LEXIS-NEXIS® Congressional Universe-Document

Search Terms: patients bill of rights, House or Senate or Joint

Document 180 of 268.

JUNE 23, 1999, WEDNESDAY

SECTION: IN THE NEWS

LENGTH: 7770 words

HEADLINE: PREPARED STATEMENT OF
G. LAWRENCE ATKINS
PRESIDENT, HEALTH POLICY ANALYSTS, INC.
ON BEHALF OF THE CORPORATE HEALTH CARE COALITION
BEFORE THE HOUSE COMMITTEE ON COMMERCE
SUBCOMMITTEE ON HEALTH AND ENVIRONMENT
SUBJECT - PROTECTING PATIENTS' RIGHTS

BODY:

Executive Summary
Employers instill health plan accountability through purchasing Employers have expended considerable effort to increase accountability for the quality of medical decisions and patient outcomes at all levels of the health care system: health care professionals, health facilities, and health plans. Employers instill health plan accountability through their purchasing and oversight activities as plan sponsors.
The employer view of accountability is proactive. Quality is built into health care from the front end - through incentives to discover what works and to apply the right treatment in the first place. Quality and accountability can not be built from the back end - through the threat of litigation and punitive damages for lapses. Purchasers have seen in managed care the opportunity to improve the value they receive for their health care dollars. With a single point of accountability, employers and employees can compare the performance of plans, select plans that show evidence of meeting certain performance targets, choose the more effective plans and providers, and encourage ongoing improvements in quality and efficiency.
ERISA provides a significant "toolkit" of rights and responsibilities to protect employee's benefits
In the enactment of Employee Retirement Income Security Act of 1974 (ERISA), Congress acknowledged that the employer's sponsorship of health benefits was voluntary and a matter between the employer and employee. The role of federal law was not to dictate the agreement, but to ensure that if there was an agreement, it had to be understandable to the parties and enforceable. ERISA provides a "toolkit" to employees to help them obtain their benefits: information and disclosure, fiduciary obligations of the sponsor, rights to benefits, and remedies for participants.
Modification of ERISA claims and appeals requirements would respond to the influence of managed care
When ERISA was enacted, patients typically submitted claims to plan for reimbursement after they had paid for care that was provided. Managed care's move toward prospective decisionmaking, accelerated decisions on urgently needed treatment, and increased reliance on medical necessity determinations has raised questions of whether ERISA should be modified to accelerate current regulatory timeframes for review, and to ensure that medical necessity and appropriateness decisions are sufficiently evidence-based.
External review can be an effective process to ensure that medical necessity decisions are evidence-based.
Many health plans rely on an independent, external review of significant medical necessity, appropriateness, or experimental treatment decisions. External review, properly designed, is a more appropriate way to ensure that health plans are accountable to participants in a timely fashion for coverage and medical necessity decisions than reliance on state tort liability and punitive damages.
Efforts to create a statutory definition of medical necessity would seriously jeopardize the efforts of employers and health plans to improve health care quality. Medicare, Medicaid and private health plans rely on medical necessity determinations to reduce overutilization, unnecessary care, and fraud.
External review provides the most effective way to ensure that medical necessity decisions reflect best medical practices. A statutory definition of medical necessity would have no real value in establishing a standard for external medical review, since each external review would define the standard of care relevant to the case at hand through its own review of the medical evidence and best practices. A statutory definition would only lock in a static concept that could not respond to rapidly evolving medical knowledge, and would impede efforts to eliminate ineffective medical practices.
State tort liability for coverage decisions would reduce health plan accountability Creating health plan liability for coverage decisions in state court would not begin to solve the immediate problem for the patient - the need to get the best treatment when it can still do some good. Liability for coverage decisions would reduce health plan accountability by: curtailing quality assurance and plan selection activities of employers; encouraging plans to approve all treatments, and creating disincentives for evidence-based decision making by health plans. It would discourage plan sponsorship by employers and lead to a reduction in the availability and quality of health benefits to employees.
- Employers who sponsor health plans cannot be protected from health plan liability if ERISA preemption is waived; - Health plan liability would significantly raise health plan costs for employers; - Health plan liability will send the wrong signals to health plans discouraging efforts to improve quality and base decisions on medical evidence.
Mr. Chairman and Members of the Committee:
My name is Larry Atkins. I am President of Health Policy Analysts, Inc., a Washingtonbased consulting finn. I also serve as the Coordinator of the Corporate Health Care Coalition (CHCC).
The Coalition is an alliance of 25 companies formed in 1993 to reflect the views of large, multi-state, self-insured companies on national health care policy. Coalition members operate health benefit plans for employees and their families as well as retirees, covering over 6 million lives and providing over $12 billion in benefits annually. They have been in the forefront of efforts to provide high quality and cost-effective benefits for employees. Coalition members have extensive experience in designing, administering and delivering employee health benefits, and are a major force today in ongoing efforts to improve the health care system.
I am here today to address the question of health plan and provider accountability and the role of external, independent medical review in improving accountability.
I. Accountability of Plans and Providers
From an employer perspective, health plan accountability is created through the purchasing and oversight activities of employers. Employers have expended considerable effort to increase accountability for the quality of medical decisions and patient outcomes at all levels of the health care system: health care professionals, health facilities, and health plans.

