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Texas trial: HMO liability law

Texas was the first state to pass a health plan liability law. What has the impact been, and is it a model for the nation?

By Geri Aston, amednews staff. May 28, 2001.

For the sixth year, the issue of health plan liability is stymieing passage of a patients' bill of rights in Congress. But if states provide the testing ground for health reforms, then the evolving experience in Texas -- the first of eight jurisdictions to enact health plan liability laws -- may offer important clues about what may or may not work on the national level.

Supporters of the cause say Congress need only look to Texas to see how the worst fears about plan liability -- defensive medicine, a flood of lawsuits and skyrocketing insurance prices -- are unfounded. But opponents say it's still too early to gauge the impact of the 1997 law.

State action
Texas appeals
The Texas model
Links

The statute has drawn more attention with the election of President Bush, who has vowed to work for passage of federal patient protection legislation similar to the package he allowed to become law as Texas governor. So what has been the impact of the 4-year-old Texas statute on physicians, patients and plans?

For physicians, the answer often strikes at the heart of their ability to practice medicine. And many point to tangible improvements.

Robert Gunby, MD, a Dallas obstetrician-gynecologist, says the biggest change is a move away from automatic treatment denials by health plans. Before, "their philosophy was to deny everything, and you had to call back and plead," he says.

To explain, he recounts the tale of a patient who hemorrhaged so badly with each menstrual cycle that he recommended a hysterectomy. He would boost the patient's iron count enough through supplements to make surgery safe, only to have the plan deny surgery because the patient's iron count was too high to warrant the procedure.

"That's the type of thing that does not happen anymore," Dr. Gunby says. "You can come up with a rational care plan."

Some physicians attribute this change not only to patients' ability to sue plans but also to provisions of the law that allow patients to appeal plan decisions to an independent reviewer and that prohibit insurers from retaliating against physicians who advocate on their patients' behalf. The package has made a difference, says Robert Sloane, MD, a Fort Worth trauma surgeon.

"Physicians have felt empowered by the whole process," he says.

It's not that plans now approve everything, the doctors say.

"If the treatment isn't indicated as it should be, they deny it," Dr. Gunby says.

Despite the improvements, it is clear that physicians do not believe all their complaints have been addressed. Some physicians believe, for instance, that plans are now simply adjusting their cost-cutting tactics. "The sense is there are fewer problems getting diagnostic tests or treatment on the front end. But on the back end, plans are either not paying or delaying payment," says Paul B. Handel, MD, a Houston urologist.

On the other side of the debate, the Texas Assn. of Business and Chambers of Commerce fears that health plans might be practicing the insurer version of defensive medicine -- approving potentially unnecessary procedures to avoid liability.

"Defensive medicine is on the rise," says Lara Laneri Keel, government affairs manager for the group.

Plans are also worried "about the pressure to authorize marginally effective care," says Patricia Butler, a lawyer and health care policy analyst in Boulder, Colo. But defensive medicine "is so difficult to measure," she says. "It's so subtle."

Health plans may well be spending a larger percentage of their premium dollars on medical care now than before the law, says George Parker Young, a lawyer who is handling many of the cases against Texas HMOs. "They may blame that on defensive medicine," he says. "I think it means people are finally getting the care they deserve and paid for."

Questions of cost

If plans are practicing defensive medicine, it would be reflected in premiums, says Connie Barron, lobbyist for the Texas Medical Assn. One main argument used against plan liability -- both in Texas and as part of the ongoing federal debate -- is that it would boost insurance prices.

"We're afraid premiums will go up," Keel says. "Any time you invite trial lawyers into the system, that diverts money from patient care."

But so far premium increases in Texas are consistent with those nationwide, Barron says.

Texas Dept. of Insurance figures show that average per-member per-month HMO premiums fell 1.3% in 1998, the year after the liability law was enacted. They rose nearly 5% in 1999 and about 9% in the first three quarters of 2000, the most recent figures available.

A study of employer-sponsored health plans by William M. Mercer Inc. showed HMO premiums nationwide rising an average of 1.6% in 1998, 5.4% in 1999 and 9.6% in 2000.

One reason for the increase in Texas could be 1999 state rules aimed at preventing plans from pricing their products below cost, says Lee Jones, insurance department spokesman. Fierce competition for market share had caused Texas plans to price their products below cost for years, he says.

Meanwhile, the Texas Assn. of Health Plans has not been tracking the liability law's impact on prices, says Leah Rummel, the group's executive director. After this year's state legislative session ends, the group may begin looking at the law's effect.

Many reviews, few lawsuits

One thing that both sides of the plan liability debate agree on is that the Texas law's independent review system works.

"The independent review organization process is a good process," Rummel says. "I do think it has improved patient relationships."

The independent review system is beneficial in two ways, says David Sibley, the Republican Texas senator who sponsored the plan liability bill.

First, it forces plan officials to think before denying a treatment. "They know somebody is grading their paper," he says. And second, it relieves patients by showing that "somebody listens," he adds.

Since 1997, the state has received 1,234 requests for independent reviews, and 1,223 have been completed, Jones says. The review organizations, appointed by the state, have ruled in favor of the plan 42% of the time and for the patient in 50% of the cases. Another 8% were split between patient and plan.

The review process is often cited as holding down the number of suits. Estimates are that between 15 and 25 lawsuits have been brought since the Texas law's enactment.

