[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
SMARTER HEALTH CARE PARTNERSHIP FOR AMERICAN FAMILIES: MAKING FEDERAL
AND STATE ROLES IN MANAGED CARE REGULATION AND LIABILITY WORK FOR
ACCOUNTABLE AND AFFORDABLE HEALTH CARE COVERAGE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MARCH 15, 2001
__________
Serial No. 107-9
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
71-493 WASHINGTON : 2001
_______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office
Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250
Mail: Stop SSOP, Washington, DC 20402-0001
------------------------------
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
deMontmollin, Stephen J., Vice President and General Counsel,
AVMED Health Plan.......................................... 59
Greenman, Jane F., Deputy General Counsel, Human Resources,
Labor and Benefits, Honeywell.............................. 65
Larsen, Hon. Steven B., Insurance Commissioner, Maryland
Insurance Administration................................... 22
Monson, Hon. Angela, Senator, State of Oklahoma.............. 29
Palmisano, Donald J., Member, Board of Trustees, American
Medical Association........................................ 70
Pollack, Ronald F., Executive Director, Families USA......... 33
Rosenbaum, Sara, Director, Center for Health Services
Research and Policy........................................ 80
Material submitted for the record by:
deMontmollin, Stephen J., Vice President and General Counsel,
AVMED Health Plan, letter dated April 9, 2001, enclosing
response for the record.................................... 110
ERISA Industry Committee, The, letter dated April 23, 2001,
enclosing response for the record.......................... 121
Larsen, Hon. Steven B., Insurance Commissioner, Maryland
Insurance Administration, letter dated April 19, 2001,
enclosing response for the record.......................... 123
Monson, Hon. Angela, Senator, State of Oklahoma, letter dated
April 11, 2001, enclosing response for the record.......... 127
Rosenbaum, Sara, Director, Center for Health Services
Research and Policy, letter dated March 22, 2001, enclosing
response for the record.................................... 108
(iii)
SMARTER HEALTH CARE PARTNERSHIP FOR AMERICAN FAMILIES: MAKING FEDERAL
AND STATE ROLES IN MANAGED CARE REGULATION AND LIABILITY WORK FOR
ACCOUNTABLE AND AFFORDABLE HEALTH CARE COVERAGE
----------
THURSDAY, MARCH 15, 2001
U.S. House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee, pursuant to notice, at 10 a.m., in room
2322, Rayburn House Office Building, Hon. Michael Bilirakis
(chairman) presiding.
Members present: Representatives Bilirakis, Greenwood,
Burr, Whitfield, Ganske, Wilson, Shadegg, Bryant, Buyer, Pitts,
Tauzin (ex officio), Brown, Strickland, Barrett, Capps,
Pallone, Engel, Wynn, Green, and Dingell (ex officio).
Staff present: Nandan Kenkeremath, majority counsel; Yong
Choe, legislative clerk; and Bridgett Taylor, minority counsel.
Mr. Bilirakis. I call the hearing to order.
As most of you know, many members of this committee and the
Congress as a whole have been grappling with the issues
involved in the managed care debate for a number of years now.
Today I think we are closer than we ever have been to
finding common ground on several key issues.
Although some of the players have changed, the goal is the
same; that is, a piece of legislation that can be passed by
both the House and the Senate and signed into law by the
President.
Managed care is no longer a new method of health care
delivery. It has become an integral part of our national system
of health coverage.
In the public and private sectors, millions of Americans
participate in managed care plans.
Clearly, opinions differ on this sensitive subject. Some
patients are pleased with the type of benefits and treatment
they have received, while others have had difficulty obtaining
the type and quality of care they need.
Most lawmakers are in general agreement on some of the
basic issues of concern regarding managed care.
This hearing will focus on two issues which still bedevil
us: the Federal and State regulatory roles for scope and
liability.
Many stakeholders are particularly concerned about new
causes of action that may increase litigation and uncertainty,
thereby driving employers away from providing the health
coverage many Americans depend upon.
I am hopeful that we can also tackle the difficult issue of
medical malpractice this year, and we may hear from some of our
witnesses on that issue.
I would like to welcome our witnesses and thank you all for
joining us today. I want to extend a particular welcome to a
fellow Gator fan, Steve deMontmollin, who is the Vice President
and General Counsel for AvMed, a managed care organization
based in Gainesville, Florida, which operates throughout the
State.
I greatly appreciate the time and effort of all of our
witnesses who will share their views on these important issues.
I look forward to using the information gained today as we
work with the President and our colleagues in the Energy and
Commerce Committee to enact responsible managed care
legislation in this Congress.
Members of this subcommittee have worked for over 6 years
to craft and enact responsible managed care reforms that do not
impede access to health insurance. Our current system utilizes
a confusing patchwork of Federal and State regulatory and
enforcement relationships, and we do not want to make that
situation worse.
Recognizing that new legislative mandates could add to that
complexity, we must be informed and precise in all of our
actions.
I am pleased that the President has taken a leadership role
in outlining principles in support of a broad set of patient
protections to a system that provides deference to State laws
and the traditional authority of States to regulate health
insurance.
The White House principals also State employers should be
shielded from unnecessary and frivolous lawsuits and should not
be subject to multiple lawsuits in State court.
I believe there is a general consensus on this point and we
should ensure that any legislation accomplishes this result.
Stakeholders on all sides of this thorny issue have found
areas of consensus in the President's Principles. As a result
of his leadership, I am optimistic that we can enact
responsible legislation this year.
Of course, before any measure can be presented to the
President for signature, the House and Senate must first reach
agreement. The role of Congress is critical in this process and
we must work together to find bipartisan solutions to the
Nation's health care problems.
I now yield to my good friend, the ranking member, Mr.
Brown.
Mr. Brown. I thank you, Mr. Chairman. I thank our
distinguished witnesses, especially my friend Ron Pollack, and
Sara Rosenbaum and others, thank you all for being here.
Beyond jurisdiction, there is another good reason for this
subcommittee to hold a hearing on the Patients' Bill of Rights.
Our subcommittee is fortunate to include the policymakers
in this Congress who have led the fight for managed care
reform.
Ranking Member Dingell, Charlie Norwood, Greg Ganske, Frank
Pallone, John Shadegg, all of them. These lawmakers have
already brought about beneficial changes in the health care
system and they are poised to finish the job.
It would be difficult to underestimate their contribution
and achievement.
We owe, the Nation owes a particular debt of gratitude to
Charlie Norwood and John Dingell and Greg Ganske. They
supported patient protections when the political barriers
seemed insurmountable. They supported patient protections,
whether their colleagues stood with them or not.
They supported patient protections, despite continual
pressure from powerful and firmly entrenched interest groups in
Washington. They supported patient protections because health
insurance is meant to allay worry, not to compound it. And they
supported patient protections until, finally, a majority in
Congress saw things their way.
Their efforts have brought us closer than we have ever been
to enacting meaningful patient protections. The key word is
meaningful. If we enact rights that can't actually be
exercised, they are simply not rights.
I want to focus on the right to sue. As I see it, the goals
are, one, to deter irresponsible coverage decisions; two, to
provide an appropriate judicial forum for settling health plan
contract disputes; three, to provide genuine resource for
individuals who have been materially harmed by a health plan's
medical decision; and, four, to prevent frivolous lawsuits.
A related goal is to make sure that the right party is
being sued. In other words, an employer should never be held
liable unless that employer does something employers don't do;
that is, he or she takes over the role of medical examiner,
reviewing individual claims and making explicit medical
decisions.
How do we achieve these goals? If we can enact legislation
that includes a strong independent external appeals mechanism
and timely bona fide access to the appropriate court system, we
have knocked off the first four goals. If we write explicit
language into this legislation that protects employers from
exposure to liability when a third party is making medical
decisions, we have accomplished the fifth goal.
The President believes all suits should go through Federal
courts. Unfortunately, that approach fails to meet two key
goals associated with the right to sue, deterring irresponsible
treatment decisions and providing genuine recourse when
individuals have been materially harmed by a treatment
decision.
Obviously, simply ensuring individuals access to a court,
even if it is the wrong one, is no real deterrent to reckless
health plan behavior and it certainly doesn't provide a
legitimate remedy when health plan decisions cause serious harm
to enrollees.
Ranking Member Dingell and Mr. Ganske, along with Senators
Edwards and McCain, have introduced legislation that bifurcates
lawsuits into categories that reflect the court system best
suited to hearing them.