CHCC companies have sought provider accountability through the managed care activities of health plans, and have sought plan accountabiltiy through the development of quality measures and the application of quality indicators as a factor in selecting health plans for employees.
The employer view of accountability is proactive. Quality needs to be built into health care from the front end: through clinical research to develop medical evidence on effective treatments, through development of guidelines and protocols, through selection and training of practitioners, through financial incentives that encourage quality, through monitoring and feedback on patient outcomes, through better comparative information for participants. Quality and accountability can not be built from the back end - through the threat of litigation and punitive damages for lapses in quality. We believe in incentives to discover what works and to apply the right treatment in the first place, rather than disincentives based on searching for the mistakes and seeking retribution for them after the fact.
A. Accountability through Managed Care
Organized health care delivery systems and managed care developed originally as part of an effort to bring accountability to medical practice. In fee-for-service medicine, solo practitioners were on their own to keep up with innovation and were specifically accountable to no one for the quality of their work. Managed care was intended to develop a system that routinely applied new knowledge to medical practice through the development of guidelines and protocols based on medical evidence in an effort to improve the quality of medical decisionmaking. The move toward "evidence-based medicine" has been the effort to subject medical treatment decisions to the test of what has been shown to work best.
Employers moved decisively to managed care plans in the mid 1980s to find efficiencies in health care that could lower costs and improve quality. The shift was a response to double digit medical inflation driven in part by excess capacity and increasing utilization; financial incentives in fee-for-service medicine that encouraged over- utilization; and research by the RAND Corporation showing that one- third of the health care in the U.S. was unnecessary and inappropriate. Employers believed that better patient outcomes and more cost-effective care would result from a change in the financial incentives to encourage management of care delivery. The basic ideas behind the move to managed care are consistent with consumer protection initiatives at the state and federal level today. They include:
* Creating a singlepoint of accountability - In an indemnity world, patients coordinate their own care, moving from provider to provider. In a managed care environment, a health plan can be accountable for the procedures and outcomes for its enrolled population. Purchasers can set targets for the health plan and expect the organization to manage its members to meet those targets. Patients can have a single primary physician coordinating their care. This single point of accountability has created a more intense focus on health care quality than existed in a purely indemnity/fee-for-service environment.
* Shifting the focus from input to outcome - Services in an indemnity system were evaluated on the basis of the input -- the volume and type of service provided -- without being able to know the ultimate impact on the patient's health. The service integration and improved patient record keeping of managed care makes it possible to manage and evaluate patient care on the basis of whether the patient's condition improves.
* Shifting from static quality to dynamic quality - Quality in an indemnity system was a state of practice that remained unchanged once attained - it was a function of the physician's training or the character of the health care facilities. The shift to organized service delivery with performance and outcome measures, has made quality a constantly evolving goal. Providers are encouraged to share information,learn from their collective experience, rethink their practices, and respond to new guidelines and protocols.
* Reliance on "benchmarking" and "bestpractices" - In the compe world of managed care, no organization can assume that they are doing the best possible job. Plans can be compared to one another, and plans that have done the best job of treating a particular illness or attaining a particular health status for their population can be held out to others as an example. Purchasers can require visible progress on specific health problems as a condition for being awarded a contract. The whole concept of quality-based competition requires an organized system that can pursue strategies to achieve specified results.
Purchasers have seen in managed care the opportunity to improve the value they receive for their health care dollars. With a single point of accountability, employers and employees can compare the performance of plans, select plans that show evidence of meeting certain performance targets, choose the more effective plans and providers, and encourage ongoing improvements in quality and efficiency.
B. CHCC Companies Pursue Health Plan Accountability
CHCC member companies are in the forefront of efforts to purchase health benefits on the basis of quality. Given the diversity of industries and types of workers in CHCC companies, a "one-size-fits- all", "cookie-cutter" approach does not work. Member companies approach quality purchasing in a variety of ways that give testimony to the innovation that has developed among private purchasers. The following provides only a sample of the quality-based purchasing activities of CHCC member companies.
1. Plan Accreditation
Many companies require health plans to have National Committee for Quality Assurance (NCQA) accreditation or be in the process of pursuing accreditation as a condition for purchasing. Employers have worked closely with NCQA in developing accreditation standards for health plans. A number of companies also require or review Utilization Review Accreditation Commission (URAC) and the Joint Commission on Accreditation of Healthcare Organizations (JACHO) accreditation.
2. Purchasing Standards
Some companies set performance standards for health plans they offer. These standards may be extensive - covering such things as standard benefits, governance, financial solvency and fiscal operations, access, credentialing, network requirements, data monitoring and evaluation, UR and claims processing, grievance and appeals processes, quality assurance processes, and a number ofother factors. Some companies require health plans to operate a program of continuing quality improvement or continuing targets for quality.
3. Employee education - plan comparisons
Employers in the CHCC offer choices to their employees and provide their employees substantial comparative information to select plans. Some companies provide a benchmarking process in which they compare each plan's results to results for a designated "preferred plan" on a number of dimensions, including: employee satisfaction, provider access, network coverage, and HEDIS (Health Plan Employer Data and Information Set) measures. Other companies provide an HMO fact sheet or simplified report card, with exceptional plans identified.
4. On-Going Quality Improvement Activities
Some companies work closely with their plans on efforts to identify best practices and modify plan practices to meet agreed upon performance targets. Others help their plans develop an action plan for correcting problems identified in employee satisfaction surveys. One company provides incentives for health plans that meet their targets, works on improvement plans with the health plans that are mediocre, and eliminates poor plans from their group of suppliers.
5. Prevention and Disease Management Programs
Some companies require that plans adopt specific preventive services and disease management programs. Others develop preventive and disease management programs in conjunction with their plans. Disease management programs have been effective in dramatically improving health outcomes and reducing medical costs for chronically ill patients with specific medical problems.
6. External Review
Most companies provide for external review by qualified outside medical groups in cases where an employee contests a coverage decision with regard to significant medical treatment issues.

