Bills in five states would make HMOs liable in patient lawsuits over quality of care
HMOs Liable / Lawsuits
March 31, 1997
Encouraged by recent court decisions, legislators in at least five states, Georgia, Texas, Alabama, New York, and Maryland, are attempting to pierce the protective shield managed care organizations have used for years to defend themselves against patient lawsuits over the quality of care.
Until recently, MCOs have successfully used the 1974 federal Employee Retirement Income Security Act (ERISA) to protect themselves against many patient lawsuits alleging substandard care or denial of care. The plans have maintained that such claims are preempted by ERISA because they are merely administering an employee benefit plan.
But, over the past two years, three of of the 12 U.S. Circuit Courts of Appeals have found that ERISA does not necessarily preempt claims against HMOs when the complaint is based on quality of care rather than on what benefits the HMO should provide under its contract.
The cases include Dukes v. U.S. HealthCare, Pacificare of Oklahoma v. Burrage, and Rice v. Panchal. In one of the most recent, Pappas v. Asbel v. United State Healthcare Systems, a superior court in Pennsylvania ruled that ERISA does not preempt a claim of "negligence attributable to the delay occasioned by a cost containment protocol set by a for-profit organization. (See related story, page 8). The case is now on appeal to the state supreme court.
"The courts are distinguishing between quantity of care and quality of care," says Carol L. O’Brien, senior attorney with the American Medical Association, who is serving as consultant to the medical societies in Georgia and Texas.
The courts have said that "ERISA allows employers great discretion to determine what benefits they cover or don’t cover," —a quantity of care issue, she says. But, if an MCO fails to properly examine a doctor’s background, or negligently delays needed care, the courts are increasingly saying that this is a quality of care issue not covered by ERISA, Ms. O’Brien says.
Experts on both sides of the issue acknowledge, however, that the distinction is often murky.
Legislation backed by medical societies in Georgia, Texas and Alabama attempts to carefully step around the ERISA preemption issue. In Texas, for example, SB 386, sponsored by Sen. David Sibley, a leading Republican legislator, requires health benefit plans and managed care entities "to exercise ordinary care in making treatment decisions that affect the quality of care." It would "hold the plan accountable for negligent decisions which result in injury."
Language added to the bill stresses that the legislation "should not be construed to regulate benefits determinations under ERISA." But Ms. O’Brien stresses that this would not relieve health plans of responsibility for negligent actions.
Senate Bill 211 in Georgia takes a similar tack, holding insurers legally responsible for any coverage decision that falls below what is minimally acceptable medical care. According to the Medical Association of Georgia, the legislation will help ensure that "patients receive broader protection" by making insurers "think long and hard about making coverage decisions which have the effect of denying access to care." In Alabama, HB 314 and SB 296 require a managed care plan "to exercise ordinary care when arranging for medical services which are medically necessary for the diagnosis, care or treatment of its enrollee."
In New York, the Trial Lawyers Association has taken the lead in pushing legislation sponsored by Richard Gottfried, chair of the state Assembly Health Committee. The bills (A 1816 and a companion bill
S 2544) would hold a health care organization liable for the harm (personal injury or death) it causes when it delays, denies or fails to provide health care it is contractually or legally obligated to provide.
The New York legislation does not specifically refer to "negligence" by health plans," the language used in several of the court rulings against health plans. That is a matter of concern to Laurie Cohen, counsel and director of government affairs for the New York Medical Society, who worries that legislation allowing a contract cause of action could be easier to challenge in the courts because of ERISA.
Rep. Gottfried argues that legislation that only holds health care organizations liable for negligence is not sufficient. "They are not negligent or careless. They know exactly what they are doing," he says. "They are just very consciously denying care that people are entitled to. "We are pushing the envelope of state jurisdiction," Rep. Gottfried acknowledges. "But I think we are in the right. I know we need to try."
Defensive medicine
Managed care organizations have hardly given up the fight over the issue. Four circuit courts and several lower courts "have found that ERISA does preempt claims of direct liability against a managed care organization," according to a June 1996 article in the American Journal of Public Health.
Christi O’Brien, legal counsel for PCA Health Plans of Texas, argues not only that the Texas bill is preempted by ERISA, but also that the legislation is unnecessary and will only "encourage a return to defensive medicine." Patients can already take action against MCOs for deceptive trade practices and breach of contract, she says.
Patients are far better off seeking redress against HMOs by appealing treatment decisions under a new state law that took effect last October, Ms. O’Brien says. Under that law, an HMO has 30 days to respond to a member complaint. If the member is still unhappy, the member can appeal to a panel composed of both HMO and non-HMO representatives, including doctors with expertise in the area under review.
A memorandum by the New York State HMO Council argues that imposing "tort damages for claims involving breach of contract . . . would expose health care organizations . . . to sharply higher damages" and encourage approval of "unnecessary or inappropriate care."
The New York HMO Council cites Florida Gov. Lawton Chiles’ veto of a liability bill in Florida last year. It quotes the governor as saying "that such a bill would provide incentives to physicians to authorize all procedures, including unnecessary ones, and to allow HMOs to be sued for denying the services."
Harold Iselin, counsel to the HMO Conference of New York, argues that the state already has a range of patient protections in place, including a new law that provides a 48-hour utilization review in urgent cases and a guarantee of emergency room coverage if deemed necessary by a "prudent layperson."
Contact Carol O’Brien at 312-464-4367; Ms. Cohen at 518-462-2293; Assemblyman Gottfried at 518-455-4941; Christi O’Brien at 512-502-2709; and the New York State HMO Council at 518-462-2293.
Pappas v. Asbel v. United States Healthcare Systems is expected to be appealed to the Pennsylvania Supreme Court shortly. It centers on a patient who experienced numbness in his torso and legs and was diagnosed at a community hospital in a Philadelphia suburb with a neurological emergency requiring immediate treatment at a hospital with more extensive facilities. The HMO physician and Haverford Community Hospital's neurologist arranged for the patient's immediate transfer to a hospital with a spinal cord trauma unit, but Haverford alleges that USHC would not authorize the transfer because the hospital was not an HMO-approved facility. The patient, who was later transferred to a hospital approved by USHC, now suffers from quadriplegia. The patient sued the hospital and the physician, alleging malpractice and negligence. Haverford then filed a third-party complaint against the HMO. A three-judge superior court panel concluded that negligence claims are not preempted by ERISA because the plaintiffs are not seeking to recover benefits denied or challenging administration of the underlying ERISA plan.
Bills in five states would make HMOs liable in patient lawsuits over quality of care
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