Contract disputes would and should be resolved in Federal
courts. Personal injury cases would and should be heard in
State courts.
Their bill also includes a specific prohibition on suing
employers for actions that the health plan takes.
With these provisions, the bill's authors have done a
stellar job meeting, I believe, all five goals, and I commend
them for it.
This is not a legislative hearing, per se, but it would be
foolish to ignore good ideas that are already on the table.
I hope we can continue to look to the members that have led
on this issue as a source of very good ideas.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. The remaining opening
statements will be limited, in concert with the rules, to 3
minutes.
The Chair recognizes Dr. Ganske.
Mr. Ganske. Thank you, Mr. Chairman. In today's Roll Call,
there is a two-page ad, ``Quality Health Care, Not Frivolous
Lawsuits: President Bush, We Couldn't Agree with You More,''
and a long list of companies.
And you know what? You can put my name on that, too.
There's a lot of myths out there, and I want to talk a little
bit about the Ganske-Dingell bill.
Myth No. 1, that our bill would lead to a flood of
litigation. The Ganske-Dingell bill's legal liability
provisions will not create a widespread rush to the courthouse.
We ensure that the vast majority of disputes between
managed care plans and patients would be resolved without the
need for legal intervention, because we have a strong appeals
process, both internal and external.
Under the bill, the patients would have to complete the
internal and external appeals process before proceeding to
court, unless there is danger of immediate and irreparable
harm, or death has already occurred.
The Texas experience shows that over the last 4 years,
external appeals, internal appeals work. There have only been
10 lawsuits.
Myth No. 2, employers can be sued under the Ganske-Dingell
bill. Fact: employers cannot be held liable unless they have
directly participated in the actual making of the decisions
about the patient's care.
You know what? That is what Van-Hillary was proposing in
one of the substitutes 2 years ago. We made a good faith effort
to move toward employers on this and, once again, they have
stepped away and moved that goalpost.
The Ganske-Dingell bill provides that an employer only can
be held legally accountable when it directly participates in
the actual making of the decision or the actual exercise of
control in making the decision were in the conduct constituting
the failure.
In those rare instances, employers should be held
accountable, and I will talk about a few cases on that.
Further, the bill expressly states that employers cannot be
sued for, A, picking the plan; B, picking the third-party
administrator; C, conducting a cost-benefit analysis of the
plan; D, modifying or terminating the plan; E, designing the
plan benefit; or, F, advocating for coverage, additional
coverage for an enrollee, and defining medical necessity in a
certain way also does not constitute direct participation.
Myth No. 3, with a strong appeals process, there is no need
for legal accountability with managed care. Well, fact:
although you need a strong and independent appeals process and
it is essential, it won't suffice. Let me give one example.
Mr. Bilirakis. Mr. Ganske, your time has expired.
Mr. Ganske. Thirty seconds, Mr. Chairman.
Mr. Bilirakis. Without objection. I don't want that to be
the start of something here.
Mr. Ganske. Thank you. A patient sustained injuries to his
neck and spine from a motorcycle accident, after he was taken
to the hospital.
The hospital's physicians recommended immediate surgery,
but the health plan, the HMO, refused to certify the procedure.
Soon afterwards, the patient was paralyzed.
That patient didn't have a chance to go through an internal
and external appeals process. Are you going to continue with
ERISA, which says the only liability, the only remedy is the
cost of care denied? I think that is not justice.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Dingell, for an opening statement.
Mr. Dingell. Mr. Chairman, your courtesy is appreciated. I
commend you and Chairman Tauzin for your interest in this very
important matter of the Patients' Bill of Rights.
I want to say that I hope my colleagues and our audience
were listening to Dr. Ganske, my co-sponsor and good friend,
and I want to commend him and Mr. Brown and, also, my very
special friend, Dr. Norwood, for the fine leadership that they
and so many others have given on this particular piece of
legislation.
There are a number of things that need to be addressed.
First of all, we have to see to it that the rights in the
Patients' Bill of Rights go to all people who are covered by
plans of this kind and not just to a portion.
Second of all, we have to address the problem of liability
fairly and to see to it that we, in fact, have a liability
system which assures that the patient gets what he wants and
what he thinks he is getting under the plan of which he is a
part.
I would note that we didn't include such device in the
Kennedy-Kassebaum bill and, as a result, that bill is largely
nugatory in its impact.
I would note that last year Dr. Ganske and I co-sponsored a
bill with the help and the leadership and participation and
counsel of Dr. Norwood that provides some middle ground on the
question of liability.
It says that traditionally cases which have gone to State
court, i.e., medically reviewable decisions, will continue to
go there; that contract cases will, of course, go to Federal
courts.
This whole question of lawsuits is a red herring, as has
been observed, as also is the unfortunate question of the other
unfortunate questions that are raised.
I would note that when you are hurt by wrongdoing, you
ought to have some remedy. Denial of that remedy is clearly
wrong. ERISA provides shelter for wrongdoing and there are only
two categories of persons in this Nation who can absolutely
escape liability for their wrongdoing. One is foreign diplomats
and the other is HMOs under the ERISA situation.
I think we have the capacity to get at least one crowd of
wrongdoers, and I think it would be a splendid idea that we did
so.
Having said this, I have a superb opening statement, Mr.
Chairman, that I know you and the other participants in this
matter will enjoy reading. I would ask unanimous consent that
it be inserted in the record, and I believe I have made my
statement conclude in a timely fashion, and I thank you.
[The prepared statement of Hon. John D. Dingell follows:]
PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
I am pleased Chairman Tauzin has taken an interest in the Patients'
Bill of Rights, an issue that many of us on this Committee have worked
on for some time now. I am also pleased that Chairman Bilirakis has
called this hearing. Today, we are going to hear about scope and
liability, both critical components of a patient protection bill.
I am not quite sure why we are even talking about scope. I don't
think there is anyone here, on this Committee or in the audience, who
would say that we shouldn't protect all patients. It's the right thing
to do, and it's what we will do--ensure that all Americans are
guaranteed basic, minimum protections. Some will propose loopholes and
escape clauses, but those will not stand public scrutiny.
But on the question of liability, the differences are significant,
and the key question remains: will consumers have a real remedy that
offers them meaningful recourse, or will consumers be left with only an
illusory solution to their current plight? We have a President who is
calling for a federal liability scheme, one that would preempt state
laws currently on the books. But the House passed a bill last year that
allowed state courts to continue their work without federal
interference. How can and should these be resolved?
This year, Dr. Ganske and I co-authored a bill, with the help and
counsel of Dr. Norwood, that provides a middle ground. We preserve
ERISA's uniformity for benefit decisions--which is what many employers
have expressed concern about--yet at the same time, we allow states to
continue their work without the federal interference of ERISA by
reinstating the states' traditional purview over personal injury tort
cases. This approach is balanced, sound, and fair.
Whether consumers will go to Federal court or state court when they
are injured, is not just quibbling over which court to go to. It is the
difference between a workable and meaningful remedy and a remedy so
riddled with roadblocks, hurdles, and complications that it is of no
use to anyone. The federal remedies I've seen offered thus far are so
narrow in scope as to be practically meaningless.
Moreover, a federal remedy for medical cases ignores the
traditional role of state courts in addressing personal injury matters.
Whether you have been hurt by slipping on the floor in Wal-Mart or by a
doctor or hospital, these are personal injury cases. A federal remedy,
therefore, duplicates the work of state courts and doubles the number
of lawsuits--patients would be forced to hold their doctor accountable
in state court and their HMO accountable in Federal court. And, it
leaves patients vulnerable to an HMO's ``empty chair'' defense, as HMOs
in Federal court will always blame the doctor or hospital, who will not
be there. Finally, it delays patients' ability to get a remedy. Why
should injured patients have to wait in line behind drug dealers and
criminals before they can get their case heard? I don't know about you,
but I put injured patients before criminals any day.
Not only that, but restricting consumers to a federal remedy is
worse than an empty promise. The Supreme Court recently ruled that
medical decisions that cause injury could appropriately be heard in
state court. To provide an exclusively federal remedy would undo what
patients have already gained through that Supreme Court decision. It's
no wonder some health plans and employers are interested in a federal
remedy--they can escape the current trend in state courts to hold them
accountable for their actions. We cannot let this Trojan horse within
the city walls. Our goal is to provide meaningful remedies for
consumers, not take them away.
