Lawmakers in 21 states expected to consider bills that make it easier for consumers to sue their plans
Some 21 states are expected to debate legislation this year that could make it easier for consumers to sue their health plans when they are injured by a denial of health coverage, according to a just-released survey by the national Blue Cross and Blue Shield Association.
Legislators in many states have shown a willingness to test the Employee Retirement Income Security Act (ERISA) over the issue, which they see as a vital consumer protection.
A growing criticism of ERISA is that many consumers covered by employer-sponsored plans are not benefitting from the multitude of other managed care protections that have been put into place by state legislatures in recent years. The 1974 law, which has become an important part of the debate over health plan liability, has been interpreted by the courts as preempting most state regulation of employer-sponsored plans.
Many lawmakers believe the millions of consumers in employer-sponsored health plans (an estimated 48 million are in self-funded plans) should have the right to sue their health plans for inadequate care just as they can sue doctors and hospitals.
At presstime, Texas, which passed the landmark Texas Health Care Liability Act (SB386) last year was waiting for a decision from a federal court judge in Houston on a suit by Aetna, which is challenging the law on the grounds that it is preempted by ERISA.
Patricia Butler, a Colorado-based lawyer, explains in a recent analysis of managed care legislation for the Henry J. Kaiser Family Foundation, that the Texas Liability Act opens the door to an ERISA challenge because it goes beyond removing the corporate practice of medicine defense which has made it difficult for all consumers to sue any health plan.
Corporate Practice of Medicine laws, which prohibit organizations not owned by physicians from employing physicians, have been interpreted by many courts as barring suits against HMOs and other health plans because they are prohibited from practicing medicine. They are considered to be merely administering benefits.
Besides removing the corporate practice of medicine shield, the Texas Liability Act also puts out a challenge to ERISA plans by creating a new cause of action, an explicit new legal claim that managed care plan participants may use as the basis of a lawsuit, Ms. Butler says. Plans may be sued if they do not use ordinary care in denying or delaying payment for care recommended by a physician or other provider.
New York and California
Several proposals to amend ERISA are likely to be debated in Congress this year, but many state legislators aren't waiting for Congressional action. In New York, the Assembly has overwhelmingly passed a liability bill (A1816) which, like the Texas legislation, sets up a new cause of action. Sponsored by Richard Gottfried, the bill requires that managed care organizations exercise reasonable care when making decisions that affect the diagnosis, care or treatment of an enrollee. In selecting and exercising influence or control over providers or other agents, plans must respect decisions which may affect the quality of the diagnosis, care, or treatment provided to its enrollees, the legislation states. The bill faces a tough battle in the Senate because of opposition from HMOs and business groups.
In California, Assemblyman Martin Gallegos (D), a member of the state's Managed Health Care Improvement Task Force, is pushing the legislature to support a statewide ballot initiative on managed care reforms, including the liability issue.
Under his proposal, separate causes of action would be established for quality of care and malpractice, but even some supporters question whether the assemblyman can get the two-thirds vote from the legislature needed to put it on the November 1998 ballot. Several other bills addressing the liability issue also are expected to be introduced this session.
In Congress, Rep. Charles Norwood (R-GA) has won the support of more than 220 cosponsors for his Responsibility in Managed Care Act (HR 2960). The bill would make it easier for patients in self-insured employer plans to sue managed care organizations in state court for personal or financial injury, by waiving the ERISA preemption that has shielded the plans from such causes of action.
Opponents have focused their attention on blocking the bill in the Commerce or Education and Workforce committees. On the Senate side, Sen. Alfonse DAmato (R-N Y) is hoping to use a parliamentary maneuver to get the Senate version of the bill (S644) onto the floor for debate.
A somewhat different approach to holding health plans accountable was first introduced by congressional Democrats last spring as the Managed Care Plan Accountability Act of 1997. Under that approach, a new federal cause of action would be created that would allow members of employer-sponsored managed care plans to sue an HMO in federal court even if the HMO was merely administering an employee benefit plan, since the HMO exercises judgment by defining which benefits are permitted. Employers have joined forces with managed care organizations to fight the legislation at the federal and state levels.
Among employers fears are that they they could be liable themselves and dragged into suits as defendants. Rep. Norwood's bill explicitly prohibits causes of action against an employer unless the employer or other plan sponsor exercised discretionary authority to review and make decisions on claims for plan benefits which resulted in personal or financial injury or wrongful death. But Kim Monk,
manager, public policy, for the Washington Business Group on Health, said the bill does the opposite of what it intends by creating a clearer line to employers than before. Liability legislation will make it undesirable for employers to sponsor health coverage, she said. The first time employers get sued, they will drop coverage. Some fear that employers may drop benefits that could open them to suits. While liability for managed care plans is a popular consumer protection, it has raised questions that have long surrounded tort laws in general, especially as they apply to physicians and hospitals. Do malpractice suits just raise the costs of health care or do they foster improved quality of care? Ms. Butler questions whether the process of seeking financial awards for negligence (misconduct) under American tort law is the best way to remedy participants disputes over plan coverage. New York may end up taking a middle ground by approving an external appeals process for review of denials of coverage by managed care plans. The Assembly has already approved a bill (A6585) which would establish such a process. In opposition to A1816 and S2544, the HMO Conference of New York and the American Insurance Association have cited a 1997 analysis by the Barents Group, a health economics firm, which estimated that liability legislation could boost health costs by as much as 5%. The HMO Conference also argues that the legislation will undermine quality by promoting unnecessary utilization and overburden an already unresponsive judicial system. Disagreement over caps A California task force appointed by the governor and the legislature to make recommendations on improving managed care, failed by one vote to include legislation on liability in its recommendations. The recommendation did not carry largely because of disagreement over placing limits on liability similar to those that apply to physicians and hospitals that are sued for malpractice.
Dr. Bruce Spurlock, executive vice president of the California Healthcare Association, which represents hospitals and medical groups, argued that HMOs should be subject to the state's malpractice law, which limits liability of hospitals and physicians. Leaving HMOs without the same protection would encourage plaintiffs to go after HMOs since they would be liable for much bigger damages.
Some providers also worry that a no-caps law could encourage legislators to raise or eliminate the caps for them as well. Trial lawyers argue that only the threat of severe penalties is sufficient to make companies worth as much as $1 billion or more sit up and take notice.
Copies of Managed Care Liability: An Analysis of Texas and Missouri Legislation may be ordered from the Kaiser Family Foundation by calling 1-800-656-4KFF and requesting document #1343. The foundations web address is www.kff.org