The external review addresses medical treatment issues raised by the case and is advisory to the plan in making a final coverage decision.
7. Centers of Excellence and Specialized Providers
Most employers have contracts with treatment centers that have specialized in specific procedures and have a high volume of cases, evidence of high quality, and a willingness to contract for comprehensive treatment of particular illnesses. These centers can improve patient outcomes and manage overall costs of expensive medical care.
II. Claims and Appeals Procedures
The Employee Retirement Income Security Act of 1974 (ERISA) provides a structure of responsibilities, rights and remedies for the employer's sponsorship of employee benefits. The purpose of ERISA is to protect benefits that are promised by employers to participants. In the enactment of ERISA, Congress acknowledged that the employer's sponsorship of health benefits was voluntary and a matter between the employer and employee. The role of federal law was not to specify what was in that agreement - but to ensure that if there was an agreement, it had to be understandable to the parties and enforceable.
Employers, as voluntary sponsors of health plans, and their benefits administrators have the responsibility for designing the health plan, determining the benefits that will be provided under the plan, and determining that a claim is made for an item or service that is covered under the plan. ERISA was intended to provide a "toolkit" to employees to, help them obtain their benefits: information and disclosure, fiduciary obligations of the sponsor, rights to benefits, and remedies for participants.
A. ERISA Requirements for Claims Processing and Appeals
ERISA imposes a number of the information and procedural requirements on plan sponsors to protect participants. CHCC member companies operate their claims processing and appeals procedures to meet the needs of their employees for prompt and fair decisions. Their procedures easily meet ERISA requirements. Several of the information and procedural requirements sought in the Patients' Rights legislation are further enhancements of requirements already imposed by ERISA. ERISA's statutory and regulatory requirements include: -- Information to participants on their rights and the appeals process - the ERISA statute requires that plan sponsors provide each participant with a summary plan description (SPD). The SPD must be "written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants of their rights and obligations under the plan." (ERISA Section 102(a)(1)). The plan description and SPD must include "...the procedures to be followed in presenting claims for benefits under the plan and the remedies available under the plan for the redress of claims that are denied in whole or in part." (ERISA Section 102(b)).
-- Fiduciary Duties and Liability - the ERISA statute requires that a plan fiduciary: "...discharge his duties with respect to a plan solely in the interest of plan participants and beneficiaries and ... for the exclusive purpose of...providing benefits to participants and their beneficiaries." (ERISA Section 404(a)(1)). A fiduciary is personally liable for any breach of any duties imposed by ERISA. These duties include fair and consistent administration of the claims and appeals procedures required under ERISA. Courts can override decisions of a plan fiduciary or remove a fiduciary who fails to perform these duties.
-- Claims Procedures - the ERISA statute requires that a plan:
"(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
"(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim." (ERISA Section 503).
Department of Labor (DoL) Regulations (29 CFR Sec. 2560.503-1) provide a specific set of requirements for claims determinations and review procedures. The regulations require:
-- A plan must have a reasonable claim filing procedure -- If a claim is wholly or partially denied, a notice must be furnished to theclaimant with a reasonable period of time, but not more than 90 days after receipt of the claim (unless special circumstances warrant an extension oftime for processing the claim). -- The written notice furnished to the claimant must include, in a manner calculated to be understood by the claimant: -- the specific reason for the denial, a reference to pertinent plan provisions, -- a description of additional material needed to perfect the claim, and -- information on the steps to be taken if the participant wishes to submit the claim for review.
-- A plan must establish and maintain a procedure by which a claimant orauthorized representative has a reasonable opportunity to appeal a denied claim. -- The review procedure must include provisions allowing a claimant to: -- Request a review in writing; -- Review pertinent documents -- Submit issues and comments in writing. -- The period within which the plan can require the participant to file therequest cannot be shorter than 60 days after receipt of written notice of the denial. -- A named fiduciary must render a decision promptly, and in no case may respond later than 60 days, unless special circumstance require an extension of the review time). -- Notification of the decision on the review must be in writing and must include the specific reasons for the decision written in a manner to be understood by the average plan participant and include specific references to pertinent plan provisions. -- Judicial Remedies - Once the participant or beneficiary has exhausted the internal appeal process, ERISA statute (Section 502) enables the individual to bring a civil action in federal court against the health plan to: -- Recover benefits due under the terms of the plan; -- Enforce rights under the terms of the plan; or -- Clarify rights to future benefits under the terms of the plan.
The time limits required by DoL for processing claims and appeals are outside time limits. With improved information systems and changes in claims processing techniques, health plans today typically process claims more rapidly than required by the Department. CHCC member companies typically require claims processing contractors to meet specific timeframes in processing claims and deciding appeals that are significantly faster than those specified in the regulations.
B. The Impact of Managed Care on Coverage Decisions
The emergence of managed care has brought significant changes in the nature of claims review and coverage decisionmaking. ERISA was enacted when indemnity plans were dominant, and patients typically submitted claims to the plan after receiving medical care and paying the physician and hospital themselves. Managed care has moved toward comprehensive benefits covering medical treatment for the whole patient, and has sought to improve care by eliminating inappropriate or ineffective treatment that was common in a fee-for-service environment. As a result, managed care has placed a greater reliance on determining the appropriateness or medical necessity of treatment at the point of care. The effort to remove inappropriate and unnecessary care has led to an increased the reliance on scientific evidence of effectiveness as a factor in coverage determinations.
By integrating the insurance and service delivery functions, managed care moved toward prospective decisionmaking on coverage and treatment and away from the retrospective claims adjustment that was characteristic of indemnity coverage. The shift to prospective review has necessitated a faster decision on coverage issues where treatment is urgently needed and prior approval is required for coverage.
The changes brought by the growth of managed care have raised a number of issues with current federal law requirements for claims review and appeals. One set of issues relate to the adequacy of current regulatory timeframes for review, given the shift to prior approval. The second set of issues relates to the need to ensure that medical necessity and appropriateness decisions are evidence-based.