I am pleased this hearing focuses on the important issue of
liability, and I look forward to hearing our witnesses. I hope this can
be the year all Americans receive effective and enforceable patient
protections.
Mr. Bilirakis. I can't even respond to that. Without
objection, the opening statements of all members of the
subcommittee will be made a part of the record.
The Chair now recognizes Mr. Buyer for an opening
statement.
Mr. Buyer. Thank you, Mr. Chairman. I have an opening
statement I'd like to submit for the record.
Mr. Bilirakis. Without objection.
Mr. Buyer. And in response, I would say that the issue over
the litigation provisions is not a red herring. It is more like
a whale for trial lawyers.
I would also say that just the mere allegation of the
immediate irreparable harm means that it is the access to
litigation.
So I am very concerned about that, Dr. Ganske. I respect
your medicine, but being a trial lawyer myself, I would love
what you're trying to do. But if you believe in reducing the
litigation in our society, we are such a litigious society, I
am stunned that a doctor would advocate that.
Great praise and gratitude should be offered to Mr. Shadegg
and Dr. Coburn. Why? Because they sought to find the middle
ground, and I believe that they found that middle ground, and I
would like to yield the balance of my time to Mr. Shadegg.
[The prepared statement of Hon. Steve Buyer follows:]
PREPARED STATEMENT OF HON. STEVE BUYER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF INDIANA
Mr. Chairman: I thank you for having this hearing which focuses on
two areas of contention in the debate on protecting patients in managed
health care settings. Before moving into that, however, I think it is
important to first mention the areas in which there is a great deal of
agreement.
There is really not much dispute that in the event of a medical
emergency, patients should be able to access the emergency room. If an
individual thinks a heart attack is occurring, that person should have
no hesitation in going to the emergency room.
Patients who need specialized treatment should have access to
specialists.
Women should have direct access to obstetricians and gynecologists.
Parents should have peace of mind and be able to choose a
pediatrician for their children, if that is their desire.
Plans should provide clear and concise information to consumers
about the coverage in the health plan.
The focus of this hearing is on the areas of disagreement: the
extent of the federal role into what has traditionally been a State
regulated environment; and the ability of patients to sue employers for
decisions related to health benefits.
This subcommittee and this Congress need to recognize that
employers have provided access to quality health care to millions of
Americans. And many of these people like the coverage they get through
their employer. It is reliable, it is hassle free, and it is
affordable.
I agree that those who make medical decisions should be held
accountable when the patient is harmed by that decision.
However, we must tread carefully and not simply accuse employers of
medical malpractice simply because they provide health insurance to
their employees. Increasing litigation will result in less health care,
not more.
Finally, I applaud the President for stepping forward in this
debate. He has given us a viable set of principles. We need to work
with the President to turn these principles into legislation that can
be signed into law.
Mr. Shadegg. I thank the gentleman for yielding, and I will
be brief.
I was going to say in my own opening statement, and I will
say it now, that this has been an issue characterized by two
polar extremes.
On the one hand, you have a position which says that HMOs
which injure people will enjoy absolute immunity when they do
so, and I couldn't agree more with my colleague, Mr. Dingell,
that no one in this society should be absolutely immune for the
consequences of their conduct.
The reality of that public policy is that it simply
encourages bad decisions, and it does not encourage care, and
at the end of the day, we need a system that encourages care.
So for my friend, Dr. Ganske, and my friend, Dr. Norwood,
who have led in this fight, I commend them. The policy of
allowing an HMO to injure or kill a patient by the result of
their decision and go without paying any consequence, other
than the cost of care denied, which is a joke, is, I think,
clearly wrong.
But sadly, at the other end of this pendulum is the other
extreme, and the other extreme says we ought to be able to sue
any plan anytime over anything, and the sad fact is that that
kind of a public policy will have consequences.
And in my opening statement, I will talk about the specific
provisions of the language that is in the current legislation
that has been discussed here today, the Edwards-Kennedy
legislation, Dr. Ganske's legislation, which I don't believe is
seriously intended, because it will, in fact, open a floodgate
of lawsuits and enable, for example, employers to be sued and
held into that lawsuit all the way to the end of the
litigation, merely because they bought the health insurance and
offered it to their employees.
I would urge us as a committee to do what my friend Mr.
Brown talked about and what the chairman referred to, and that
is seek to find common ground. Enough of the extremes of this
debate. Enough of the trial advocates at the one end of the
spectrum and enough of the pure HMO interests at the other end
of the spectrum asking for immunity.
We have to, for the sake of the American people, find
middle ground on this issue and pass a bill which will, in
fact, improve health care in America for all Americans.
And I yield back.
Mr. Bilirakis. I thank the gentleman. Mr. Pallone.
Mr. Pallone. Mr. Chairman, let me say, first of all, that I
think we've found the middle ground, and it disturbs me to hear
of those who think that we haven't.
I want to start by commending progressive Republicans like
Mr. Ganske and Mr. Norwood and in the Senate, Senator McCain,
because they introduced a bill which I co-sponsored a few weeks
ago or a month ago that basically is similar to the Patients'
Bill of Rights that was passed in the State of Texas and that
is on the books in Texas, and was a very middle ground
approach.
It even limited punitive damages a little more than what we
passed by a majority in the House last year, and I thought that
we had a bill that we could fly with and all of a sudden to
hear President Bush saying, ``Oh, that is not good enough, that
doesn't meet my principles,'' and now those in the Senate, the
Frist-Breaux people who are now trying to go down a slippery
slope and say that it is not good enough and whittle away more
at patients' rights, it is very, very disturbing to me.
We are simply saying, and I think all of us who are
progressive agree that the scope of this should be all-
encompassing, everybody should be included, and that you should
have a legitimate viable right to sue if all else fails.
And what we are seeing now, I know the hearing isn't a
legislative hearing today, but what we are seeing now is the
President and the Republican leadership, who never supported
the Patients' Bill of Rights, who appointed people who were
against the Patients' Bill of Rights to the conference last
year, so we were never able to get a bill out, basically trying
to whittle down the scope and the liability provisions.
If you read, although we don't have a bill, what the Frist-
Breaux is basically saying, with regard to the scope, they are
trying to do something where you can opt out for States, which
I am very concerned about, basically limits the scope, and they
are trying to say with regard to the right to sue that it
should be a Federal, limited Federal right to sue, which,
again, eliminates options for people who need to sue in State
courts.
And I just think that what we are going to see is that the
people who were against the Patients' Bill of Rights last year
are now trying to use these two issues and, again, whittle away
from what we have essentially agreed on.
We have a consensus. This passed in the House, with almost
every Democrat, maybe every Democrat and about a third of the
Republicans.
President Bush, on the campaign trail, said he supported
the Texas law. He didn't sign it, but he said he supported it
and it was doing a good job.
That is what Dr. Ganske and Mr. Dingell did. They basically
took the Texas law and they made it into Federal law.
What's wrong with it? It is working. As Dr. Ganske said,
what have you had, like 10 suits so far? This is just an effort
to kill this bill, to wear us all down, to drag out this
process.
I am not suggesting, Mr. Chairman, you shouldn't have the
hearing today. I think the hearing is a good idea. But we need
to pass the Dingell-Ganske bill. It has got bipartisan support.
It can pass both houses if it is put up.
I call upon the Republican leadership to put it up and to
sign it into law as quickly as possible.
Thank you, Mr. Chairman.
Mr. Bilirakis. The Chair recognizes now, for his time, Mr.
Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman. It is regrettable
that this has a tendency to deteriorate into a partisan debate.
I think it is vitally important that we resist that in
every way.
The reality is the American people deserve legislation in
this area and it is incumbent upon this Congress and upon this
President to find common ground.
It is true that the debate has been characterized by the
extremes to this point in time and it is sad that that is so.
The chairman said in his opening remarks that our task is
to find common ground, and he felt we were closer to finding
common ground than we ever have been.
I think that is right. Contrary to the comments of my
colleague just a moment ago, for example, the basic patient
protections in both the Ganske-Dingell, Kennedy-Edwards
legislation, and in the alternative legislation that Dr. Coburn
and I offered last year, those basic patient protections are
nearly the same and they would extend to patients across
America the fundamental rights that need to be extended to
them.