"Patients feel like they've had their day in court," says Dr. Sloane, chair of the TMA Council on Legislation.

The law's proponents point to the low number of suits as proof that the health plan and business communities' predictions of massive amounts of litigation were groundless. "It has not opened the floodgates of litigation in Texas," says AMA Trustee Donald J. Palmisano, MD.

Nor have the suits been frivolous, supporters say. Of the known cases, death and serious injuries are charged.

As of yet, none of the cases has reached the jury trial stage. At least four have been fully or partially settled for undisclosed amounts, according to information from lawyer Young. At least another four have been sent to federal court to determine whether the charges are pre-empted by the Employee Retirement Income Security Act of 1974, which governs employer-sponsored health plans.

The jury is out

Although proponents claim that the worst fears about the Texas law have been disproved, health plan and business groups say it is too early to assess the statute's impact.

Cases were slow in coming because the law faced an immediate legal challenge from Aetna, opponents say. The insurer charged that ERISA preempted the Texas statute. The 5th U.S. Circuit Court of Appeals last year upheld the liability portion of the law but said the independent appeals portion was preempted. Plans have been voluntarily complying with the independent review process.

Since the ruling, the number of suits has picked up. But because none have made it to jury trial, the law's true effect cannot be measured, opponents say.

"We'll wait and see what the jury awards are," says Keel of the Texas business group.

The fact that no trials have occurred also means that the ruling has not been tested. Plaintiffs' lawyers argue that the Texas liability provisions, upheld by the court, allow plans to be held both directly liable for injurious health care treatment decisions they make and indirectly, or vicariously, liable for harmful decisions made by their contracting physicians.

But the law's opponents argue that the court's decision permits cases against plans only for vicarious liability.

"What you're hearing is their institutional positions," says health care analyst Butler. "It's in plans' interest to say the law is narrow, but plaintiffs' lawyers say, 'No, there's plenty of opportunity here.'

"So the truth is, until we see how the courts in Texas interpret the law, we won't see which cases will be allowed to proceed."

Eventually, one of the cases will make its way to the 5th Circuit Court of Appeals, which will be forced to give more guidance, she says. Meanwhile, the state has asked the U.S. Supreme Court to take up the case brought by Aetna because it disagrees with the 5th Circuit's ruling on the independent review process.

Lessons for Congress

So what does all this mean for congressional lawmakers seeking a health plan liability model?

Proponents say Texas proves that health plan liability on a national scale would not wreak havoc on the health care system and would give patients a much-needed tool to fight health plan decisions they believe have harmed them.

"We'd certainly like to see it nationwide," Dr. Gunby says.

Opponents say congressional lawmakers shouldn't look to Texas as a role model. The law is too new and too different from the congressional patients' bill of rights legislation, sponsored by Sens. John McCain (R, Ariz.) and Edward Kennedy (D, Mass.) and Reps. Greg Ganske, MD (R, Iowa), and John Dingell (D, Mich.), they say.

"There is no analogy that can be drawn," says Richard Smith, vice president for public policy and research for the American Assn. of Health Plans.

As just one example, he refers to the HMO community's belief that the Texas law allows suits against plans only for harmful decisions made by their physicians -- a much more narrow vision of plan liability than the McCain bill lays out.

As for Sibley, the Texas law's creator, he advises Congress to make sure its legislation doesn't overturn the handful of state plan liability laws.

"I wish they'd leave the states alone," he says. "Our law is working very well here, thank you."

ADDITIONAL INFORMATION:

State action

In the past four years, eight states have passed health plan liability laws.

1997: Texas
1999: Georgia and California
2000: Washington, Arizona, Maine and Oklahoma
2001: West Virginia

Source: National Conference of State Legislators

Texas appeals

Since September 1997, Texas patients have had the right to appeal health plan decisions to an independent review organization. Only two appeals were filed in 1997, and the plans' decisions were upheld in both. Here is the breakdown for subsequent years.

1998

373 IRO decisions
49% Upheld
45% Overturned
6% Mixed decisions

1999

402 IRO decisions
44% Upheld
49% Overturned
7% Mixed decisions

2000

404 IRO decisions
33% Upheld
57% Overturned
10% Mixed decisions

Source: Texas Dept. of Insurance

The Texas model

The 4-year-old Texas health plan liability law:

Holds health plans liable for patient harm when they have failed to exercise "ordinary care" in making treatment decisions.
Makes plans liable for harm caused by treatment decisions made by employees, agents or representatives over whom they exercise influence or control.
Creates no obligation on plans to provide treatments they do not cover.
Does not extend liability to employers who sponsor health plans.
Prohibits a plan from dropping a physician from its panels or refusing to renew the doctor's contract because the physician advocated on a patient's behalf.
Allows patients to appeal health plan decisions to an independent review organization. In most cases, patients must exhaust their appeals options before suing their plans.
Permits a patient to sue a plan without exhausting appeals first if the plan's decision has already harmed the patient.

Weblink

Texas HMO liability legislation (http://www.cfpa.org/issues/healthcare/managedcare/txsb386.html)

Texas Dept. of Insurance independent review organizations (http://www.tdi.state.tx.us/consumer/iro.html)

Thomas, the federal legislative information service, for bill summary, status and full text of the Bipartisan Patient Protection Act of 2001 (S283 or HR526) (http://thomas.loc.gov/)