Employers have invested in the effort to improve the accountability of providers and plans for the quality of medical care and ensure that decision making is based on the best medical evidence available. Changes in the process for resolving coverage questions should ensure that we continue to move in both coverage and treatment decisions toward a reliance on "evidence-based medicine."
III. Medical Necessity Determination
All health plans provide access within limits to medical care. Plans have specific exclusions from coverage (e.g. cosmetic surgery) or coverage limitations for some services (e.g. one influenza vaccine annually for adults over age 65; up to twenty outpatient mental health visits per year). Plans will additionally exclude any covered item or service that is not medically necessary or appropriate. With the move to comprehensive benefits, there is increasing emphasis in coverage determinations on the decision about what is medically necessary and appropriate care.
All plans - including Medicare and Medicaid -- rely on judgments about medically necessary and appropriate care to avoid paying for outdated procedures or for untested medical technologies while, at the same time, readily incorporating major innovations in health care treatment that are shown to work. Decisions on medical necessity are the means by which plans eliminate inefficiencies, lower costs, and improve quality of care.
Quality is a central focus of medical necessity decisionmaking. The Institute of Medicine National Roundtable on Health Care Quality recently identified several areas of major quality problems in medical treatment in the U.S. where guidelines based on medical evidence and applied through medical necessity determinations could improve the quality of medical care. Medical necessity determinations are also important in the effort to correct some of the geographic variation in medical treatment. Medicare relies heavily on medical necessity determinations to reduce 1, unnecessary care, and fraud.
A number of the Patient Bill of Rights bills include a provision that would establish a statutory definition of "medically necessity or appropriateness." Generally this provision has two parts: 1) it states that a plan: "may not arbitrarily interfere with or alter the decision of the treating physician...if the services are medically necessary or appropriate for treatment or diagnosis..."; and 2) it defines define medical necessity or appropriateness as: "a service or benefit which is consistent with generally accepted principles of professional medical practice."
The intent of this provision is to ensure that: "...an insurer (can) set aside the recommendations of a treating physician only in restricted circumstances.2" Advocates of a medical necessity standard contend that the standard would: prevent plans from denying benefits based on "arbitrary" plan guidelines; provide a standard for external review decisions; and shift the burden of proof in external review or judicial action to the plan.
The statutory definitions of medical necessity offered in these bills would seriously jeopardize the efforts of employers and health plans to improve health care quality. Health plans would be limited in their ability to deny coverage for the recommendation of a treating physician as long as that recommendation was consistent with "generally accepted principles of professional medical practice," regardless of guidelines or protocols to the contrary.
With no arbiter of "generally accepted principles", any practice a treating physician contended was "generally accepted" would be medically necessary unless the plan could prove it was not. Where there were genuine differences of opinion among specialists about treatment (where each altemative could be considered "generally accepted") the choice of the treating physician would prevail, regardless of the medical evidence. The consequences for health care quality could be significant:
A statutory definition of medical necessity would have no real value in establishing a standard for external medical review. Any external review procedure enacted by Congress would create its own standard of review for the independent medical reviewers. By basing the decision of the independent reviewer on an assessment of plan guidelines, treating physician recommendations, external guidelines and protocols, and medical evidence, the conclusion of the medical reviewer would become the definition of medically necessary care.