But there are critical differences and there are certain
concerns where the two sides have to give up their extremes,
and I'd like to begin by talking about some of the issues that
have already been discussed.
I think and I think it is worth noting that no one, no one
in this city can plausibly believe that it is realistic to
propose legislation on this topic which will allow employers to
be sued, and yet the Edwards-Kennedy legislation clearly allows
employers to be sued.
Here is the language of the bill. We have copies of it for
anybody who wants. It begins with a blanket statement that
lawsuits against employers are precluded and then there is a
large exception.
It says a cause of action may arise, and here is where it
says it may arise. It may arise if the employer directly
participated in the final decision to deny care.
Now, that sounds reasonable. And if the employer did
participate in the final decision to deny care, they ought to
be held liable. But the problem with this structure is that it
creates a fact question--that is, did the employer participate
in the final decision.
That fact question goes all the way to the jury, which
means every employer in America can be sued and can be held in
that lawsuit all the way through the jury verdict, based on a
mere allegation that they directly participated.
There is an alternative structure that is well-known in
this town called the designated decisionmaker, and that is a
structure that says every employer could designate a health
care decisionmaker, which is the entity that will make the
health care decision and that entity may be sued and only that
entity, although the employer, if they fail to designate such
an entity or if they chose to retain the decision to make the
health care decision, then the employer could be sued.
That is a structure that protects all employers, and I
don't think anybody can credibly say that structure isn't
viable and shouldn't be the preferred alternative.
Second, let's look at this issue of exhaustion. Exhaustion
is vitally important right now because today health care plans
in America today have a structure where they are being told how
to practice medicine by HMOs.
Well, HMOs don't have doctor's degrees and they shouldn't
be telling doctors how to practice medicine.
The reverse of that should be true. You should have a panel
that tells the plan how, a panel of doctors that tells the plan
how to practice medicine and what the standard of care ought to
be in America.
Unfortunately, the Kennedy legislation, the Edwards
legislation creates two large exceptions for that. It is not
death that is the issue. It creates an exception for late
manifestation of injury and it creates an exception, as my
colleague, Mr. Buyer pointed out, for immediate irreparable
harm.
But the key is it is a mere allegation of late
manifestation of injury or a mere allegation of irreparable
harm.
Now, all that means is that any trial lawyer who wants to
go directly to the court can cut out external review and that
means doctors won't set the standard of care in America. That
means trial lawyers will.
You don't have to prove the late manifestation of injury.
You simply have to allege it.
Mr. Bilirakis. The gentleman's time has expired.
Mr. Shadegg. You don't have to prove immediate irreparable
harm. You merely have to allege it.
We need to get beyond these points and get to some common
ground.
Mr. Bilirakis. Mrs. Capps.
Mrs. Capps. I want to thank the chairman for holding this
hearing. It is an important topic and many on this committee
have worked very hard to address the need for patient
protection in managed care.
I particularly tip my hat to Mr. Dingell, Mr. Norwood, Mr.
Ganske, and Mr. Brown. Their diligence and leadership
throughout the last Congress led to a reasonable and bipartisan
piece of legislation to protect patients and these efforts
should serve as an example to us now, particularly in the area
of liability components.
Most managed care organizations want to give their
beneficiaries adequate care, but they are operating in an
environment designed to keep costs low. Not a bad thing, unless
the pressures to cut corners are too severe.
When this pressure is excessive and leads to bad decisions,
abuse of patients' rights and quality health care are the
result, there needs to be a counter force on the side of
quality care, on the side of the patients, and that counter
force is the threat of the courts.
Access to the courts will help restore balance to the
scales, will prevent the need for efficiency from outweighing
the need for quality care.
My constituents don't want to go to court to get their
health care that they need, but sometimes HMOs don't want to
provide that care. HMOs don't want to go to the courts either,
but the threat of appropriate litigation is how average
Americans will keep the HMOs honest. We need to give patients
that tool.
I am so pleased to see that the President has also
recognized the need for patients to have access to the courts.
I know there are differences between his position and the
Ganske-Dingell-Norwood bill, but it seems to me they should be
resolvable.
In fact, I think this legislation meets the requirements
the President laid out in his State of the Union on February
27, in which he said, ``We will ensure access to the courts for
those with legitimate claims, but first let's put in place a
strong independent review so we promote quality health care,
not frivolous lawsuits.''
I hope the President will see that this sounds exactly like
the Ganske-Dingell bill and will sign this legislation when we
pass it.
Now, I know the President believes the right to sue should
be left to the Federal court, but this flies in the face of
common sense and the advice of leading legal experts, including
Chief Justice Rehnquist, who has stated that Federal courts
should be reserved for cases that cannot be adequately handled
by the State courts.
For more than 200 years, State courts have been able to
handle these types of personal injury and wrongful death cases.
The experience and the precedent that the Federal bench lacks
on these matters. Even so, the Ganske-Dingell bill includes a
compromise on this issue in which matters of medical judgment
are dealt with at the State court level and matters regarding
benefits are addressed at the Federal level.
And it is my hope that the President will see the wisdom of
this compromise and accept it.
Mr. Chairman, although this committee did not hold hearings
on the Patients' Bill of Rights last year, its members have
been very active on it. We know the issues, the background, the
challenges we face, and we know how to overcome them.
We know it is the right thing to do and we know it is what
we will ultimately pass.
Mr. Chairman, I look forward to working with you to move us
quickly on these issues for these goals.
If I have any remaining time, I will yield a few seconds to
Mr. Brown.
Mr. Bilirakis. By all means.
Mr. Brown. I thank my friend from California. I just want
to emphasize that the employer liability issue that we, on our
side, and on both sides that support this issue have, we only
want the employer to be liable when that employer itself,
himself or herself, denies treatment, and that ends in injury
or death for the patient.
We have constructed it very narrowly. We have made repeated
requests, we on the committee, we supporters of this bill. We
have negotiated this issue and made repeated requests to
employers, consumer groups have made repeated requests to
employers, physician organizations have made repeated requests
to employer organizations that say give us some language that
keeps it that narrow.
Mr. Shadegg. Will the gentleman yield?
Mr. Bilirakis. The gentleman's time has long expired. The
chairman of the full committee, Chairman Tauzin.
Chairman Tauzin. Thank you, Mr. Chairman. Let me commend
you for holding this important hearing.
It is no secret that in the years passed, this committee
was essentially bypassed on this critical issue of managed care
reform. I hope all the visitors today will know that this
committee is now meeting this issue head on. That is a marked
departure from the past and I hope it is well received and well
respected by all of you who have come here to testify and to
help educate us on the issue.
While the names of members of this committee, Mr. Norwood,
Mr. Dingell, Mr. Ganske, Mr. Shadegg, Mr. Burr, Mr. Bilirakis,
the chairman of the Health Committee for the past years of this
Congress, have all been involved in the debate on the floor on
this issue, this is the first time we will actively engage the
issue and hopefully process this issue in months ahead at this
committee level.
We are moving relatively fast. There were efforts, as you
know, for us to delay this hearing and not to process, and Mr.
Bilirakis, the chairman of this committee, has correctly stood
his ground and is moving forward with these hearings.
And he has my full support and, by the way, the support of
the Speaker in these hearings.
On the other hand, at the request of the White House, we
have excused a representative who was scheduled to be with us
reorienting HCFA, who was going to testify on the limited area
of dual accountability under the 1996 HIPAA Act, accountability
for enforcement between State and Federal authorities, to give
us some sense of how those systems currently work.
At the request of the administration, we have excused that
witness, because the administration correctly indicates that
Secretary Tommy Thompson has not yet even announced nor
received clearance on his designee as head of that agency and
has asked for some time before his agency testified, and we
have voluntarily agreed to that request today.
Nevertheless, we are going to hear some important
perspectives on either side of this issue today, and I want to
thank the chairman for moving forward and for involving our
committee as it is.
This is an issue that has been around for at least 6 years
and many of the members that I pointed out of this committee
have been part and parcel of the debate, and it is one that we
are anxious to settle this year.
We want doctors to make medical decisions. We want
insurance companies to provide useful insurance products, and
we want health care costs that are reasonable, and we want a
system of coverage that works for patients and their families,
and patients are going to always be the focus of our efforts
here on the health care issues.
We do not want legislation whose cure is worse than the
problem. Current regulation of employee benefit plans in health
insurance is already a confusing patchwork of Federal and State
regulatory enforcement relationships, which we are going to
explore somewhat today.
