On June 12, 2000, in a unanimous opinion written by Justice Souter, the U.S. Supreme Court, reversing a decision of the U.S. Court of Appeals for the Seventh Circuit, held in Pegram v. Herdrich that "mixed eligibility" decisions made by HMO physicians are not fiduciary decisions under ERISA . In so ruling, the Court upheld the concept that the reasonable sharing of financial risk with HMO network physicians for providing health care to a given patient population does not run afoul of ERISA's fiduciary requirements. This result is a significant victory for managed health care plans, their network physicians, and their members. Although the decision's impact on the viability of physician risk sharing is clearly positive, the decision's impact on the question of HMO liability under ERISA remains less clear. Some, including the U.S. Department of Labor, argue that this case represents a shift in ERISA preemption law. They argue that Pegram now precludes ERISA preemption of state law causes of action aimed at HMO coverage determinations that involve questions of medical-necessity or experimental or investigational treatments. A more reasonable reading of the case, consistent with its facts, however, leads to the conclusion that Pegram represents nothing more than a common sense answer to a simple question. What law should apply when a treating physician makes a treatment decision that may arguably raise issues of eligibility for coverage? Pegram's answer does not represent a shift in the law regarding ERISA preemption of HMO coverage decisions.
"Pegram's Significance for Managed Health Care,"
Yale Journal of Health Policy, Law, and Ethics:
1, Article 12.
Available at: http://digitalcommons.law.yale.edu/yjhple/vol1/iss1/12