Even with a statutory definition, the concept of"generally-accepted medical practice" would have to be defined in external review by the reviewer. The level of care suggested to the reviewer by a standard of general practice would be less advanced than the level of care identified through a review of the current medical literature and the consensus opinions of leading experts.
Concerns about who makes medical necessity decisions and about the basis for those decisions can be more effectively addressed through an independent, external, evidencebased review of the medical decision than through a rigid, statutory definition of medical necessity.
IV. Independent, External Review
Many health plans today will conduct an independent, external review of significant medical necessity, appropriateness, or experimental treatment decisions. External review, properly designed, is a more appropriate way to ensure timely accountability of health plans for coverage and medical necessity decisions than state tort liability and punitive damages. External review ensures that medical necessity decisions will be evaluated by medical experts on the basis of the best medical evidence. It is consistent with the employers' interest in paying for what works and not paying for what doesn't work in that it confirms plan decisions upheld by medical evidence and overturns those that are not.
External review, however, should be limited to medical treatment issues. It should not become a means to rewrite or expand a health plan's terms and conditions of coverage or bypass its provider networks. Plan administrators under ERISA are charged with the responsibility for consistent interpretation and application of the plan document. Externalinterpretation of the terms of the plan could relieve the fiduciary of this obligation, and expose participants to wide variation in the application of plan benefits. Questions of eligibility for benefits, limitations on benefits, exclusions of specific items or services from coverage, in- or out-of-network use of providers, and other issues that do not involve medical judgement should not be subject to external review.
- External review should be a medical, evidence-based review that resolves tough medical necessity questions. It should not be used as a way to challenge a plan's explicit limitation in coverage or exclusion of a treatment.
- External review should be limited to treatment issues where there is substantial cost for the treatment or substantial risk to the participant's health. It should not be available to review denials of payment for small amounts where the cost of reviewing the denial exceeds the amount in dispute. Without a limitation to significant issues, external review merely becomes a weapon to force plans to pay for small claims for inappropriate treatment. If external review becomes impractical or expensive, it will force plans to explicitly limit coverage to avoid these issues.
- External review should uphold the plan's decision on medical necessity unless the reviewer determines on the basis of the medical evidence that the denied item or service would be of substantially greater benefit to the patient. In arriving at this judgment, the reviewer should take into account the full array of scientific evidence and practice experience that can be instructive.
- External review should be a uniform process available on a consistent basis nationwide. Any federal rules should clearly preempt state procedures to avoid confusion by participants, duplication of procedures, or conflict of jurisdictions. - An independent, external review that is evidence-based should fully resolve the coverage and treatment questions. Access to judicial review (other than through existing ERISA remedies) would throw these evidence-based judgments before untrained parties in an adversarial environment and undercut the objectivity achieved through the external review process. If the best-informed judgment available is to be made by a qualified external panel, there should be no value in second- guessing this medical judgment in state courts before juries.

