States call for HMO accountability.

The managed care industry, once thought of as providing an efficient means of keeping health care costs low while maintaining the high quality of care that consumers are accustomed to, is being forced to rethink the way it does business.

Managed care providers, such as health maintenance organizations (HMOs), have historically been able to avoid responsibility for the wrongful denial of treatment coverage or for malpractice that hurt or killed patients, even though HMOs have been practicing medicine de facto for decades. This immunity has allowed HMOs to create a system where they can "gag" doctors, preventing them from telling a patient about treatment options other than the one the HMO approved. Immunity has also allowed HMOs to force doctors to choose the least expensive treatment regimen possible, even if more expensive options promise to be more effective.

After years of creating contract clauses that keep patients in the dark about treatment options and refusing payment for "expensive" yet effective treatments, HMOs in some states now face accountability for their conduct. The first steps toward holding HMOs responsible for substandard medical care have been taken in Missouri and Texas.

In June, Missouri House Bill 335 was signed into law. HB 335 is a sweeping piece of managed care legislation that provides consumers broad and powerful protections against wrongdoing by managed care providers. The most important reform is the addition of health maintenance organizations to the definition of "health care provider" in chapter 538 of the Missouri Code (tort actions based on improper health care).

The new law became effective August 28. Missouri managed care providers are now considered medical practitioners and can be held accountable for treatment decisions and payment limitations that harm patients.

Texas lawmakers acted almost concurrently with the Missouri General Assembly and have embraced the idea of making managed care providers more accountable to the consumers they serve.

In June, Texas Gov. George Bush (R) allowed the Health Care Liability Claims Act to become law without his signature. This landmark piece of legislation will allow residents of that state to hold managed care providers responsible for health care decisions that adversely affect patients enrolled in their groups.

The new law, which goes into effect September 1, will require managed care providers to exercise ordinary care when making treatment decisions. If a provider is found to have breached that duty, the patient may sue in state court provided he or she has followed the preliminary administrative procedure the law establishes. The Texas statute is the first of its kind in the United States, and it was enacted largely because consumers have tired of the poor treatment and the bureaucracy for which managed care has become infamous.

Negative public opinion

In November 1996, the Kaiser Family Foundation and the Harvard School of Public Health conducted a survey regarding HMOs. Fifty-four percent of respondents said that the "government needs to protect consumers from being treated unfairly by managed care providers and not getting the care they should from managed care plans."

The Missouri and Texas statutes are evidence that legislators have taken note of poll results such as the Kaiser poll's. The groundswell of negative public opinion about managed care providers has created momentum for a number of similar measures in other states.

For example, in May, the Connecticut General Assembly passed legislation granting the state the power to overturn managed care providers' decisions on what medical procedures they will pay for. The measure requires a patient challenging the denial of treatment coverage to go through a three-tiered appeals process run by the managed care provider. After the appeals have been exhausted, the patient can apply to the insurance commissioner for an outside review.

Rhode Island has used this system for the past three years, and the results have been positive for consumers. The state insurance commissioner's office found in the patient's favor in a majority of the 40 cases it reviewed last year.

Similarly, New Jersey passed the Health Care Quality Act in August. The new law guarantees consumers the right to appeal when a request for care is denied. The bill also requires anyone making treatment access decisions to be a licensed physician and prohibits managed care providers from providing financial incentives to deny medically necessary care.

New Jersey has expanded its jurisdiction in regulating managed care plans. The Health Care Quality Act controls less restrictive types of managed care plans, like preferred provider organizations.

A number of states have passed measures curbing some of the more egregious practices, such as denying coverage for certain emergency room visits, that managed care providers have used in their attempt to reduce costs.

The Missouri bill requires managed care providers to pay for these visits whenever a "prudent layperson" would believe that immediate care is needed, even if a managed care administrator might disagree. (The classic example is when a person believes that he or she is having a heart attack when the ailment is actually heartburn.) Before this legislation went into effect, the patient was forced to pay for the visit, even though the interpretation of the symptoms was reasonable. Now the visit is covered. Fifteen other states have enacted similar requirements.

Twenty-three states have ordered HMOs to allow women direct access to obstetricians and gynecologists instead of having to go through a primary care physician for a referral. Thirty-five states have outlawed "gag clauses," which prevent a doctor from telling patients about treatment options not covered by the HMO. And last year, the federal government, after learning of managed care plans that have forced new mothers to go home only a few hours after giving birth, passed a bill that gives mothers and newborns a minimum 48-hour hospital stay.

Other states have crafted bills that aim to remove the liability shield from managed care providers. New York has two bills that would replicate the Missouri law. The HMO Liability Act would make health maintenance organizations responsible for the consequences of their decisions about paying for treatment. The other bill would make insurers liable for malpractice and would establish other reforms for the managed care industry.

Two significant events in California may change the way managed care companies are regulated there.

California developments

The California Supreme Court ruled in July that HMO members can take medical malpractice claims to court instead of arbitration when the HMO fraudulently portrays arbitration as speedy. In Engalla v. Permanente Medical Group, Inc (938 P.2d 903 (Cal. 1997)), Pedro Engalla attempted to arbitrate his claim alleging delayed diagnosis of lung cancer against a unit of Kaiser Permanente.

Although the Kaiser lawyers were told that Engalla was terminally ill, an arbitrator wasn't selected until the day before he died. Evidence was introduced showing that it took Kaiser an average of two years to grant a member an arbitration date.

In another development in California, the state senate is considering a bill that will give consumers the right to hold HMOs accountable for their treatment decisions. The bill defines an HMO's decision to withhold payment for medical care or its provision of substandard care as a corporate liability issue.

The legislation was drafted this way in order to exclude the cause of action from the state's medical malpractice cap and to garner support of the physicians' lobby, which has said the bill is consistent with its general policies.

The ERISA problem

Although Missouri and Texas have made huge strides toward protecting consumers from abuses by managed care plans--and although New York and California are trying to do the same--legislation at the state level may not accomplish its goal. The federal Employee Retirement Income Security Act (ERISA) effectively eliminates a cause of action for medical malpractice against HMOs.

ERISA was passed in 1974 to help enforce company payment of pensions. The law covers all employee benefit plans, including health care plans, and provides that consumers can only recover the amount of the benefit the HMO should have provided. When health maintenance organizations face a malpractice action, they often invoke ERISA to avoid responsibility for costs beyond the actual benefit they did not confer.

By raising ERISA as a defense and removing the malpractice action to federal court, managed care companies may be able to circumvent the state-enacted protections. Although the Third and Tenth Circuits have concluded that health maintenance organizations can be held accountable for their malpractice, the other circuits have not allowed that cause of action.

With the states becoming more active in trying to regulate HMOs, either Congress or the Supreme Court will have to address the ERISA issue. Until that happens, states that pass legislation resembling Missouri's landmark bill may see their attempts to protect consumers thwarted.