Conference Call on the Davila/Calad Supreme Court Decision
Background
On June 21, 2004, the U.S. Supreme Court issued a decision in Aetna v. Davila, a case about whether the Employee Retirement Income Security Act (ERISA) preempts the remedies available under the Texas Health Care Liability Act (THCLA). The THCLA was passed in 1997 by the Texaslegislature to protect patients from Health Maintenance Organizations (HMOs) that fail to exercise a duty of ordinary care in making decisions about healthcare benefits by giving those patients the opportunity to sue and collect damages in state court.
The purpose of this call was to give programs the opportunity: to better understand the Supreme Court's decision in Davila/Calad; to learn about what the decision means to consumers; and to review other ERISA basics. In particular, the call drew attention to the remedies still available to the consumers that have been denied a benefit or coverage by their employer-sponsored health plan.
Guest Speakers
Teresa Renaker, Esq.
Lewis and Feinberg, P.C.
436 14th Street, Suite 1505
Oakland, CA 94612
(510) 839-6824
trenaker@lewisfeinberg.com
Sonya Schwartz, Esq.
Families USA
1334 G Street, NW
Washington, DC 20005
(202) 737-6340
sschwartz@familiesusa.org
Ms. Renaker and Ms. Schwartz authored the amicus curiae brief to the Supreme Court filed by Families USA.
Summary of the Call
The Davila/Calad decision consists of two separate cases that were consolidated by the courts because they shared the same cause of action. These cases were brought independently in Texasstate court by plaintiffs Juan Davila and Ruby Calad under the Texas Healthcare Liability Act. The THCLA was passed in 1997 by the Texaslegislature to protect patients from Health Maintenance Organizations (HMOs) that fail to exercise a duty of ordinary care in making decisions about healthcare benefits by giving those patients the opportunity to sue and collect damages in state court.
The Supreme Court decision is about whether ERISA, the Employee Retirement Income Security Act, preempts their state claims under the THCLA. If a state law is preempted by ERISA, it means that the state law does not apply and the federal law, even if it does not offer the same or better protections than the state law, is the only source of regulation and remedy for consumers.
This decision is important because 10 other states have laws like the THCLA that allow individuals to sue their HMOs if they believe they were wrongfully denied care. This decision means that consumers in employer sponsored health insurance plans must go to federal court and exercise their rights under ERISA, because rights to sue under state law are not allowed. However, the state laws have not been totally struck down. Coverage under an individual policy which is purchased directly from the insurance company and is not offered through an employer benefit plan can still use these laws. The decision only applies to employer sponsored health plans that are subject to ERISA and ERISA generally does not apply to government (federal, state, or local) or church plans. . The decision does not apply to people in Medicare or Medicaid plans.
The Facts of the Case
Ms. Calad was a member of CIGNA Healthcare of Texas, a Texas HMO, through her husband’s employer. She underwent a hysterectomy and was discharged from the hospital sooner than her treating physician recommended because a CIGNA discharge nurse stated that she did not meet the plan’s criteria for approving a longer hospital stay and that CIGNA would not pay for additional inpatient treatment. Ms. Calad did not appeal the decision and left the hospital. She became ill and then later had to return to the hospital for further care, which she alleged was the result of CIGNA’s decision to deny her a longer initial hospital stay.
Similarly, Juan Davila, who suffers from the long-term effects of polio, saw his physician and was prescribed Vioxx for arthritis and inflammation. Aetna, the HMO which administered the coverage for his employer’s health plan, refused to cover the Vioxx but instead covered Naprosyn as part of a step program in which patients receive less expensive medication before trying the more expensive form of similar medications. Mr. Davila did not appeal Aetna’s decision denying the Vioxx and after several weeks of taking the Naprosyn, Mr. Davila suffered bleeding stomach ulcers, a known reaction to Naprosyn, and was hospitalized. Both Mr. Davila and Ms. Calad alleged that their HMOs’ denial of benefits constituted a failure “to exercise ordinary care” as required by the TexasHealth Care Liability Act (THCLA) and that this failure had caused them injuries.
How the Case Progressed From State Court to the Supreme Court
When the case was filed in state court, Cigna and Aetnaremoved the case to federal court due to ERISA preemption. The district court agreed with Cigna and Aetna. Calad and Davila then appealed the decision that the cases were removable to federal court to the 5th Circuit Court of Appeals by asking the 5th Circuit to remand, or send the cases back, to state court. The 5th Circuit reversed the lower district court’s decision and decided in favor of Calad and Davila that the Texaslaw was not preempted by ERISA. Aetnaand Cigna appealed to the Supreme Court, which agreed to hear the case and decided in favor of Aetnaand Cigna.