Employers have had a largely positive experience with voluntary external review to date. The responsibility for sending a case to review usually rests with the contracting health plan or insurer, although employers may request reviews of decisions made by a plan or insurer. Cases requiring external review are often sent to academic medical institutions or Centers of Excellence that specialize in treating the patients' condition. The cases frequently involve choices among alternative treatments where practice standards or best practices are not clear and where an opportunity for independent medical review by a well-qualified medical expert can be of value to health plans and enrollees alike. Medical reviews focus on the questions of efficacy and cost-effectiveness of thetreatment, general acceptance of the treatment in the medical community, and suitability of the particular patient for the treatment. The results of reviews tend to be fairly even handed, overturning plan decisions about as frequently as they uphold them.
State external review programs that apply to state regulated plans have begun to emerge in the last few years. Until recently, only Michigan and Florida had established external review programs. At the beginning of this year, however, 17 states had external review requirements on the books, with many of them just beginning to implement the first reviews. The results of state external reviews appear to mirror the employers' anecdotal experience - depending on the state, between 40 and 60 percent of reviews are decided in favor of the consumer.
While external review programs vary substantially from state to state, the general experience of the states suggests that external review is a quick and fair way to resolve significant medical treatment questions in involved in plan coverage decisions. These reviews work because, in most cases -- including Medicare and private group plans - the decisions of the reviewers cannot be challenged in state court and undercut by a jury.
V. Health Plan Liability for Coverage Decisions
Currently under ERISA, participant suits on benefit issues are tried in federal court and damages are not available. Similarly, Medicare and Medicaid beneficiaries, federal employees, and military personnel have remedies available under federal law, with access in certain circumstances to federal courts once internal appeals are exhausted. Participants cannot bring an action for benefits in state courts under state tort laws for denial of plan benefits.
Several Patient's Rights bills would waive ERISA preemption of state causes of action to permit participants in employer-provided health plans to sue the plan in state court for harm allegedly caused by an adverse benefit denial. The effect of these provisions would be to permit lawsuits for coverage decisions to go forward in state court, with access to jury trials and punitive damages. Some of these bills would also attempt to protect the plan sponsor (the employer) from liability for decisions made by the health plan.
The coverage decisions at issue are the most difficult decisions to make in health care. They relate to treatments that may have a very small chance of success for a critically ill patient with little hope of survival, at a very substantial cost to the plan. They relate to treatments where experts disagree and there is no consensus on a widely- accepted standard of care. They relate to emerging untested treatments where there is no evidence of success and questionable value for a patient.
Adding substantially to the liability for claims decisions and enabling patients to bring these questions before juries with large punitive damage awards is the wrong way to resolve these difficult questions. It is often after-the-fact - of little value to the patient. It is punishing the plan for what medical science cannot do.Tort liability for health plan coverage decisions would enable physicians who resist plan guidelines and accountability to encourage retaliatory lawsuits for adverse coverage decisions. It would encourage physicians with a financial stake in untested new treatments to encourage suits to discourage plan denials of coverage. Indeed, any effort of a health plan to bring a more systematic and disciplined approach to medical decision making could conceivably be challenged.
