Litigation anticipation: New collaborative strategies can help insurers prepare for increased managed-care-related litigation. (Life/Health: Litigation).

After nearly four years of debate, abandonment and revival in Congress, the Patients' Bill of Rights may soon become law. Although pressure to pass the legislation dissipated after the events of Sept. 11, lawmakers are expected to reach a compromise this year. Both the House and Senate versions of the bill address available services and drug plans, but key points of contention are new avenues of litigation against health maintenance organizations--a change expected to increase lawsuits for malpractice and denied or delayed treatment.

Given the chance of increased litigation against health insurers, now is the time for insurers to improve their processes. A slowed economy, stagnant premium growth and reduced investment income already make efficient litigation management a priority. The possibility of additional pressure from increasing legal fees and rising indemnity payouts makes it critical. There are new collaborative strategies, supported by well-chosen technology, that can help insurers adapt to changes and provide a competitive advantage.

An Unfinished Agenda

For years, Congress has been pressured to regulate the managed-care industry by giving patients new rights, including the ability to sue their health plans. Recently, HMOs have been hit with rising numbers of claims within a confusing litigation environment. The pending Patients' Bill of Rights purports to achieve a balanced solution to these problems by addressing the policyholder's ability to sue an HMO.

The primary struggle concerning the Patients' Bill of Rights lies in fashioning a compromise over how managed-care organizations can be sued in tort. Tort litigation is primarily a matter of state law, not federal law, so normally, Congress would have no reason to focus on this issue. But passage of the Employee Retirement Income Security Act in the 1970s had the unanticipated effect of cutting off the right of employees who receive employer-sponsored health insurance to sue their HMOs in tort. Courts typically interpret ERISA to pre-empt, or extinguish, state law tort causes of action against HMOs. The result is that employees whose health plan falls under ERISA may sue their HMO only for contractual damages, which are limited to the value of the benefit denied. Therefore, in many states, an employee is unable to seek damages in tort for personal injuries, pain and suffering or punitive damages.

The House and Senate bills address aspects of this problem differently. The Democrats' version of the bill, passed by the Senate, amends ERISA to permit lawsuits in state courts against HMOs, limiting punitive damages to $5 million. The bill allows plaintiffs to sue in state court for denial-of-care or quality-of-care issues and in federal court for issues not related to quality of care.

The Republican version, passed by the House, permits lawsuits to be filed against HMOs in state courts but only pursuant to federal law. Most significantly, this bill requires a plaintiff to file a complaint with an independent review board prior to suing an HMO. Economic damage recovery would be unlimited, but noneconomic and punitive damages would be capped at $1.5 million, regardless of any punitive-damage provisions in state law.

Despite the differences in the proposals for the Patients' Bill of Rights, it appears certain that either version will open the door for increased litigation. To address the increased litigation effectively, managed-care providers need to be strategically equipped.

Evaluating Litigation Processes

A challenge in effective litigation management lies in the ability to capture vast amounts of data and compile it in a useful way for analysis. For instance, how will an HMO determine whether it is getting the best return on its investment from outside counsel? How will it determine quickly and efficiently what cases to resolve through settlement rather than trial? What procedures will it need to put into place to reduce the overall litigation costs?

Most insurance professionals would agree that litigation-management plans should be tailored to manage outcomes, rather than administrative or billing tasks. Unfortunately, many litigation plans are little more than the coordination of responsibilities between managing attorney and associate. Substantive issues, such as strategic planning and budgeting, are often ignored, leaving a fertile source of conflict between counsel and insurer. Control over costs becomes unwieldy, with little accountability as to where time and money are actually spent. Additionally, with increased workloads and reliance on technologies such as voice mail and e-mail, there is potential for lapses in communication between counsel and insurer on important issues. Too often, plaintiffs lawyers take advantage of large case volumes and dispersed information to force insurers to defend a case reactively, not proactively.

Collaborative Strategies

Collaboration between insurer and counsel is the key to greater control over litigation management. Without upfront collaboration, every step of the litigation process is subject to contentious, time-consuming negotiation. As a result, the litigation process can evolve haphazardly, with perceptions of runaway legal costs ultimately shaping decisions on legal strategy. An emphasis on collaboration improves communication with panel counsel -- counsel that has been specifically selected by the insurer -- and ensures the maximum return on investment from outside counsel. Collaboration creates a partnership environment where all legal team members are encouraged to communicate and share documents, plans and insights. In addition, insurers can monitor the efficiency of panel firms and guarantee that the in-house claims team is involved in strategy decisions.

An example of the benefits of collaboration can be found in the property/casualty industry, where a recent industry study found that a failure to establish a strategic plan between insurer and counsel resulted in substantial loss overpayments. Through collaboration, the insurer draws on the combined expertise of adjuster and counsel, resulting in better outcomes and lower indemnity expense.

Lack of collaboration can result in numerous billing disputes, straining professional relationships and requiring an inordinate amount of claims personnel time. By promoting collaborative budgeting, some insurers have eliminated the need for third-party fee auditors and reduced the time spent on administrative billing tasks. Establishing a guide for expenses from the outset allows the claims team to manage counsel, rather than outsourcing it to a third-party auditor. The focus is turned to managing outcomes, rather than resolving disputes.

Technology Support

New Internet-based technologies can help reduce costs, increase productivity and enhance collaborative efforts. Many insurers are choosing application service providers that enable them to leverage the latest technologies quickly without the burden of upfront capital expenditures or ongoing maintenance costs.

By using the Internet as a wide-area network, some application service providers offer real-time communication, collaboration and accountability applications while storing data in a central, separately managed location. Application service providers can provide information storage, data management and customer relationship management applications. They also can seamlessly integrate existing legacy systems with the Internet, creating real-time access to information. The providers make world-class software applications, data availability and 24/7 user support accessible to organizations of all sizes. Since the technology is outsourcedc, significant investment in software, deployment time or information technology personnel is not required.

Some application service providers offer insurers comprehensive oversight of a litigated case and its expenses. For example, self-documenting processes and analytical tools promote accountability-based relationships, encouraging insurers and lawyers to devise an overall game plan for each case. Together, team members determine which legal tasks need to be completed for an individual case and anticipate a time frame for completion. After agreeing to the cost of legal services, the team can continuously compare case developments to previously established plans.

In addition, some application service providers eliminate unnecessary work and expense associated with the billing process. For example, Web-based systems set standards for invoice validation and catch departures from billing guidelines. Managers can then electronically review presorted and flagged billing data from the computer, review and correct statements, email questions or comments and approve bills for payment.

Real-time, instant communication capabilities and "anytime, anywhere" access dramatically improve communication by allowing lawyers and claims personnel to see the same information simultaneously. Attorneys can post comments, request additional information and offer suggestions for strategy. Estimates on exposure, chances of success and settlement objectives are all open for continuing review and comment. By sharing information, all parties ensure that quality standards are established up front and maintained throughout the litigation. In short, technology can quickly check information and flag potential problems, so managers can focus their time on important tasks, rather than on activities that have no impact on the outcome.

By implementing collaborative relationships with outside counsel, HMOs can respond to a changing managed-care environment successfully -- even competitively. Application service providers are one way to improve litigation-management processes in a competitive business climate. Insurers, however, should recognize that technology is not a cure-all, but rather a tool to promote collaborative communication. A commitment to collaboration, supported by the right technology, can dramatically improve communication and create cost savings in litigated claims.

Seth Colby is a regional manager for Visibillity Inc., Chicago.