After the Decision: How Consumers Can Preserve Their Rights
Because the Davila/Calad decision means that consumers are unlikely to recover anything but the cost of the benefits denied to them (and will not recover pain or suffering), consumers who have a dispute with their health insurance company or who are being denied a benefit should act before they are injured.
Two options for avoiding the harms associated with a benefit denial were discussed on the call:
- The consumer can pay for the benefits out of pocket and seek reimbursement from the insurer under the internal appeals process required by ERISA. If their appeal is denied, they can sue under ERISA. However, this option requires that both the consumer can come up with the money and that the provider will provide the service without the insurance approval or authorization.
OR
- If the consumer can not pay for the benefits out of pocket, and the benefits are needed urgently, they can seek an injunction or get a temporary restraining order (TRO) from a state or federal court against the plan forcing them to make a decision or cover the service for that period of time. (If the healthcare provider is recommending the discharge or will not keep the patient in the hospital without coverage, the consumer may also be able to ask a state court for an injunction. However, if the provider alone is the problem, the consumer might first complain to the hospital administrator or compliance officer.)
ERISA requires employee health plans to have a 2-step claims process. The first step is that the employee submits either a pre-service claim, which can be an urgent or non-urgent pre-service claim, or a post-service claim. If the claim is denied, the employee can then appeal to the insurer. Once the employee appeals, if they are denied again, they can then appeal to federal court. This is required unless the appeal would be futile.
For example, in Ms. Calad’s case, by the time the plan heard the appeal, she would have been out of the hospital. She needed the decision immediately so an appeal would have been futile and she could have asked for an injunction. To ask for an injunction, a consumer can go to state or federal court, although federal court is preferable, and ask for the court to hear her complaint immediately. To do this, a consumer either needs to represent herself or, if the consumer is unable to come to court, they need a lawyer to assist them. The court will hear the request the same day if the situation is urgent and this is a very viable option that might help a consumer in need of continued care. Individuals with questions about injunctions may contact Teresa Renaker.
State Medical Malpractice Laws Not Changed by the Decision
It is important to note that the Davila/Calad Decision does not change state medical malpractice laws so if a treating doctor does not recommend a needed service or commits malpractice, they would still be liable under state law.
Take-Away Messages for Consumers
It is important that consumers and advocates get the message out about appeal rights established under ERISA. There are always two levels of internal appeals directly to the plan. Consumers can also file urgent appeals on decisions that will immediately affect their healthcare on very short notice or get an injunction if necessary.
The federal Patients’ Bill of Rights proposals are still under some consideration. The Patients’ Bill of Rights proposals focus on giving consumers in employer sponsored health plans the right to sue their HMO for unreasonable decisions. The sponsors of the bill reintroduced versions of the bill after the decision came out (HR 4628). Although the bill is unlikely to pass before the election, interested advocates should contact Sonya Schwartz about ways to encourage passage of a version of the bill.
Questions Answered During the Call
Question: How can an injunction or TRO be obtained?
Answer: Basically, the consumer needs to submit a complaint to a state or federal court setting forth the circumstances. They need to explain why, if the insurance company will not pay, they will be immediately harmed and need relief. Individuals can go themselves to court or can get a lawyer to do this for them. In most cases, a lawyer is going to be necessary and legal aid offices may be able to help.
Question: What if a consumer does not have the resources to obtain an injunction and can not pay out of pocket but is denied their benefit. If they do suffer some harm, is there anything in ERISA that can help them with damages?
Answer: ERISA has generally been interpreted to provide for compensatory or punitive damages. Davila highlights a grey area in which to avoid being sued in state court, HMOs must be fiduciaries and, as fiduciaries, the HMOs have traditional duties like loyalty to the consumers enrolled in their plans. There are causes of action under ERISA for breach of fiduciary duty that might give a consumer a monetary remedy; however, this is a very academic and contested theory. Most examples of where someone has won for breach of fiduciary duty have been in non-medical cases and so it remains to be seen if someone could win, under ERISA, monetary compensation for their injuries from an HMO’s benefit denial.
Other Materials Related to the Call
HAP's Summary of the Davila/Calad Decision
HAP’s Questions and Answers on the Davila/Calad Decision
HAP Guidance for Programs on the ERISA Appeal Regulations
HAP's ERISA Resource Page
United States Supreme Court Decision
U.S. Court of Appeals Decision
Supreme Court Oral Argument Transcripts
Texas Healthcare Liability Act
Briefs Related to the Case
If you would like more information regarding this call, please contact Nedra Commodore, Private Insurance Coordinator at ncommodore@healthassistancepartnership.org or Jean O’Connor, JD, MPH, Research Analyst, at o’connor@healthassistancepartnership.org.