* Patients could sue a health plan if they believe that a better outcome would have resulted from a different treatment, regardless of whether the treatment they received was the most effective known therapy for their condition.
* Patients could sue over the use of protocols or guidelines, no matter how well designed they were, if treating physicians could be found to disagree with them.
* Patients could sue to punish plans that followed the right process in making medically-based decisions, if the provider or patient disagree with the decision.
Creating new avenues for litigation would not begin to solve the immediate problem for the patient - the need to get the best treatment when it can still do some good. Litigation would only offer the patient or their survivors hope after-the-fact. Creating health plan liability for coverage decisions in state court will set changes in motion that will have the reverse effect of what the advocates of liability seek:
- It will reduce health plan accountability by reducing or eliminating the quality assurance and plan selection activities of employers; - It will encourage plans to approve all treatments, and create a disincentive for quality improvement and evidence-based decision making by health plans. - It would discourage plan sponsorship by employers and lead to a reduction in the availability and quality of health benefits to employees.
Before the Congress sets forces in motion that will erode health care coverage further, we urge you to carefully weigh the consequences of creating liability for benefit decisions.
1. Employers who sponsor health plans cannot be protected from health plan liability if ERISA preemption is waived -- Many of the bills pending in Congress and the Texas and Georgia laws include language intended to protect the employer from liability. In some cases this is intended to be a blanket protection, in others it would be limited to employers who exercise no discretion regarding plan benefits. I believe no effort to protect plan sponsors from liability would work. Employers could protect themselves from liability in only one of two ways: - Terminate the health plan and no longer sponsor a plan; or - Amend the plan to cover only specifically stated items and services, so that failure to provide a service that was not explicitly covered would not be actionable in the courts.There are several reasons why plan sponsors cannot be protected from health plan liability3: - These bills would waive ERISA and federal common law that have definedthe duties of employers and plan administrators, leaving it to the States todefine these duties. State laws would create a liability for the employers'failure to exercise the duties they define. Employers would be protected onlyfor those activities the bill explicitly prohibits States from including as a duty. - These bills would specifically permit States to create liability for employers who "exercised discretion." Many employers review the decisions of their third party administrators, and would be liable for this reason alone. Indeed, under federal law, any involvement of an employer's in-house benefits personnel in the actions of a third party administrator- even unauthorized -would subject the employer to liability for the acts of its employee. (Cf Crocco v. Xerox Corp., 956 F.Supp. 129 (D. Conn. 1997)). - Even employers who do not exercise discretion are today sued (under ERISA) for actions of health plans or third-party administrators on the basis that they "negligently selected" or "negligently retained" plan administrators.
2. Health plan liability will lead to a reduction in the accountability of health plans to employers. Ironically, the logical response of employers who continue to sponsor plans will be to put the managed care organizations at greater arms length and reduce their own potential liability by: - Ceasing activities to monitor or overturn the benefit denials of the health plans; - Reducing their quality oversight and selection activities - providing a wider array of health plans for employees, with less effort to evaluate plans or guide employee selection toward higher quality plans; - Reducing the comparative plan information they provide to employees that might be interpreted as guiding or influencing employee choice.
3. Health plan liability will significantly raise health plan costs for employers.

