Pegram v. Herdrich

120 S. Ct. 2143 (U.S June 12, 2000) ; Clearinghouse Number: 53053

Description

Supreme Court Holds That Health Maintenance Organization Treatment Decisions Are Not Fiduciary Acts Under Employee Retirement Income Security Act

Abstract

The U.S. Supreme Court unanimously held that mixed eligibility and treatment decisions made by a health maintenance organization (HMO), acting through its physician employees, were not fiduciary acts within the meaning of the Employee Retirement Income Security Act of 1974 (ERISA). Respondent patient had medical coverage from petitioner, a for-profit HMO owned by physicians providing prepaid medical services to participants whose employers contracted with it for coverage. After petitioner required patient to wait eight days for an ultrasound of her inflamed abdomen, patient’s appendix ruptured. Patient sued HMO and the doctor in state court for medical malpractice and fraud. HMO removed the case to federal court on ERISA preemption grounds. Patient alleged that providing medical services under terms that rewarded physician owners for limiting medical care entailed an anticipatory breach of an ERISA duty because these terms created an incentive to make decisions in the physicians’ self-interest rather than in the exclusive interest of plan participants. The district court granted summary judgment to HMO on one fraud count and dismissed the other. The Seventh Circuit reversed the dismissal of her ERISA claim; it held that HMO acted as a fiduciary when its physicians made the challenged decisions. Disagreeing, the Supreme Court—after analyzing the structure of HMOs and fiduciary responsibilities under ERISA—concluded that Congress did not intend HMOs to be treated as fiduciaries when making mixed eligibility and treatment decisions acting through their physicians. Moreover, a contrary conclusion would, in effect, eliminate the for-profit HMO, the formation of which Congress promoted for more than 27 years. The federal judiciary would contravene congressional policy if it considered ERISA fiduciary claims attacking HMOs solely based on their structure, without claims of concrete harm.

Additional Information

Docket Date
2000-06-12 00:00:00+00:00

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