Pegram v. Herdrich

PETITIONER: Pegram
RESPONDENT: Herdrich
LOCATION: Denton County District Court

DOCKET NO.: 98-1949
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 530 US 211 (2000)
ARGUED: Feb 23, 2000
DECIDED: Jun 12, 2000

ADVOCATES:
Carter G. Phillips - Argued the cause for the petitioner
James A. Feldman - Argued the cause for the United States, as amicus curiae, by special leave of court, supporting the petitioner
James P. Ginzkey - Argued the cause for the respondent

Facts of the case

In 1991, Cynthia Herdrich, after feeling an unusual pain in her stomach, was examined by Lori Pegram, a physician affiliated with Carle Clinic Association, P. C., Health Alliance Medical Plans, Inc., and Carle Health Insurance Management Co., Inc. (hereafter Carle). Carle functions as a health maintenance organization (HMO) organized for profit. Pegram then required Herdrich to wait eight days for an ultrasound of her inflamed abdomen, which was to be performed at a facility staffed by Carle more than 50 miles away from Herdrich. During that period, Herdrich's appendix ruptured. Herdrich sued Carle, including Pegram, in State court for medical malpractice and two counts of fraud. Carle and Pegram, under the 1974 Employee Retirement Income Security Act (ERISA), removed the case to federal court. Ultimately, Herdrich was only able to pursue one fraud count, which was amended to allege that Carle's HMO organization provisions rewarding its physician owners for limiting medical care, entailed an inherent or anticipatory breach of an ERISA fiduciary duty, because the terms create an incentive to make decisions in the physicians' self-interest, rather than the plan participants' exclusive interests. The District Court granted Carle's motion to dismiss on the ground that Carle was not acting as an ERISA fiduciary. The Court of Appeals reversed the dismissal.

Question

Are treatment decisions made by a health maintenance organization, acting through its physician employees, fiduciary acts within the meaning of the Employee Retirement Income Security Act of 1974?

Media for Pegram v. Herdrich

Audio Transcription for Oral Argument - February 23, 2000 in Pegram v. Herdrich

Audio Transcription for Opinion Announcement - June 12, 2000 in Pegram v. Herdrich

William H. Rehnquist:

The opinion of the Court in No. 98-1949, Pegram against Herdrich, will be announced by Justice Souter.

David H. Souter:

This case comes to us on a writ of certiorari to the United States Court of Appeals for the Seventh Circuit.

The petitioner whom we will refer -- I am sure confusingly to you at the moment by the name of Carle, functioned as a Health Maintenance Organization or HMO owned by physicians and providing prepaid medical services.

The respondent Cynthia Herdrich was enrolled in the HMO under an Employee Medical Plan and she sought medical care for abdominal pain.

The petitioner Lori Pegram who was a Carle physician, made her Herdrich wait for eight days for an ultrasound procedure and during the wait Herdrich’s appendix ruptured.

Herdrich sued for malpractice and fraud in State Court but ultimately the case was removed to Federal Court.

In Federal Court Herdrich made a new claim about a feature of the HMO scheme that rewarded physicians with year-end bonuses based on their collective success in limiting the amount of care dispensed.

She said that, this was important because the HMO through its doctors was acting as a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 Or ERISA.

She claimed that when the HMO made decisions about treatment of medical plan and relieves, such decisions violated the HMO’s fiduciary duty because of the year-end bonus provision benefiting its physicians.

The District Court ultimately dismissed this account on the ground that Carle was not acting as an ERISA fiduciary when it made these decisions.

The Seventh Circuit reversed the dismissal holding that Herdrich adequately pleaded the breach a fiduciary duty by Carle acting as an ERISA fiduciary.

In a unanimous opinion filed with the Clerk of the Court today, we reverse the judgment of the Seventh Circuit.

We conclude that Congress did not intend an HMO to be treated as a fiduciary to the extent that it makes decisions about when and how to treat and enrollee of its plan.

Decision with medical components are far from the traditional fiduciary duties with which Congress was concern in ERISA, and we doubt that Congress intended those decisions to be treated as fiduciary acts.

Our doubt hardens into conviction when we consider the consequences of allowing Herdrich’s claim to go forward.

First, if such treatment decisions subjected HMOs to sue whenever financial considerations ended into a decision for profit and probably nonprofit HMOs, would be destroyed.

Since, the entire point of the HMO structure is to inject cost consciousness into the treatment decisions.

Without more specific provision from Congress to judiciary we think, has not warrant to precipitate such an appeal.

Second, even if we accepted the Seventh Circuit’s attempt to limit such an action to a case in which the soul purpose of denying or delaying treatment used to increase physician profits, we are concerned that the claims for breach of fiduciary duty would in fact just turn into the equivalent of State Malpractice Claims.

For reasons given in the opinion, we assure that Congress did not mean to turn the Federal Courts into alternative forms for all examples of medical malpractice litigation.