The increase in costs will come in two ways: - Large punitive damage awards - recent judgments against state employee plans have revealed a potential for substantial punitive damage awards in benefit denial cases: including a recent California court judgment of $116 million in an Aetna case involving a bone marrow transplant4; a $13 million Kentucky court award in a Humana case involving a hysterectomy5. - Defensive utilization review- an increase in the approval of unnecessary, inappropriate and expensive procedures to avoid liability. Advocates of liability have championed tile 1997 Texas liability law as an example of how liability can be passed with little effect on costs. Quite the opposite is true. Cases only now begun to appear in Texas, having waited until last October for a district court to uphold the law. Since then, two cases have cleared the federal appeals court and have been remanded to state courts for trial.
Even without litigation, the law has had an effect on plan behavior and premiums. A physician group health plan in Texas that announced a 15 percent premium increase for employers in 1999 determined that half of the increase was attributable to a rise in the utilization of services driven by the new liability law6. The plan found that their Medical Directors were unwilling to review or deny a request for benefits for fear of delaying the process or triggering a lawsuit. The plan also eliminated requirements for prior approval and provided automatic coverage for some costly diagnostic procedures to avoid delay - a factor in the Texas law that creates considerable risk of liability for the plans. The plan considered that the cost of defending itself- even against unfounded cases -would average $100,000 a case7.
4. Health plan liability will send the wrong signals to health plans: State juries have already shown their tendency to override plan decisions on medical necessity that are consistent with consensus guidelines or have been upheld in external review. Often the only questions jury considers are whether the plan denied the benefit and whether the denial could have caused harm. Evidence that the denial was consistent with best medical practice is often not considered.
- In the Humana case, a patient with pre-cancerous cells on her cervix was approved for conization and denied a hysterectomy by Humana. The patient had the hysterectomy anyway and sued Humana. Even though tissue samples introduced in court clearly indicated the hysterectomy was inappropriate, the court awarded $13 million in punitive damages, not on the basis of this case, but to represent all hysterectomies denied by Humana in Kentucky over 3 years.
- In the Aetna case, the patient was denied an autologous bone marrow transplant for a rare stomach cancer by Aetna. Aetna had referred the patient to an out-of-network cancer expert who determined the cancer had spread too much. Aetna had this decision reviewed by two outside experts who concurred. The patient, who had the procedure performed under his wife's health plan, died despite the treatment. The jury addressed only the question of whether the plan denied the treatment and whether the denial could have caused harm. Without reviewing the findings of the outside experts or addressing the question of the medical appropriateness of the plan decision, the jury awarded $116 million in punitive damages.
If the response we want from plans is to improve the quality of their coverage decisionmaking, how do plans get that message from these jury awards? In both cases, the message to the plan was "cover everything, and deny nothing." Indeed, these juries made it clear to plans that coverage decisions supported by sound medical judgment backed by medical evidence and the consensus of external reviewers can not protect the plan from liability.
If the Congress truly wants plans to make coverage decisions that are right for the patient, it should enact an effective external review requirement. It should only provide health plan liability for these decisions, if it intends to discourage plans from relying on consensus panel recommendations, national guidelines, and medical evidence in making coverage decisions.
As the 1st Circuit Court stated in its decision in the case of Turner v. Fallon:
"...the real problem confronting the Turners was not one of judicial remedies but a larger and more intractable one. It is a society-wide problem of when and how to provide last-chance health care for a courageous patient faced with a mortal disease who may have a small chance at survival if provided an expensive cutting edge treatment that she cannot afford out of her own resources. This is not the kind of problem to which the courts can supply the solution?
FOOTNOTES:
1 MR Chassin, RW Galvin, and the National Roundtable on Health Care Quality. The Urgent Need to Improve Health Care Quality. Journal of the American Medical Association. 280:1000-1005; September 16, 1998.
2 S. Rosenbaum, D. Frankford, B. Moore, P. Borzi. "Who Should Determine When Health Care is Medically Necessary," New England Journal of Medicine. 340:229-232. January 21, 1999.
3 Memorandum on "employer's exposure to lawsuits for negligent claims reviews," prepared by Rosina Barker, Esq., Ivins, Phillips and Barker, February 26, 1999.
4 Goodrich v. Aetna/USHEalthcare - January 20, 1999.
5 Johnson v. Humana Health Plans, Ky. Cir. Ct., No. 96-CI-00462, 10/20/98.
6 Internal memorandum, Scott & White Health Plan, Temple Texas, December 23, 1998.
7 Letter from Jim Rohack, MD, Scott & White Health Plan to the Honorable Dale VanVyven, Chair, Ohio House Health, Retirement & Aging Committee. March 3, 1999.
8 Turner v. Fallon Community Health Plan (127 F.3d 196 (1st cir. 1997).
END

LOAD-DATE: June 25, 1999

Document 180 of 268.


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