By Robert S. Greenberger The Wall Street Journal, June 13,2000
"Washington -- The Supreme Court, in a victory for managed-care companies, ruled that health-maintenance organizations and others can't be sued under federal law for giving doctors financial incentives to hold down costs.
In a busy day as the high court's term nears its end, the justices also made it easier for employees to sue their employers for age discrimination; the ruling likely will be read broadly to cover other forms of workplace discrimination.
The justices also widened the category of people an employee benefit plan may sue for violations of U.S. laws protecting retirement benefits.
Managed-care industry officials applauded the unanimous Supreme Court decision. Earlier this year, some industry executives claimed the very existence of their industry was threatened by the lawsuit. The case revolved around the definition of who is considered a "fiduciary" of health-care plans.
Under U.S. law, such officials may be sued if they don't act solely in the interests of plan participants.
In Monday's decision, the justices decided that actions taken by health-care plan physicians such as determining whether a plan covers certain medical procedures don't fall into that category. The decision closed one avenue of litigation against managed care facilities, though it leaves open another through state courts.
The case involved Cynthia Herdrich, who in March 1991 went to her managed-care facility complaining of severe abdominal pain. Although her condition worsened, Ms. Herdrich's doctor didn't schedule tests for another eight days. In the meantime, her appendix burst and she developed a life-threatening infection.
She survived and sued doctor-owned Carle Clinic Association of Urbana, Ill., charging that the tests were delayed because the plan's doctors had financial incentives to hold down costs. But Justice David Souter, writing for the court, said 'we think Congress did not intend Carle or any other HMO to be treated as a fiduciary to the extent that it makes' eligibility decisions through its doctors.
The managed health-care industry, besieged by consumer and congressional complaints as well as class-action lawsuits, was relieved. In a statement, Karen Ignagni, president of the American Association of Health Plans, called the decision 'a resounding victory for maintaining affordable care.'
Trial lawyers bringing class-action suits against managed-care companies found some solace in a footnote in the opinion. It suggested health-care plans could be sued if they don't disclose their activities, including incentive programs.
'From the perspective of the class actions we're involved in, we think [that's] very helpful,' said Stephen Neuwirth, an attorney with Boies, Schiller & Flexner.
(Pegram vs. Herdrich)
The age-discrimination decision involves a case brought by Roger Reeves, who was fired when he was 57 years old after 40 years of employment by Sanderson Plumbing Products Inc., a Mississippi company. In his filing, Mr. Reeves said that two months before he was fired in 1995, the director of manufacturing told him he was 'too damn old to do the job.'
Sanderson Plumbing, citing some work problems, offered a nondiscriminatory reason for the firing. A jury didn't buy the company's explanation and decided in Mr. Reeves' favor. That decision was reversed by an appeals court, but the Supreme Court overturned the lower court.
Writing for the court, Justice Sandra Day O'Connor said that Mr. Reeves didn't need concrete evidence of his employer's intent to discriminate; indirect evidence of bias can be enough to prove illegal age discrimination.
Stephen Bokat, senior vice president and general counsel for the U.S. Chamber of Commerce, conceded the decision was a defeat for business. But he said the court hedged a bit. 'They said a court may use [this decision] as a basis for deciding discrimination, but that it doesn't have to in all cases,' he said.
Thomas Osborne, a staff attorney for the AARP Foundation Litigation, said the court's simplification of the procedure 'may encourage people who have been daunted by what has gone on before to come forward and file suits.'
(Reeves vs. Sanderson)
The high court's unanimous decision in the employee benefit plan case involves Ameritech Corp. and its pension plan trustee, Harris Trust & Savings Bank. The ruling will permit them to try to recover about $20 million lost in a late 1980s real estate deal with Salomon Smith Barney Inc.'s realty unit. Ameritech now is owned by SBC Communications Inc., San Antonio, and Harris Trust is a unit of Bank of Montreal, Toronto. Salomon, which provided services to the pension plan, now is part of Citigroup Inc., New York.
It has long been established that fiduciaries, who include those who exercise discretionary control or authority over pension plans, are liable for certain transactions under the U.S. Employee Retirement Income Security Act, or Erisa. But in Monday's decision, the high court said that an employee benefit plan also may sue brokerage firms, insurance companies and others whose transactions violate Erisa."