ERISA Litigation and Physician Autonomy

Abstract & Commentary

Synopsis: The federal Employee Retirement Income Security Act (ERISA) was originally enacted to regulate employer-sponsored pension plans. However, the statute also covers health care benefits established by self-insured employers—exempting only government employees and plans with relatively small numbers of employees—and has been a basis for managed care organizations (MCOs) attempting to escape liability for decisions affecting medical practice by the state "preemption" clause. These far-reaching provisions have affected physician autonomy and legal exposure.

Source: Jacobson PD, Pomfret SD. ERISA litigation and physician autonomy. JAMA 2000;283:921-926.

Enacted in 1974, erisa was designed to provide uniform national standards and safeguard employee benefits from loss or abuse, and encourage employers to offer such benefits by imposing fiduciary responsibilities on plan administrators. At the time of passage of the law, only a few requirements applied to health benefit plans. Three provisions, which have created significant issues in health care delivery, involve ERISA’s preemption clause, its limited remedial scheme, and its fiduciary duty obligations.

Preemption refers to the fact that where ERISA is shown to be applicable, state law is preempted or subordinated to federal law so that state statutes and regulations will not be enforceable. Because most provisions regarding the quality of practice for medicine are governed by state law, invocation of ERISA in a given case invalidates the provisions of such state law. Preemption may be invoked when a state law "relates to" an employee benefit plan (EBP). State laws may be saved if they are deemed specifically aimed at regulating insurance (also a state function), notwithstanding their relating to a plan, provided that the state law does not attempt to incorrectly circumvent this allowance by simply deeming a provision as insurance when in fact it relates to ERISA provisions. As can be seen, the relationships listed above provide considerable interpretive discretion, and courts have historically applied broad latitude to the "relates to" provision, permitting extension of ERISA provisions to a variety of circumstances.

When a state law is preempted, complaints must be heard in the federal court system, not the state courts, where only limited remedies are available. Awards for adverse medical decisions follow the law of contracts, whereby the aggrieved party may receive only money damages (and attorney’s fees) in the amount equal to the declined benefit contested. Plan participants may also compel plan administrators to enforce disclosure provisions and plan benefits. However, civil action for "malpractice" is not afforded in such situations. Rather, breach of contract or fiduciary responsibility may be claimed.

The results of this set of circumstances is that, where there is no bona fide complaint against the plan for an adverse event prompted by benefit determinations, malpractice claims may be taken instead against the physician involved in the care of the patient. Such claims, with the physician but not the benefit plan as the defendant, will still be heard in state court.

Recent court decisions have signaled a possible tightening of the broad protection benefit plans have enjoyed by the preemption clause, but comprehensive change will be required by national (congressional) legislation. For example, one case held that the defendant’s insurance company policy of discharging a newborn within hours without adequately considering the medical appropriateness in a given case could be challenged in state court as substandard quality of care. The greater the control of influence the MCO exerts over the practicing physician, the greater may be its legal exposure. On the other hand, exerting less control is antithetical to the emphasis on restricting resource allocation, a theme that applies to the goals of most MCOs. Furthermore, benefit plans have been supported where valid utilization management programs have been instituted.

The end result of this environment is to restrict physician autonomy while providing a means for limited legal exposure for benefit plans.


Who could have foreseen the current health care environment back in 1974 (or during its amendments in 1976) when ERISA was passed? It seemed like a good idea and, in a health system where the doctor-patient relationship was not subordinated to utilization management and third-party decision makers, who would have guessed the unintended consequences of a law primarily aimed at providing national standards for pension plans and invoking preemption provisions to protect them?

To understand the illogical place of ERISA in today’s health care environment, one must understand a little about civil or "tort" law, the law that governs most of medical malpractice. Tort law is generally a state issue, providing relief for aggrieved plaintiff patients who can prove substandard care. Consider the following scenario. A plan either disincentivizes or virtually denies reimbursement for a test that the treating (or diagnostic) physician deems medically necessary. Consequently, an adverse event occurs and the patient brings legal action against the physician and the plan. The plan claims that it is protected by the ERISA preemption clause and removes the case to federal court, where the only potential remedy is the cost of the test that was denied. The patient then brings the malpractice claim against the physician in state court as the only remaining defendant.

More than 10 years ago, the California Supreme Court indicated that, while economic concerns may be taken into account, a physician will not be relieved of his or her tort liability because of such concerns. In other words, whether a plan provides a benefit the physician deems necessary, the physician has a legal obligation to recommend such a test. Failure to do so exposes the physician, but not necessarily the benefit plan, to significant damage remedies for those patients subject to ERISA provisions, which include more than 75% of the insured population.

Courts have chipped away at these broad interpretations which have developed historically, but cannot be validated in the legislative history of the law. Furthermore, different court decisions regarding enforceability of provisions, despite the attempt in this article to provide recognizable patterns, cannot be reconciled. In Texas, legislation is currently under appellate review that would impose tort liability on plans for decisions that adversely affect patient outcome. This year the U.S. Supreme Court will consider potential liability of a plan that provides incentives for physicians who restrict resources.

Radiologists, like clinicians, need to be familiar with such ramifications. Especially in risk-sharing arrangements (e.g., capitation), failure to provide or recommend necessary examinations may subject the physician, and not the insurance plan, to malpractice litigation. As Jacobson and Pomfret correctly note, only congressional legislation is likely to change the application of ERISA in today’s different health care circumstances. And with a powerful insurance lobby in Washington, such change will not come easily.

A physician who is sued for malpractice by a patient whose benefit plan is covered under the provisions of ERISA:

a. will have his/her case conducted in state court.

b. will have his/her case conducted in federal court.

c. will have the option of having his/her case conducted in state or federal court.

d. can escape liability because of the preemption clause.

e. can be charged with a breach of fiduciary responsibility to the patient.