Public Health Law Map - Beta 5 - Medical and Public Health Law Site

Because employers attempt to limit losses, exempt treatment for given conditions, and
limit options for conditions that they do cover, plans may fail to provide coverage that
treating physicians believe is medically necessary. While ERISA plans are not
insurers, if they do not keep the employer’s medical care costs low, then they risk
losing the management contract to a competitor that promises greater savings. Thus,
ERISA plans, like all MCOs, are under pressure to discourage unnecessary medical
care if they are to make money.
1. ERISA Preemption
The text of ERISA does not mention medical malpractice lawsuits and there was no
discussion of them in the congressional hearings preceding the adoption of ERISA.
Nonetheless, the broad language of ERISA that exempts ERISA plans from state
regulation has been construed by the courts to prevent state tort lawsuits against
ERISA plans. [Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987).] In most
cases where a denial of benefits is challenged because the plan claimed they were
excluded under the contract, courts find the claims to be preempted. [Katz v.
Colonial Life Ins. Co. of Am., 951 F. Supp. 36 (S.D.N.Y. 1997).] Some courts have
gone farther and held that ERISA preempts medical malpractice claims against
ERISA plans, although it is generally accepted now that ERISA does not preempt
ordinary vicarious liability claims for physicians who are employees of the plan,
rather than independent contractors. ERISA does not affect the employee or contract
physician’s liability for medical malpractice, so the physician is left as the target
defendant when the plaintiff’s case against the plan is dismissed.
2. Hidden Incentives
The clearest conflict between the demands of MCOs and the physician’s fiduciary
duty to the patient arise from the “gag” rules, which are MCO contract provisions
intended to prevent physicians from telling patients medically significant
information, or from indicating that the plan might not be treating the patient fairly.
A typical clause reads as follows:
Physician shall agree not to take any action or make any communication
which undermines or could undermine the confidence of enrollees, potential
enrollees, their employers, their unions, or the public in U.S. Healthcare or
the quality of U.S. Healthcare coverage. Physician shall keep the Proprietary
Information payment rates, utilization-review procedures, etc. and this
Agreement strictly confidential. [Woodhandler S, Himmelstein DU. Extreme
risk—the new corporate proposition for physicians. N Engl J Med.
1995;333:1706.]
To the extent that gag rules prevent the patient from receiving full information about
treatments and alternatives, they are in direct conflict with informed consent
doctrine. Informed consent, however, is a doctrine that deals with medical risks, not
financial information. This raises the difficult issue whether the physician or the
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