Reviving the Patient Rights Debate

On June 21, 2004, the Supreme Court unanimously struck down a Texas state law placing liability on health maintenance organizations (HMOs) for harm caused by denied care and medical negligence.¹ The Court ruled that patients cannot sue HMOs that do not pay for recommended care for malpractice in state courts. The decision could affect the 130 million HMO participants receiving coverage from employers. The ruling has brought increased pressure on Congress to deal with HMO regulations possibly reviving a nine-year-old debate on the “patient’s bill of rights,” proposed legislation concerning patient protection from providers and health payers, HMO liability, and compensation for medical negligence from health plans. For more on this topic, read the latest issue brief from the State Coverage Initiatives (SCI) program, "ERISA Update: The Supreme Court Texas Decision and Other Recent Developments."

In its recent decision, the Court held that the Employee Retirement Income Security Act (ERISA), a 30 year old law implemented primarily to protect worker pensions, provides “a uniform regulatory regime over employee benefit plans…[that is] essential to accomplish Congress’s purpose of creating a comprehensive statute for the regulation of employee benefit plans.” ERISA’s provision allowing patients to sue in federal court for the dollar amount of services found to be improperly denied, but not for damages resulting from the denial, supersedes the applicability of individual state laws that permit such actions. The Court ruled that Texas, as well as Arizona, California, Georgia, Maine, New Jersey, North Carolina, Oklahoma, Washington, and West Virginia, exceeded its authority by enacting laws permitting patients to seek damage awards against HMOs in state courts. The Supreme Court found that state court action “that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear Congressional intent to make ERISA the remedy exclusive and is therefore pre-empted.”

Some argue that delays resulting from having a case heard in federal court could postpone treatment and further exacerbate the patient’s condition. Even then, plaintiffs can only be awarded the cost of the treatment denied. Patient advocacy organizations and trial lawyers claim that placing liability for denial of care and medical negligence on HMOs gives them an incentive to provide quality care and that without these regulations, patient safety and quality in HMO covered plans could be threatened.

Health insurers, however, applaud the ruling, arguing that unlimited liability and huge payouts would inevitably increase already skyrocketing health costs. Some supporters of the decision have also claimed that the lower costs of health care would allow health plans greater flexibility to provide coverage for the 44 million Americans without insurance.

Previous supporters of the patient’s bill of rights were quick to act. Almost immediately after the Supreme Court ruling, Representative John D. Dingell, Democrat and ranking member of the Education and Workforce Committee (EWC), introduced the Patient’s Rights Bill of 2004 (H.R. 4628), a slightly revised version of his 2001 Patient’s Rights Bill.² Currently, Democrats are attempting to press H.R. 4628 through the EWC while urging the Republican majority to sign a petition to move the bill through the committee. Supporters of the bill will need bipartisan support from the committee in order to garner the majority needed to move the legislation forward. The bill would preserve the decision-making power of health care providers, create an independent external review process for any needed care denied by an HMO, and hold HMOs accountable for any adverse effects or harm related to a negligent medical decision.

HCFO has sponsored research on the effects of liability and malpractice on health insurance costs, studies on the effects of denied care, and the effects of ERISA health plans on policy. It is important to understand the extent to which treatment time is delayed and the impact of that delay on the patient’s condition if all cases must be heard in federal court. In addition, understanding how HMOs behavior relates to their legal liability for inappropriate care would contribute to the debate. The completed and ongoing research listed below, as well as future research, can be helpful to Congress and others as they continue to debate what limits, if any, should be placed on HMO liability for inappropriate care.

HCFO-Funded Projects Relevant to HMO Liability

HCFO Special Report: Rogal, Deborah L. and Robert J. Stenger. The Challenge of Managed Care Regulation: Making Markets Work?, AcademyHealth, August 2001.

Title: Medical Malpractice Reform and Implications for Health Insurance Costs
Institution: University of Alabama at Birmingham
Principal Investigator: Michael A. Morrisey, Ph.D.
Time: February, 2004 - July, 2005

What effect have recent medical malpractice reforms had on health insurance costs? Specifically, the researchers are 1) evaluating the effect of tort reforms on physician (general practitioners and several specialty practices) malpractice insurance premiums; 2) determining the extent to which malpractice liability contributes to higher total health care costs, both by pass-through of physician malpractice insurance premiums and through “defensive medicine;” and 3) evaluating the effect that economic conditions and changes in the health care environment have exerted on malpractice premiums. The objective of this study is to provide a rigorous analysis of the effects of malpractice reform on the current environment and identify the savings, if any, that consumers can expect to see as a result of reforms.

