(FORTUNE Magazine) – FORTUNE might be expected to applaud--as did the U.S. Chamber of Commerce and the insurance industry--a June U.S. Supreme Court decision that ruled that HMOs can't be sued for malpractice in state courts by patients who get their medical insurance as an employment benefit. The result, the victors claim, protects HMOs from frivolous suits, lowering health-care costs.

But here's what the case is really about. Back in Ozzie and Harriet days, you'd go to a hospital and a doctor would decide what treatment you needed. Your insurer later decided, after the fact, whether that treatment had been "medically necessary." If so, it would pay; if not, you'd be billed. By the late 1970s, however, as managed care and for-profit HMOs got rolling, insurers began to conduct these "utilization review" decisions prospectively; to get reimbursed, you had to get the HMO's approval before you were treated. Since the treatments were so expensive, the hospitals wouldn't do procedures unless the HMO preapproved them. Over time the HMO's "plan eligibility" decisions became de facto treatment decisions--often overruling those of the treating physician.

For example, suppose a doctor discovers that a patient has advanced blood cancer and needs an immediate stem-cell transplant to save his life. The doctor seeks HMO approval but gets turned down, because the plan administrators say the transplant is "experimental." The treating doctor pleads for reconsideration, citing published studies showing that the procedure has a proven success rate. The insurer mulls it over for three weeks and then relents. But by then the cancer has become inoperable, no operation is performed, and the patient dies two months later.

Here's how that case--a real one, and just one of dozens of such horror stories lying around in law libraries waiting for Congress to take them to heart--will play out under the court's recent ruling. The patient's widow sues the HMO in state court for malpractice. The HMO transfers the case to federal court. She has to sue there now, because her claims are "preempted" by the federal ERISA law--the Employee Retirement Income Security Act of 1974--whose provisions govern disputes involving employment benefits.

What's wrong with that? Well--surprise!--under ERISA she's got no lawsuit. You see, ERISA was enacted in 1974, when HMOs were in their infancy and when utilization reviews were still held retrospectively. In fact, when Congress enacted ERISA, it wasn't thinking about health-care benefits at all. It was focused on curbing pension plan abuses. So all ERISA lets you do is recover payments you are entitled to under your benefits contracts. Well, the dead guy I described in the example doesn't need to be reimbursed for anything. He never had to pay for his treatment, remember, because he never got any treatment. That's why he's dead. So under ERISA he and his widow are entitled to nothing.

Notwithstanding its outrageous consequences, last month's 9-0 ruling was not a shocker to lawyers, because it was largely required by an earlier 1987 Supreme Court ruling, which is the real source of the problem. Ever since that ruling, federal judges all over the country have been crying out in vain for Congress to mend the "regulatory vacuum," as several have termed it, that currently exists in the law.

If the state court tort system is irretrievably broken, then Congress should at least provide a meaningful federal tort remedy for this situation. No for-profit corporation should be left totally unaccountable when making life-and-death medical decisions.

--Roger Parloff