Pegram v. Herdrich: A Victory for HMOs or The Beginning of the End for ERISA Preemption?

Abstract

On June 12, 2000, a unanimous Supreme Court held that treatment decisions made by an HMO, acting through its physicians, are not fiduciary acts under ERISA. Thus the Carle HMO was not liable under ERISA for the harm caused when Pegram, one of Carle's physician/owners, required Herdrich to wait an additional eight days before undergoing a necessary diagnostic procedure and, when Herdrich's appendix ruptured during her wait for the procedure, then required her to receive emergency treatment at a Carle-owned facility fifty miles away, rather than at a nearby hospital. At first blush, this seemed like yet another judicial decision insulating managed care organizations (MCOs) from liability under ERISA. Advocates of expanding patients' rights to sue health plans under legislation before Congress might have been expected to bombard members of Congress with outraged communications decrying Pegram as another illustration of how inadequate ERISA was in protecting participants in employer-sponsored group health plans. But the early euphoria or dismay quickly dissipated as ERISA experts began to focus on the larger legal questions raised by Justice Souter's opinion. In particular, much discussion has ensued regarding the implications of the Pegram decision for preemption cases under which plaintiffs have been permitted to bring state law actions alleging substandard quality of care from their health plans.