A series of recent court decisions coupled with state legislative initiatives may achieve what Congress has been unable to do: clear the way for medical malpractice cases against HMOs.
Washington observers say HMO liability legislation faces strong opposition in Congress and is unlikely to pass this year. Courts, however, are filling the gap by increasingly ruling in patients' favor. And legislatures across the country are responding to consumer complaints about lack of recourse.
"The whole notion is accountability in the healthcare delivery process," says Miles Zaremski, a healthcare attorney with the Chicago-based firm Rudnick & Wolfe. "Any entity involved in decisionmaking regarding healthcare for consumers should toe the line for his, her or its share of the responsibility. That's just common logic."
Much of the HMO liability debate revolves around the Employee Retirement Income Security Act of 1974. The federal statute allows self-insured health plans to claim exemption from state regulation.
For years health plans have shielded themselves from medical malpractice suits, arguing that the federal law pre-empts state claims and that any ERISA challenges must be removed to federal courts. There, plaintiffs can recoup their legal expenses but cannot be awarded punitive or compensatory damages.
Georgia and Texas are the only states with laws that override the ERISA pre-emption and allow malpractice cases against health plans. Georgia passed its law in April. The Texas law was enacted in 1997, but Blue Bell, Pa.-based Aetna U.S. Healthcare continues to challenge the statute as unconstitutional.
Last fall a federal appeals court in Texas upheld the statute and dismissed Aetna's claim. Aetna appealed, and the case is pending before the 5th U.S. Circuit Court of Appeals in New Orleans.
Similar liability legislation was introduced in 35 states during the 1998-1999 session but remains alive only in California, Illinois, Massachusetts and New York.
What states aren't doing, the courts are. Numerous recent state and federal court decisions have chipped away at the ERISA defense. One of the more significant decisions recently came out of the 5th Circuit. In April, the court gave the go-ahead for a malpractice suit against NYLCare Health Plans, which is now owned by Aetna.
In 1997, Bridgett Giles of Houston sued NYLCare after the HMO allegedly failed to diagnose a heart defect that killed her 9-year-old son Alex. NYLCare successfully argued that ERISA superseded Giles' claims. The case, which was originally filed in district court in Harris County, Texas, was sent to federal court. But first a district court of appeals and then the federal court of appeals in New Orleans remanded the case to state court, giving Giles the go-ahead to sue the HMO.
Many healthcare attorneys and industry observers say the Giles decision is significant because the 5th Circuit Court traditionally has adhered to ERISA and has not allowed similar lawsuits to be returned to state courts.
"Just the fact that they sent it back to the state may signal they are not going to view the ERISA pre-emption as broadly as they did before," says Brenda Strama, a managed-care attorney with the Houston office of Vinson & Elkins.
Austin, Texas-based healthcare attorney Tommy Jacks of Mithoff & Jacks agrees that the court's action opens the door for more malpractice cases. "I think the significance of (the Giles case) is that it signals that district and trial courts are given a green light by the 5th Circuit to send cases back to state courts."
Jerry Patterson, executive director of the Texas Association of Health Plans, says the 5th Circuit decision does not necessarily signal the death knell for the ERISA shield. He points out that the court did not say anything about the merits of the Giles case, and it's now up to the state court to decide if the case is legitimate. "The jury is still out as to what this verdict means," he says.
Meanwhile in Texas, the first case brought under the HMO liability law in March moved one step closer to trial. A federal judge in Fort Worth rejected a motion by defendant NYLCare to dismiss the case. NYLCare argued that since the case involves a Medicare beneficiary, the Texas law does not apply and the family should exhaust the Medicare appeals process before bringing suit.
While physician and consumer groups fight for the right to sue HMOs, health plans argue that liability lawsuits will only increase insurers' costs and lead to higher premiums. According to the Washington-based American Association of Health Plans, premiums could jump by as much as 8% if HMOs are exposed to liability lawsuits.
"I think we've learned from the medical malpractice liability history of physicians just how high litigation costs can be," says Kathryn Wilber, assistant general counsel of the AAHP.
Other less measurable costs might include an increase in defensive medicine to avoid the possibility of a lawsuit.
Wilber says health plans are concerned that such free spending will undo the positive cost-cutting effects of managed care on the nation's health system.
Defensive medicine, she says, could put healthcare delivery back 20 years to the free-spending 1980s.
A 1998 study by the Menlo Park, Calif.-based Henry J. Kaiser Family Foundation seems to refute the AAHP claim. The study examined the effects of litigation on several large public plans in California where consumers already have the right to sue plans. In general, the study found very low rates of litigation against the insurers, ranging from 0.3 to 1.4 cases per 100,000 enrollees a year, with monthly costs estimated at 3 cents to 13 cents per enrollee.
The AAHP's Wilber says the Kaiser study used a very small sample of plans and is not reflective of commercial HMOs. In addition, she says, exposing health plans to liability lawsuits could have a negative and unintended impact on physician autonomy.
Expanding state tort liability to health plans, she says, would force plans to become directly involved in physician practices and treatment decisions in an attempt to avoid costly litigation. This, in turn, would motivate plans to micromanage physicians.
Instead of suing plans, the AAHP encourages patients and physicians to exhaust external review procedures and is urging its members to institute appeals processes. In 20 states, health plan complaints can be brought before an independent review committee.
Earlier this year, Aetna became the first national company to institute an external review policy for all its enrollees. Under the policy, enrollees who have exhausted Aetna's internal review procedures can take their appeal to an outside review committee.
While HMO liability remains a hot-button issue, more physicians and insurers are coming to agreement on external appeals. In Massachusetts, the topic recently created some unusual bedfellows: In April the state medical society and the Massachusetts Association of HMOs came together to jointly endorse managed-care reform language that does not include HMO liability but does include internal grievance procedures and external appeals. The Massachusetts Legislature has been deadlocked on competing managed-care reform bills -- one version includes liability, the other does not.
The two versions are "miles apart," says Jack Evjy, M.D., president of the Massachusetts Medical Society. Failure to bridge the gap could result in more long-term damage.
"What we want to do is put our energy into making sure our patients get the best care upfront," Evjy says. "When it's at the point of liability, usually that means a patient has been harmed in some way. That's not the time to improve the quality of care."