Title: Liability Problems and Transparent Disclosure to Patients as a Solution
Institution: The Urban Institute
Principal Investigator: Randall Bovbjerg, JD
Time: March, 2003 – November, 2004

How can the understanding of the liability climate for safety reform and of differing theories and implementation of transparency be improved? The researchers are addressing the following three questions: 1) How widespread are liability insurance problems that may threaten access to care and can heighten practitioner concerns about disclosure of problems? What evidence exists on the root causes of problems? 2) What are the shortcomings of even strong liability incentives in preventing avoidable injuries and in promoting patient safety? 3) What models of increased transparency exist, with what theoretical advantages and disadvantages? What are the opportunities and obstacles to their implementation? Has enough innovation occurred in disclosure and safety methods that an assessment is feasible and pre-testable? The objective is to assess two problems and one emerging solution: The problems are that malpractice insurance is perceived to be in crisis and that liability fears have not curbed high rates of medical injury but have undercut cooperation with patient safety initiatives. The solution is more “transparent” disclosure to patients of their injuries, to ease malpractice fears, increase fairness, and facilitate systemic improvements.

Title: Evolution of Self-Insurance in an Era of Managed Care
Institution: Wayne State University
Principal Investigator: Gail A. Jensen, Ph.D.
Time: August, 2000 – February, 2003

What is the relationship between increased state and federal managed care insurance regulations and employers’ decisions to self-insure their managed care offerings? The researchers at Wayne State University tested the degree to which the decline in the percentage of employees who were offered self-insured managed care plans is related to the passage of HIPAA and other federal mandates that could be applied to self-insured plans despite ERISA. In order to better understand the effects of federal and state policies on self-insured market between 1993 and 1999, the researchers: 1) described the evolution of self-insurance among large (over 200 workers) and smaller firms, including trends related to type of firm and type of health plan; 2) assessed whether there is a causal relationship between federal and state-level insurance regulations on employers’ self-insurance decisions, and on the type of self-insured plan chosen; and 3) comparedeffects of state regulations pre- and post-1996 on self-insured and purchased plans, within the context of the 1996 federal reforms. Their objective was to inform policymakers on the interrelationships between self-insured employer plans, state and federal regulations, ERISA, and the market.

Publications:

“State Variation in Insurance Laws a Major Driver of Employers’ Self-Insurance Decisions,” AcademyHealth, Vol. 7, Issue 1, February 2004.

“Employer Decisions to Self-Insure: Does State Regulation Matter?” Grantee Briefing, American Enterprise Institute, June 2, 2004.

Title: Evaluating Managed Care Patient Protection Laws
Institution: Wake Forest University
Principal Investigator: Mark A. Hall, J.D.
Grant Duration: February, 2001 - August, 2004

What are the effects of state managed care patient protection laws on patients, providers, plans, and network, corporate, and market structures? The researchers at Wake Forest University are 1) developing an index of regulatory intensity of patient protection laws (among states and over time); 2) learning more about the complexities surrounding the implementation and enforcement of states’ patient protection laws; and 3) determining whether patient protection laws have achieved their intended effects and have avoided unintended or potential harm by assessing the impact of such laws on patients, providers, plans and on network, corporate, and market structures. The first two major tasks will be achieved by studying primary legal sources and conducting a systematic national survey of state regulators and health care lawyers. The third major task will be achieved through a combination of quantitative and qualitative studies: at least two rounds of the Community Tracking Survey of patients and physicians (1996-7 and 1999) will be analyzed, and in-depth case studies in 6 selected states will be conducted. Given that policy makers at the federal and state levels are encumbered by a lack of empirical evidence, the objective of the study is to inform the national debate on the need for laws to protect patients enrolled in managed care organizations.

Publications:

Hall MA. "Managed Care Patient Protection or Provider Protection? A Qualitative Assessment." American J. Medicine. 117: ___; Dec. 2004 (in press).

Hall MA. "The Impact and Enforcement of Prudent Layperson Laws." Annals of Emergency Medicine. 43(5): 558-566; 2003.