We have the Department of Health and Human Services,
Department of Labor, the Internal Revenue Service, State
Insurance Commissioners, all in a regulatory and enforcement
mix.
HHS is still working through many of the provisions of the
Health Insurance Portability and Accountability Act and State
children's health insurance programs, how those laws will
affect the States.
We are having hearings on some of these problems and we are
seeing huge problems at HCFA and we are going to, as you know,
examine the whole operations of that agency over the next
several months.
Any version of managed care will likely add to the
complexity in varying degrees. We need to be very thoughtful
and careful as we move forward.
The White House is taking a leadership role, with
principles that support a broad set of patient protections,
through a system that provides deference to State patient
protection laws, and to the traditional authority of States to
regulate health insurance.
We need to respect those principles, both because they are
right and because we need legislation the President will sign
in the end.
Neither the Federal Government nor the States can afford
anymore excessive bureaucracy. We must minimize the potential
for disruption, complexity and uncertainty for those who
provide coverage and we must realize that there are few
resources for Federal agencies to administer and enforce
regulations where States choose not to do so. We had better
create a flexible system.
And when it comes to liability issues, Federal remedies are
generally the exclusive remedies for wrongful denial of
benefits under private employee insurance plans.
The standard of conduct for such administration has been
for 25 years Federal law. Federal law provides employers
nationally uniform and cost-effective standards of conduct for
the administration of plans, including the system for improving
and denying claims for coverage.
As stated in the White House Principles, we should not
disturb this fundamental linkage of Federal stands of conduct
and Federal remedies for breach of such conduct.
A contrary approach would allow unlimited and inconsistent
theories. The law is challenge all aspects of administration of
benefits and, I think, would create uncertainty and
inconsistency.
We do not want to raise the cost of providing health
insurance benefits. We don't want to increase unnecessary
legislation. On the other hand, President Bush is providing
leadership on this subject.
His principle states that patients should have the right to
appeal a health care decision, to deny health care through both
internal and independent binding external review.
This is an important new innovation upon which there is
broad agreement. An independent external appeal process will
really make a difference for patients and their families, and
we all know that.
The White House Principles further state that Federal
remedies should be expanded to hold health plans accountable
specifically. After an independent review decision is rendered,
patients should be allowed to hold their health plans liable in
Federal court if they have been wrongfully denied needed
medical care.
That would be a substantial addition to current Federal
law. At the same time, the White House principles state that
employers should be shielded from unnecessary and frivolous
lawsuits and should not be subject to multiple lawsuits in both
State and Federal courts.
Now, that should be a bedrock principle. Employees need to
be protected, but employers, too, from unnecessary and
frivolous litigation. Damages, likewise, should be subject to
reasonable caps.
Mr. Chairman, we are going to make every effort to do this
right.
In my own State of Louisiana, the failure to have reform of
medical malpractice liability is costing the people of my State
in higher costs, less insurance coverage, and unnecessary
litigation.
I have heard from many physicians in my State about the
need to reform medical malpractice laws, and this is an
important issue for us to think about and to address.
When we craft this managed care legislation, I hope we
don't do anything to compromise our principles on medical
malpractice reform.
Mr. Chairman, this is an incredibly important first step.
There are many steps to follow. I want to commend you for
taking this first step and all the ones that will come as we go
forward.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the chairman. Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I appreciate you
holding this hearing on a number of issues which have the
support not only of our country, but also the constituents I
represent. We need to reform our country's managed care system.
More than 161 million Americans are enrolled in some form
of managed care plan. Unfortunately, many of these Americans
feel that they have less access than ever before to the health
care they want and need.
They often feel powerless under many medical plans,
believing they have no resource should something go wrong.
It is time for Congress to take action and I am a proud co-
sponsor of, this year, H.R. 2526, the Bipartisan Patient
Protection Act.
This important legislation will do a number of things, such
as provide access to emergency room care, access to specialty
care, direct access for women to OB/GYNs, direct access for
children to pediatricians, and a fair and independent internal
and external review process, and, also, eliminate of the gag
orders.
Most importantly, however, the legislation makes sure that
HMOs are held accountable for damages if their denials or
coverage decisions harm patients. I know this is a
controversial provision and one that we will discuss at great
length today, but if you can't tell, I represent a district in
Texas and in the last few years, Texas did pass, in 1997, a
Patient Protection Act that has an external review, and allows
patients to go to the courthouse for accountability.
But we have only had, at least at last count, five lawsuits
in the last 4 years. The external and internal review system is
working very well.
There has not been a flood of lawsuits and, in fact, like I
said, we had less than five lawsuits filed.
There are several reasons for so few lawsuits. One, it has
an independent external appeals process and I believe it takes
care of the threat of lawsuits.
People feel like they have an avenue for grievances. In
most of those cases, the rulings run from the internal and
external appeals process, fall a little over 50 percent, for
the patient.
So I always say we need better than the flip of a coin when
someone decides on health care for not only us, but our
constituents, and that is why I think if we model something
after the Texas plan for managed care reform, it will have
success. But you have to have accountability and we don't have
the experience of lawsuit abuse that our chairman fears we
might get to that point.
I think it is time Congress follow the States' lead and we
can enact bipartisan managed care reform.
I yield back my time, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. Mr. Whitfield.
Mr. Whitfield. Mr. Chairman, thank you very much. I also
would like to congratulate Dr. Ganske and Mr. Dingell and Dr.
Norwood and others who have been pursuing a Patients' Bill of
Rights.
However, I voted against the bill on the floor last time,
and the reason I voted against it was because of the liability
issues.
Now, everyone says that we don't want frivolous lawsuits
against employers, and I think all of us are realistic enough
to know that today trial lawyers are very innovative, and Dr.
Ganske said that employers are not going to be sued unless they
directly participated in making a decision about the health
treatment of a patient.
And as Mr. Shadegg said, that is an allegation, that is a
fact situation that a jury will determine. And I think we have
a responsibility to move slowly on this, as we have, to be sure
that we address that issue in a comprehensive way.
Right now, there are more than 30 class action lawsuits
pending against a number of health plans in a Federal district
court in Florida about policy issues, about purchasing issues.
And we want a health care system that does not sap the
resources available for health care for the benefit of a few
talented trial lawyers.
And I think all of us want a health care plan that protects
patients, but we also have a responsibility to make sure that
there are not these humongous class action lawsuits, with these
multi-billion dollar awards in today's marketplace.
I would also say that I personally would like to see us
conclude not only a Patients' Bill of Rights, but a citizen's
right to health insurance, because in the Patients' Bill of
Rights, we are talking about 139 million people and there are
about 44 million people or 43 million people who don't have any
health insurance at all.
So I would like to see, as a part of this bill, including
health marts or some pooling arrangements or some incentives to
help people who can't afford to pay their premiums for their
health insurance.
And unlike the people in this factual situation, their
employers do not provide their health care.
So with that, Mr. Chairman, I will yield the balance of my
time to Mr. Shadegg.
Mr. Shadegg. Mr. Chairman, I will be very brief. I simply
want to respond to the comments of my colleague, Mr. Brown. He
said that there had been active efforts to seek language to
protect employers.
The question of protecting employers from frivolous
lawsuits, while still allowing those entities that make
negligent health care decisions to be sued and to be held
liable is a critical question and is it at the heart of this
dispute, because if employers can be sued, we will never pass
this legislation, if they can be sued for merely buying
insurance.
The language that has been offered, Mr. Brown, and I'd be
happy to give you a copy, is a concept called designated health
care decisionmaker. It precludes a lawsuit against an employer
for simply buying an insurance policy.
The problem with the language proffered in the Ganske,
Kennedy, and Edwards bill is that that language, as my
colleague, Mr. Whitfield, has just pointed out, allows an
employer to be named as a defendant and held in the lawsuit.
What that means is if Joe Jordan's Mexican Food Restaurant,
a small Mexican food restaurant in my home town, where my
family goes to eat, were simply buying insurance, it can be
named in the lawsuit and because it is a fact question whether
it directly participated in the decision to deny care, it can
be held in that lawsuit all the way through a jury trial.
Imagine the cost to Joe Jordan's Mexican Food Restaurant,
which only employees about 12 people, to defend that lawsuit.
Mr. Bilirakis. Mr. Whitfield's time has long expired.
