But since then, appellate courts have used it to reach opposite conclusions in factually similar cases, according to the National Law Journal.
Health insurers and patients' lawyers alike are looking to new cases to clarify when state malpractice laws can be used to sue health plans for making benefit decisions that ended up hurting patients.
Meanwhile, U.S. Sens. Edward Kennedy, D-Mass., and John McCain, R-Ariz., want to codify part of the Pegram decision in their patients' "bill of rights" legislation. They regard the part involved as benefiting patients.
"While Congress tries to pass a patients' bill of rights, and while the Supreme Court waits to take up these cases, we're left to follow the trail of bread crumbs left by Pegram," health care lawyer Stephen Ryan of Philadelphia told the Journal.
At the core of the confusion is the Employee Retirement Income Security Act, which is meant to protect pensions by making employers adhere to financial and fiduciary standards.
The law also makes it easier for large, interstate companies to run their benefits plans by granting exemptions from the myriad of state laws on benefits.
Just before passing the bill in 1974, Congress added health-care benefits to those covered by the pre-emption. That shut the door to most state court tort claims against the companies, leaving only the restrictive federal causes of action spelled out in ERISA.
As the Journal notes, the Pegram case was originally brought by Cynthia Herdrich, a legal secretary from Bloomington, Ill., who was covered by the Carle Health Insurance Management Co. through her husband's employer. Carle is an HMO owned by its doctors.
After Herdrich experienced pain in her abdomen, Dr. Lori Pegram, one of Carle's physician-owners, ordered an ultrasound. But instead of doing it immediately at a local hospital, Pegram told Herdrich to wait eight days until it could be performed at a Carle-staffed facility more than 50 miles away. In the meantime, Herdrich's appendix ruptured.
Herdrich sued Pegram and Carle in state court for two things - medical malpractice and fraud.
She prevailed on the malpractice claim, but Carle removed the fraud claims to federal court, where a judge found that ERISA pre-empted the state law claims.
Herdrich responded by amending her complaint to allege that ERISA provided a basis for the action, namely that Carle's policy of financially rewarding physician-owners for limiting medical care was an inherent breach of an ERISA fiduciary duty.
She argued that Carle had created an incentive for physicians to act in their own interest, not the plan participants', as required by ERISA.
The Supreme Court found that in delaying the test, Pegram had made both a medical judgment and an eligibility decision. The court held that, like pure eligibility decisions, so-called mixed decisions by HMO physicians are not fiduciary decisions under ERISA.
As a result, the Journal reports, the courthouse door closed "somewhat firmly" on Herdrich.
While health plans viewed the decision as a major victory, patients' lawyers feared an impenetrable legal shield was being built around the insurance industry.
Yet, Pegram did not clarify the issues. True, it rejected the theory that ERISA provided the basis for a suit. But the court's treatment of different kinds of health decisions raised the question of what the pre-emption from state law does and does not cover.
To view the National Law Journal article, click here.
n the U.S. Supreme Court ruled a year ago in the case of Pegram v. Herdrich, it was immediately seen as a setback for patients seeking to sue their health insurance plans.