence of their H.M.O.'s.

In the last three years, the Federal Government has filed friend-of-the court briefs disagreeing with H.M.O.'s in a half-dozen cases. In an interview, Mr. Reich said the Administration was considering legislative proposals to clarify the rights of the workers and dependents who receive care through H.M.O.'s.

''The situation has to be corrected,'' Mr. Reich said. ''If the courts won't do it, Congress must.''

The issue is enormously important for consumers. Unlike insurance companies that underwrite fee-for-service plans, H.M.O.'s can exert vast influence over a patient's care by setting guidelines for treatment or limiting access to medical specialists. Yet in many cases, H.M.O.'s contend that they cannot be held legally accountable for the quality of care because they do not make medical decisions.

The issue has considerable effects on doctors as well. In many cases, the patients who sue H.M.O.'s also sue their doctors. Carol L. O'Brien, a lawyer at the American Medical Association, said, ''H.M.O.'s are shifting virtually all of the risk of patient care to physicians, even though the H.M.O.'s can force doctors to change their clinical decisions by threatening to terminate their contracts.''

Courts have split on the issue, depending on the details of each case. From recent rulings, it appears that patients have a better chance of winning when they allege substandard care rather than an outright denial of tests, treatments and other health plan benefits. But the distinction is sometimes obscure.

When H.M.O.'s market themselves to the public, they often promise to provide high-quality care by choosing the best doctors and hospitals and monitoring their work to guarantee that it meets the highest standards. Many advertise that they have been accredited by an independent group like the National Committee for Quality Assurance. But in court, the same H.M.O.'s insist that they are not legally responsible for any injuries or deaths caused by the negligence of these doctors.

H.M.O.'s like U.S. Healthcare, Kaiser Permanente, Prudential and Pacificare have asserted in court that malpractice claims against them are pre-empted by the 1974 law, the Employee Retirement Income Security Act, or Erisa. If a malpractice claim is pre-empted, it cannot be pursued and must be dismissed.

G. William Scott, a senior trial lawyer at the Labor Department, said: ''This is the defense that H.M.O.'s are raising for everything now. Whenever they are sued, they say, 'We have no liability because we were administering an employee benefit plan.' ''

Karen M. Ignagni, president of the American Association of Health Plans, the leading trade group for H.M.O.'s, said the group had not become ''very involved in the malpractice issue from a policy perspective.''

Ben A. Singer, a spokesman for Pacificare, which has more than two million members in six states, summarized the position of his company and many other H.M.O.'s this way: ''We contract with doctors and hospitals. If you feel you've been a victim of malpractice, you can pursue litigation against them. But you can't turn around and sue the health plan.''

Three recent cases are typical.

In one, the Prudential Insurance Company of America argued that ''Erisa completely pre-empts any claim which 'relates to' an employer-sponsored health insurance plan'' so Prudential could not be held responsible for the medical malpractice of a doctor in its network in Illinois.

Imposing liability on health plans would cause ''catastrophic increases in the cost of employer-sponsored health care benefits, contrary to the intent of Congress,'' Prudential told a Federal appeals court.

In another case, a Texas woman sued Kaiser Permanente, the nation's largest H.M.O., contending that it had failed to detect a brain tumor she had. Kaiser argued that Federal law precluded such negligence claims because the woman, Letha Ann Ravenell, was receiving care under a health plan sponsored by her husband's employer, Sears, Roebuck & Company.

And in a third case, U.S. Healthcare moved to dismiss a malpractice suit filed by two of its subscribers, Linda and Ronald Visconti, who said their daughter had been stillborn because of the negligence of one of the H.M.O.'s obstetricians. U.S. Healthcare, now a unit of Aetna, said it could not be held responsible for any negligence by the doctor because of Erisa.

''Erisa pre-empts state law medical malpractice claims against entities involved in the administration or delivery of health care benefits under an Erisa plan,'' U.S. Healthcare said in court papers.

Such disputes are sure to increase with surging H.M.O. enrollment. A recent study by the Medical Insurance Exchange of California, a doctor-owned insurance company, foresees ''a flood of future litigation against managed care organizations, especially large ones with deep pockets.''

H.M.O.'s provide comprehensive care in return for fixed monthly premiums. One way they control costs is by refusing to authorize tests, procedures and hospital admissions that they consider unnecessary. In a typical case, an H.M.O. exercises its judgment in deciding whether a service is medically necessary but then says it has no legal responsibility for such medical judgments because they were ''benefit decisions'' made in the course of managing an employee benefit plan.

The lawsuits against H.M.O.'s often bounce back and forth between Federal and state courts in a process that baffles many patients and lawyers.

An injured person typically sues in state court, and the H.M.O. demands that the case be transferred to Federal court, saying it is governed by the Federal law on employee benefits. The plaintiff then argues that the lawsuit is an ordinary malpractice case and should be tried in state court. The Federal judge may agree and send the case back to state court. Or the judge may side with the H.M.O. and dismiss the lawsuit.

About 120 million people, nearly half of Americans, receive care through health plans sponsored by employers and covered by Erisa. The Supreme Court has described the law as ''a comprehensive statute designed to promote the interests of employees and their beneficiaries.'' So, the Labor Department says, it is paradoxical for H.M.O.'s to use it in a way that would strip workers of protections against medical malpractice.

Mr. Scott said, ''There is not a scintilla of evidence that Congress intended to pre-empt the state law of medical malpractice or to remove the longstanding protections afforded by state malpractice law.''

But H.M.O.'s and other health plans say the purpose of Erisa was to establish a single uniform set of Federal standards for employee benefit plans so employers would not have to comply with a multitude of different laws and standards in the various states where they operate.

Insurers and health plans say costs will soar if they are held responsible for injuries caused by their doctors' negligence. And those costs will be passed on to consumers, they say. H.M.O.'s sometimes carry malpractice insurance, as well as insurance to cover administrative errors.

Federal and state laws have not kept pace with changes in the health care industry, as huge corporations buy up hospitals, nursing homes and physician groups and gain powerful influence over the quality of care.

Wendy K. Mariner, a professor of health law at Boston University, said that Erisa might be fine for disputes about pension benefits but that it did not ''provide a remedy for the types of wrongs that newer forms of managed care organizations may commit today.''

Professor Mariner said Congress should amend Erisa to clarify the rights of workers and their dependents. ''H.M.O.'s that claim to provide high-quality care should not hide behind Erisa to escape responsibility for failing to live up to their promises,'' she said.

But Peter M. Roan, a Los Angeles lawyer who represents Pacificare and other H.M.O.'s in malpractice cases, said: ''H.M.O.'s normally cannot make medical decisions about the treatment provided to their members. Those determinations must be made by treating physicians under contract with the H.M.O. The H.M.O. should not be held responsible for the alleged medical negligence of the doctors.''

Mr. Roan said patients could always sue their doctors but wanted to include H.M.O.'s as defendants because they saw the health plans as ''another source of money.''

Attarah B. Feenane, a lawyer from Philadelphia who filed a malpractice suit against U.S. Healthcare, said H.M.O.'s were using Erisa as ''a shield to avoid liability for their own negligence and for that of their agents.''

In her lawsuit, filed in the death of a 42-year-old man, Ms. Feenane argued that the H.M.O. had been negligent in selecting and supervising its medical personnel. But the H.M.O. argued that its doctors were independent contractors.

''U.S. Healthcare does not make medical decisions,'' it said, adding, ''U.S. Healthcare does not direct the care furnished by participating health care providers.''