Mr. Shadegg. Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Barrett.
Mr. Barrett. Thank you very much, Mr. Chairman. I
appreciate you holding this hearing. I assume everything I was
going to say has been said.
I simply want to respond very quickly to the statement Mr.
Shadegg made.
I have long thought that there are three legitimate
issues--or two legitimate issues in terms of this debate. One
is the liability issue. Second is the ERISA coverage. The third
issue, which I consider the boogeyman issue, is the issue that
the previous speaker just spent a considerable amount of time
on.
That, to me, is an issue that is just thrown out there to
throw mud on the wall, and I don't know a single person on this
side of the aisle or anybody who is moving and pushing this
legislation who is interested in having employers held liable.
I think that that is an issue that we can certainly address
with language, but I don't think it advances the debate at all
to throw out this boogeyman issue.
Mr. Bilirakis. I don't want to have a debate now during
opening statements. It isn't fair to the witnesses, for crying
out loud, and I've let it go long enough.
Mr. Ganske. Would the gentleman yield? The gentleman from
Wisconsin.
Mr. Barrett. I will certainly abide by the chairman's wish
and if you want me to stop there, Mr. Chairman, I will stop. If
you want me to yield to your fellow Republican, I'd be happy to
do so.
Mr. Bilirakis. You are welcome to yield to my fellow
Republican, but I am not at all happy with the way these
opening statements are going.
Mr. Barrett. Thank you very much. I would yield to Mr.
Ganske.
Mr. Ganske. I appreciate your yielding. I will be very
brief, Mr. Chairman.
I would be happy to get the voting records from this
committee on the number of Republicans who voted for the
Hillary substitute back in 1999, which used a direct
participant standard.
I will yield back.
Mr. Barrett. And I will yield back to the chairman.
Mr. Bilirakis. Thank you, sir. Mrs. Wilson.
Mrs. Wilson. Thank you, Mr. Chairman. I have found these
opening statements to be interesting for the amount of heat, if
not light, and I find myself in a situation where I come from a
State that has a fairly strong patients' protection law and a
very robust and competitive managed care market.
I actually have read the legal arguments, and I am not a
lawyer, and some lawyers are good for writing for people who
aren't lawyers and some aren't, but I have read the legal
briefs on both sides, the ones that support Dr. Ganske's view
and the concerns written by the lawyers for businesses who are
worried about whether their companies will be able to continue
to provide health insurance for their employees.
For me, I am not a lawyer. I am married to one. It always
ruins my reputation when I mention that, but I don't think this
is about lawsuits and I think that the attorneys who wrote
those briefs and the people who are arguing these positions
firmly believe what they are saying and believe that they will
have to advise their senior executives in their companies that
they can no longer afford the risk to provide health insurance.
I think the last thing we want to do is to pass a law to
protect patients that results in making it even harder than it
already is to get health insurance or for a small business to
just feel as though, golly, I just can't take the risk of
offering health insurance, and we have an increase in the
uninsured.
I don't think that is a red herring. I think it is a
legitimate issue and a real fear among those who are trying to
make these decisions on behalf of their companies and their
employees, and we have to resolve it, while, at the same time,
recognizing the change in health care.
That is that insurance companies used to just make one
decision, does the plan cover it or not cover it. They did not
involve themselves in, yes, it is covered, but this is the
preferred method of treatment.
That is more of a medical decision, and what we are
struggling with is what to do in that gray area when a doctor
doesn't use his best medical judgment because an administrator
with the HMO, who may be a medical doctor, as well, says, no,
our statistics show that the best course of treatment is this
one and, oh, by the way, it may also be less expensive to the
HMO.
Those are the things we are trying to square here and I
think it is possible to find a way to do it in a way that gives
patients protections, gives people access to the care they need
for themselves and their families, and allows companies to
continue to offer health insurance for their employees.
Thank you, Mr. Chairman.
Mr. Burr [presiding]. The gentlelady's time has expired.
The Chair would recognize Mr. Pitts for an opening statement.
Mr. Pitts. Mr. Chairman, I want to thank you for holding
this important hearing today.
As a new member of the committee, I look forward to taking
part in the managed care discussion.
I believe that you have chosen an appropriate title for
this hearing, A Smarter Health Care Partnership for American
Families, and I look forward to examining the Federal and State
roles and regulation of managed care and how these two can
become a healthy partnership.
I realize that many managed care proposals have been
introduced today. However, I believe that the Health
Subcommittee, by carefully evaluating the issues that will come
before us today, can both improve the quality of any final
legislative product and help come to a fair and reasonable
compromise.
Allow me to say for the record, I want to improve the
quality and reliability of health care services, and I want to
increase patient access to these services.
Further, I want to be sure that doctors make medical
decisions, that health care costs are reasonable, and that our
health care system works for our patients.
However, I do not want a legislative solution whose cure is
worse than the problem. I would like to avoid legislation that
would create unnecessary bureaucracy and litigation, which, in
turn, would significantly raise the cost of health care.
I am gravely concerned about the 42 million Americans who
currently lack health insurance. Employers in my district have
told me that if a few of the current managed care reform
proposals were to become law, they would drop employee coverage
immediately and provide their employees with a lump sum payment
for them to shop around for their own insurance.
This gives me pause. I wonder what percentage of employees
would actually use that money for health insurance? Not enough,
I am afraid.
If we allowed this to happen, it would only drive up the
number of uninsured in America. That is why it is important
that we carefully examine these issues today.
Again, Mr. Chairman, thank you for this hearing. I look
forward to hearing the testimony today so that I can learn more
about this important issue.
I yield back.
Mr. Burr. The Chair thanks the gentleman. The Chair would
recognize Mr. Bryant for purposes of an opening statement.
Mr. Bryant. Thank you, Mr. Chairman. I would be brief by
associating myself with the remarks of my colleague from
Arizona, Mr. Shadegg, as well as my colleague from New Mexico,
Mrs. Wilson.
I agree with those comments, and I don't think anyone here
has any less concern for access to health care than I do or I
think probably everybody on this committee.
Access is very important, but having come from a practice
of medical malpractice defense, I think that issue of medical
malpractice is one of the biggest cost drivers in the health
care system.
Of course, the doctors have to purchase medical malpractice
insurance because they are the ones that see the patients. That
is because you've got litigation involved in that, and what we
are doing in some of these bills that Mr. Shadegg has mentioned
specifically by name is inviting this type of litigation into
this part of the system, and here the employer has other
options that the doctors don't have.
The doctors have to play in that game and buy insurance.
The employer has additional options, and that is, as has been
mentioned several times, they don't have to provide the
insurance. If there is a risk that they are going to be sued,
if their lawyer tells them you are exposed here, why put up
with that?
It is already very expensive and if you can get out of it
easily and without furnishing that benefit, you will do that.
And in the end, we are defeating our issue of access by putting
more and more people off onto the uninsured rolls. So we all
want access, we all want quality health care, accountability,
those good things, and my view has been all along that the
Shadegg-Coburn bill is the best bill that meets all of these
standards.
I would, again, thank the chairman for his holding this
hearing as we talk about insurance and families.
We have to deal with these kinds of issues, and I suspect
all these witnesses that are waiting very patiently to testify
today are imminently qualified to talk about the different
parts of this.
With that, I would yield back the balance of my time.
Mr. Burr. The Chair thanks the gentleman from Tennessee.
The Chair would recognize himself for the purposes of an
opening statement at this time.
Let me just say that as our audience can tell, there is
tremendous passion on both sides of this issue. The sad part is
we can't display the same type of passion on other health care
issues. If we could, we would solve many of the problems that
patients face today as they are delayed, waiting for technology
to receive reimbursement codes before they can get treatment or
whether they are elderly and don't currently have prescription
drug benefits.
I must be an exception to the rule. In every debate, there
is one.
I am a member of an HMO in North Carolina. My children go
to a pediatrician. My wife goes to an OB/GYN. Whenever we have
an emergency, we know exactly what the cost is of the option of
going to the emergency room versus trying to get in the
pediatrician's office, and we make a decision in our household
whether it is urgent enough that we seek that additional cost
of care or whether, in fact, we go through the burden of a
possible delay in that pediatrician's office.
I welcome the opportunity to make that decision. I know
that all Americans don't want to make tough choices.
In that case, we get involved where government tries to get
new rules. Maybe that is what we are here to do as we debate
this piece of legislation.
My last two colleagues that spoke talked about a very
important population in this country. They talked about the
employers that aren't under a Federal obligation to offer, to
extend to their employees coverage, health care coverage, one
of the single most expensive things that we have in society
today.
We continue to try to find the balance of the appropriate
role of Federal mandates, while still maintaining this base of
employee offered health care.
Most of the health care debates focus around the 44 or 42,
depending upon which figure you look at, million people without
insurance.
My question at the end of this debate is if we force
employers, whether they are employers who purchase insurance
options for their employees, or if it is the large pool of
self-insured companies out there, both public and private, that
cannot withstand the pressure from their board of potential
exposure, exposure that many up here have said we have taken
care of in the language, none of us know until the courts
interpret how exposed they are.
In North Carolina, I can see a self-insured company that
would be brought up for making coverage determinations because
they expanded the scope of coverage to take care of one of
their employees who they value.
Well, the question is, who are we going to sue when these
people have no health insurance anymore? Who are we going to
blame? We should blame ourselves, if we do the wrong thing.
I want to thank our witnesses for coming. I want to thank
the members of this panel on both sides for the passion that
they have on this issue, and my hope is, at the end of the day,
we will learn just a little bit more about what to do that is
the right thing.
At this time, I think all members have had an opportunity
for opening statements.
[Additional statements submitted for the record follow:]
PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WYOMING
Today's hearing will help guide us in understanding federal and
state roles in regulating health plans. It will also give us the
opportunity to learn more about the complexities surrounding the
federal law known as ERISA that governs employer-sponsored health
plans.
Without a thorough understanding of these issues, I believe we will
have difficulty crafting a universally acceptable liability provision
within any managed care legislation.
I always keep in mind one very simple thing as I try to better
understand the intricacies of regulating health plans--patients want
good medical care, and they want to know that some remedy is available
to them if that care is not rendered properly.
My difficulty with this issue is two fold. I have many individuals
in my district who have problems with their health plans and they want
a state cause of action available to them--but ERISA is not permitting
that.
On the other hand, I must be very conscious of the small business
community in my state because it is a driving force in Wyoming's
economy. These small businesses voluntarily provide health coverage for
their employees.
If these employers did not have the liability protections afforded
them by ERISA, as they currently do, they would drop coverage
immediately. The number of uninsured in my state would then increase
dramatically. That is unacceptable to me.
I am hoping the testimony of our witnesses today will shed some
light on this particular aspect of the liability debate because I know
that I am not the only one with such concerns.
Thank you, Mr. Chairman. I yield back the balance of my time.
______
PREPARED STATEMENT OF HON. ELIOT ENGEL, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW YORK
Mr. Chairman, I would like to thank you for having this hearing
today and providing an opportunity to highlight HR 526, the Ganske/
Dingell Patient's Bill of Rights, of which I am a cosponsor. Patient
protection is a key issue in this Congress. The American people have
asked Congress to provide adequate protections and we must respond. We
will be discussing crucial aspects of patient protection legislation,
scope and liability. The Ganske/Dingell bill addresses these issues in
the proper manner.
Ganske/Dingell leaves no individual behind. Everyone with insurance
coverage is protected by the bill. To do anything less would be
irresponsible. Managed care providers should be held to the same
standards as physicians and hospitals across the country. HR 526 would
ensure that all Americans enjoy the benefits of a patient's bill of
rights. I am also pleased the Ganske/Dingell bill includes the
``substantially equivalent'' provision in determining whether or not
state laws are adequate, and allows states to prove that its laws meet
or exceed the federal standard. The process improved upon the HIPAA
model and should prove to be an efficient method.
The question of liability has been the subject of much debate. The
Ganske/Dingell model has evolved to provide a compromise to the
federal/state jurisdiction question. It has established that state
courts are the proper venue in instances of medical decisions and
federal courts are the proper venue for administrative or coverage
questions. States have traditionally held jurisdiction in tort law and
medical liability should be no different. Federal courts have neither
the time nor the resources to handle the case load and injured patients
should not be left to languish while waiting to have their case heard.
Mr. Chairman all Americans deserve a strong, enforceable patient's
bill of rights. I believe the Ganske/Dingell bill is good for the
American people and I look forward to moving this legislation.
Mr. Burr. Let me then call up the first panel and welcome
the Honorable Steven Larsen, Insurance Commissioner, Maryland
Insurance Administration; the Honorable Angela Monson, Senator,
State of Oklahoma; Mr. Ron Pollack, the Executive Director,
Families USA.
At this time, I would extend to Mr. Larsen the opportunity
for his opening statement. Welcome.
STATEMENTS OF HON. STEVEN B. LARSEN, INSURANCE COMMISSIONER,
MARYLAND INSURANCE ADMINISTRATION; HON. ANGELA MONSON, SENATOR,
STATE OF OKLAHOMA; AND RONALD F. POLLACK, EXECUTIVE DIRECTOR,
FAMILIES USA
Mr. Larsen. Good morning and thank you, Mr. Chairman and
members of the subcommittee. It is a pleasure to be here.
I am Steve Larsen, the Insurance Commissioner for the State
of Maryland, and I am also the Chairman of the NAIC's Health
Insurance and Managed Care Committee. Again, thank you for
inviting us to testify.
As you know and as we have heard, under ERISA's dual
regulatory structure, State regulators are currently enforcing
many of the patient protection provisions that are being
considered by Congress and that have been included in the
President's Principles, and I have included in my written
testimony a comprehensive list of some of the things that the
NAIC has developed and that the States have adopted.
There are just three particular points that I would like to
make to the subcommittee.
First, in considering the patient protection proposals, we
ask that States be given the greatest amount of flexibility in
preserving and enforcing the existing State patient protection
laws.
I think it was noted in his principles, President Bush says
that deference should be given to the States as patient
protection laws and to the traditional authority of the States
to regulate insurance, and the members of the NAIC also want to
preserve and enforce these State laws and we prefer a Federal
approach that gives us the flexibility in how we meet those
requirements.
Some of the proposals that have been discussed save the
State laws by using the HIPAA standard, which prevents the
application standard, and, under this standard, State laws are
preempted only if they prevent the application of the Federal
standard.
This approach essentially establishes what is a Federal
floor for patient protections.
If you are going to use this approach, we ask that language
be added to clarify specifically that State laws and
regulations that are stronger than the Federal requirements or
more protective of the consumer than the Federal requirements
are not preempted.
Without this clarifying language, I think disputes will
arise as to whether stronger State laws still somehow prevent
the application of what, in some cases, maybe a less
protective, weaker Federal standard.
In this regard, we are also supportive of the concepts of
State certification and substantial equivalents, as these will
give particular deference to the States and their laws. Under
this approach, the States would determine whether their patient
protection laws, as a whole, are substantially equivalent to
the Federal standards and the State would then certify that the
State meets the goals of the new Federal requirements.
This also would prevent disputes over whether the State
language is exactly the same as the Federal bill, and instead
the focus would be on whether the intent and the outcome of the
State and Federal laws were similar.
The second point I would like to emphasize, and, again, I
think this point was referred to in a number of the opening
statements, is that the State internal and external review
processes are the most fundamental and important patient
protections, and it is particularly important that these State
laws are preserved.
It is through these processes that we enforce all of the
other State patient protection laws. Almost every State has an
internal review law and about 38 States and the District of
Columbia have independent external review laws, and, simply
stated, we think that these laws work.
In Maryland, where I am Commissioner, we have what I think
is one of the most consumer-friendly external review laws in
the country.
During the 2000 calendar year, we issued 68 orders to
health plans, requiring coverage of medically necessary care
under our external review process, including a tonsillectomy
for an adult in order to treat obstructive sleep apnea.
We ordered 24-hour professional in-home care for a 77-year-
old man with ALS, on a ventilator; a foot orthotic for a 15-
year-old competitive cross-country runner who had a stress
fracture; an inpatient detox and rehab for a woman with a 4-
year addiction to medication for chronic severe back pain.
All of these had been denied by the health plan and through
the external review process, we reversed that and ordered the
health plan to provide the care.
Recognizing and preserving the State external review laws
is particularly important, because some Federal courts have
recently concluded that State external review laws conflict
with ERISA's exclusive remedy provisions.
These cases fundamentally threaten the ability of the
States to regulate the external review process and although not
all the courts have adopted this construction, the Supreme
Court is deciding whether to resolve this. The best solution
here would be for Congress to clarify that State internal and
external review laws, as well as other complaint or grievance
processes, are not preempted and we have, in the written
testimony, offered some suggested language.
Third and finally, Congress, we hope, will recognize that
patient protection laws require an infrastructure to enforce
them.
State insurance departments currently have established
regulatory infrastructures and if these State laws were
preempted, along with the State infrastructure, we think that
consumers would lose.
Any Federal standard should be linked to Federal resources
to enforce the patient protections.
Thank you very much.
[The prepared statement of Hon. Stephen B. Larsen follows:]
PREPARED STATEMENT OF HON. STEVEN B. LARSEN, COMMISSIONER OF INSURANCE,
STATE OF MARYLAND ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS
I. INTRODUCTION
Good morning, Mr. Chairman and Members of the Subcommittee. My name
is Steve Larsen. I am the Insurance Commissioner for the state of
Maryland. Also, I am the chair of the NAIC's Health Insurance and
Managed Care (B) Committee. I would like to thank you for providing the
NAIC 1 with the opportunity to testify about the states'
role in managed care regulation and the need for state flexibility in
any federal legislation that is drafted.
---------------------------------------------------------------------------
\1\ The NAIC, founded in 1871, is the organization of the chief
insurance regulators from the 50 states, the District of Columbia, and
four of the U.S. territories. The NAIC's objective is to serve the
public by assisting state insurance regulators in fulfilling their
regulatory responsibilities. Protection of consumers is the fundamental
purpose of insurance regulation.
---------------------------------------------------------------------------
As state regulators, the members of the NAIC have been regulating
health insurers and managed care entities and protecting consumers for
many years. Most states have enacted almost all of the same provisions
that Congress is currently considering. We believe our experience in
this area and the infrastructure that has been established in the
states to ensure these patient protections are critical factors that
Congress needs to consider carefully when crafting any federal patient
protection legislation.
Today, I will focus on four areas that Congress specifically should
examine should the federal government and the states become partners in
providing patient protections. These areas are: (1) Congress should
recognize that the states have already enacted patient protection laws;
(2) the states should be given the greatest amount of flexibility in
preserving and enforcing these protections; (3) state internal and
external review processes, the most fundamental and important patient
protections, should not be preempted by federal law and should be given
the same amount of state deference as the other patient protections;
and (4) Congress should recognize that the states have an extensive
infrastructure in place to protect consumers, and if federal
legislation were to preempt state laws, the federal government does not
have the resources or the infrastructure to enforce these new patient
protections.
II. THE STATES' ROLES AND ACTIVITIES IN MANAGED CARE REGULATION
The enactment of the Employee Retirement Income Security Act of
1974 (ERISA) created a dual federal-state regulatory structure in this
country for health insurance and health benefits. Under ERISA, the
federal government has jurisdiction over all employer-sponsored group
health plans, but state laws that regulate the business of insurance
are saved from preemption by virtue of the saving clause (Section 514
of ERISA). The saving clause was enacted to preserve the states'
traditional role of regulating insurance, including the regulation of
insurance policies purchased by ERISA plans (fully insured plans).
The states have taken this role seriously. They have enacted
patient protections for consumers in individual and group plans under
their authority to regulate the business of insurance, and they have an
established infrastructure to enforce these rights. State regulators
are presently enforcing many of the patient protection provisions that
are being considered by the Congress and that are included in the
President's ``Principles for a Bipartisan Patients' Bill of Rights''
(``President's Principles'').
To assist the states in this work, the NAIC has established a
comprehensive regulatory structure that includes the following patient
protections as reflected by the NAIC's Model Acts:
Using a ``prudent layperson'' standard and prohibiting prior
authorization requirements for emergency care. (Managed Care
Plan Network Adequacy Model Act; Utilization Review Model Act;
Model Regulation to Implement Rules Regarding Contracts and
Services of Health Maintenance Organizations.)
Requiring continuity of care where a provider is terminated
from the plan. (Managed Care Plan Network Adequacy Model Act;
Health Maintenance Organization Model Act; Model Regulation to
Implement Rules Regarding Contracts and Services of Health
Maintenance Organizations.)
Requiring network adequacy. (Managed Care Plan Network
Adequacy Model Act.)
Establishing utilization review requirements. (Utilization
Review Model Act.)
Providing quality improvement and measurement standards.
(Quality Assessment and Improvement Model Act.)
Requiring that plan information be given to patients.
(Individual Accident and Sickness Insurance Minimum Standards
Model Act; Health Maintenance Organization Model Act; Small
Employer Health Insurance Availability Model Act.)
Establishing privacy requirements for patient medical records.
(Insurance Information and Privacy Protection Model Act; Health
Information Privacy Model Act; Health Maintenance Organization
Model Act; Privacy of Consumer Financial and Health Information
Model Regulation.)
Requiring plans to establish specific procedures for
determining enrollee coverage and payment for services, and to
meet defined time frames for standard and expedited coverage
determinations. (Utilization Review Model Act; Health Carrier
Grievance Procedure Model Act; Model Regulation to Implement
Rules Regarding Contracts and Services of Health Maintenance
Organizations; Health Maintenance Organization Model Act.)
Requiring and establishing standards for an internal review
process, including time frames for routine and expedited cases.
(Health Carrier Grievance Procedure Model Act; Utilization
Review Model Act; Health Maintenance Organization Model Act.)
Requiring and establishing standards for an external review
process, including time frames for routine and expedited cases.
(Health Carrier External Review Model Act.)
Prohibiting restrictions on physician-patient communications
(anti-gag rule). (Managed Care Plan Network Adequacy Model
Act.)
In addition to enacting the specific provisions above, many states
have enacted additional consumer protections, some of which are
included in the President's Principles and in Congressional
legislation, such as requiring access to obstetricians, gynecologists
and pediatricians without referral from a primary care provider.
Although not every state has enacted every protection,2
these protections are just a part of the many services that the state
insurance departments provide for consumers in their states.
---------------------------------------------------------------------------
\2\ Not all of the states have enacted all of the above provisions
for a variety of reasons. Some states have no managed care penetration
or very limited managed care penetration, although it is important to
note that many states with limited managed care penetration have
enacted these reforms for consumers in managed care and other health
care arrangements. Other states have not had the problems that
particular provisions are meant to address or have found other
solutions. To require all states to adopt the same blanket regulation
for all situations would only result in over-regulation of and unneeded
expense to the marketplace. State legislatures are sensitive to their
marketplaces and consumer concerns, and when needed, they have been
proactive in establishing consumer protections that are tailored to the
needs of their states' health care markets.
---------------------------------------------------------------------------
III. PRESERVE STATE LAWS AND ALLOW FOR STATE FLEXIBILITY
President Bush in his principles says that since ``many states have
passed patient protection laws that are appropriate for their states,
deference should be given to these state laws and to the traditional
authority of states to regulate health insurance.'' The members of the
NAIC are also interested in preserving the state-enacted consumer
protections and the states' authority to ensure that consumers have
their questions, claims and grievances addressed. State systems that
are working should not be preempted by Congressional action that cannot
guarantee the enforcement of these protections. Congress should
recognize the states' efforts and expertise in developing these
protections and give the states the greatest amount of flexibility in
preserving and enforcing these protections through the effective and
user-friendly consumer complaint and appeals systems in place around
the country.
A. Preserve State Laws and State Authority to Regulate Insurance
There is an attempt in some current proposals to save many state
laws by using the ``prevents the application'' standard established in
the Health Insurance Portability and Accountability Act of 1996
(HIPAA). This standard provides that federal law ``shall not be
construed to supersede any provision of State law which establishes,
implements, or continues in effect any standard or requirement solely
relating to health insurance issuers (in connection with group health
insurance coverage or otherwise) except to the extent that such
standard or requirement prevents the application of a federal
requirement.'' Basically, this structure establishes what is commonly
referred to as a ``federal floor'' (federal minimum standard), and it
only preempts state laws that are weaker than the federal proposal.
Equal or stronger state laws would continue in effect. If Congress is
going to establish a federal minimum standard, we offer the following
suggestions to improve implementation of the legislation and to ensure
that state consumer protections are not preempted.
First, Congress should reinforce the saving clause and not preempt
existing state patient protection laws. