ERISA: No Duty to Disclose Physician Compensation Arrangements--Ehlmann v. Kaiser Found. Health Plan of Texas

ERISA: No Duty to Disclose Physician Compensation Arrangements-Ehlmann v. Kaiser Found Health Plan of Texas1--The United States Court of Appeals for the Fifth Circuit held that Health Maintenance Organizations (HMOs) have no fiduciary obligation to disclose physician compensation under ERISA absent

Ehlmann, a participant in an employee health plan, sued several HMOs under section 404 of ERISA for breach of fiduciary duty. Elhmann argued that the HMOs had a duty to disclose their physician compensation arrangements, alleging that the arrangements give participating physicians incentives to keep usage of health care, referrals and testing to a minimum, and thus harm the patient. Additionally, Ehlmann alleged that the HMOs made misleading representations to its plan members, and that there was a conflict of interest between the HMOs' fiduciary duties and its desire for profits. The district court dismissed Ehlmann's claims, fording that ERISA does not impose a duty upon HMOs to disclose physician compensation arrangements. Ehlmann appealed, arguing that ERISA does require disclosure and that the district court failed to properly discuss the misrepresentation and conflict of interest claims.3

The Fourth Circuit, analyzing the text, structure and legislative history of ERISA, found that HMOs had no broad duty to disclose physician compensation arrangements. The court rejected the Ehlmann's argument that the duty can be inferred from the general fiduciary duty of section 404(a), which requires a fiduciary to "discharge his duties with respect to a plan solely in the interest of the plan participants and beneficiaries."4 First, the court looked to the cannon of statutory construction that the specific language of a statute trumps the general language. The court noted that ERISA contains numerous specific disclosure provisions, none of which mention a duty to disclose physician reimbursement plans. Since disclosure is not specifically mentioned, the general wording of section 404 should not be used to imply a duty to disclose. The existence of the specific provisions show that Congress visited the disclosure issue and that the omission of such a provision was probably intentional.5

Second, the court looked at the legislative history of section 404 and noted that Congress intended the section to incorporate the common law of trusts, and did not intend it to act as an express disclosure provision.6 Thus, the court held that there is no broad duty under ERISA to disclose physician compensation plans. Nonetheless, the court emphasized that it did not consider what sort of disclosure section 404 might require in cases of specific inquiry or special circumstances. Additionally, the Fourth Circuit upheld the dismissal of Elhmann's misrepresentation and conflict of interest claims since they "were not pled as causes of action independent of the duty-to-disclose claim"7

The clear message of this ruling is that HMOs have no duty to disclose physician compensation and reimbursement schemes to plan members. But even more importantly, the decision will deter plaintiffs from bringing suits based on the general fiduciary duty of section 404 unless the duty is one of the specific disclosure requirements clearly enumerated in ERISA.