Hall, MA. "State Regulation of Medical Necessity: The Case of Weight-Reduction Surgery." Duke Law Journal. 53:653-672; 2003.

Hall MA, Agrawal GB. The Impact of State Managed Care Liability Statutes. Health Affairs. 22(5):138-45; 2003.

Agrawal GB, Hall MA. What if you Could Sue your HMO? Managed Care Liability Beyond the ERISA Shield. St. Louis U. Law J. 47:235-298; 2003.

Sloan FA, Hall MA. Market Failures and the Evolution of State Regulation of Managed Care. Law & Contemp. Probs. 2002; 64(4):169-206.

Title: The Anatomy of ERISA Health Plans: Describing their Basic Structure and Key Areas of Variation
Institution: George Washington University, Center for Health Services Research and Policy
Principal Investigator: Karl Polzer, Ph.D
Time: October, 2001 - July, 2002

How do variations in ERISA health plans affect the formation of policy? The researchers examined the anatomy of key types of ERISA health plans (i.e. identifying the fundamental characteristics, features, and structures that distinguish the plans), focusing on those distinctions that are relevant to the current “patients’ rights” and “defined contribution” debates. In addition, they attempted to correct “prevalent public misconceptions” that may impede legislative development (i.e. the misconception that HMO’s are making health plan decisions, when, in fact, decisions may be made by the administrators or fiduciaries of an ERISA plan.) The researchers hypothesized that “there exist important areas of variation among different types of ERISA health plans that might present policymakers with cause to consider crafting flexible laws and regulations that take into account this variation.” The objective of the project was to provide policymakers with information on variations in ERISA health plans that are relevant to current debates on health plan regulation.

Publication:

Borzi P. ERISA Health Plans: Key Structural Variations and Their Effect on Liability. HCFO Issue Brief, September 2002. An executive summary of this brief is also available.

Title: Cost, Utilization, and Health Effects of Successive Changes in Cesarean Length of Stay Policy
Institution: Harvard University
Principal Investigator: Jeanne Madden, Ph.D.
Time: March, 2004 - February, 2005

What is the impact of policy-imposed shifts in length of stay following Caesarean delivery on costs, utilization, and patient outcomes? The researchers are comparing these effects to results from a related study examining vaginal deliveries at Harvard Community Health Plan (HCHP) between 1990 and 1998. More specifically, this project takes advantage of a natural experiment created by HCHP’s recent policy change in post-Cesarean length of stay requirement on the following outcome areas: 1) hospital length of stay; 2) outpatient utilization (e.g. home and office visits; 3) maternal and infant health outcomes (e.g. breastfeeding, rehospitalizations, etc.), and, 4) HMO expenditures for birth hospitalization and follow-up care. The objective of this project is to inform public and private policymakers and providers about the clinical and cost implications of changes in hospital length of stay policies after Caesarean sections.

Title: The Effects of Any Willing Provider Laws
Institution: University of Alabama at Birmingham
Principal Investigator: Michael Morrisey, Ph.D.
Time: April, 1996 - March, 1998

Do state any willing provider laws inhibit the ability of managed care to reduce health care costs by forcing health plans to relinquish some control over the panel of providers? Researchers developed a compendium of AWP laws, reviewing each state AWP statute and classifying it with respect to providers covered, types of managed care firms covered, dates of enactment and implementation, and the nature of the enforcement provisions. In addition, they estimated the effects of AWP laws on: 1) prescription drug prices paid by HMOs and PPOs; 2) the number of participating providers in managed care firms and on the administrative costs of expanded participation; 3) managed care firms' market penetration; and 4) on health insurance premiums. The objective of this study was to better understand the impact of AWP laws on the growing managed care industry.

Publication:

Morrisey, M.A. and R.L. Ohsfeldt. Do "Any Willing Provider" and "Freedom of Choice" Laws Affect HMO Market Share?. Inquiry, 40(4), Winter 2003/2004; 362-74.

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¹Aetna Health, Inc., FKA Aetna US Healthcare, Inc., et. al., v. Davila, June 21, 2004.

²H.R.4628, To amend the Public Health Service Act, the Employee Retirement Income Security Act of 1974, and the Internal Revenue Code of 1986 to protect consumers in managed care plans and other health coverage, introduced June 21, 2004, http://thomas.loc.gov/cgi-bin/bdquery/z?d108:h.r.04628.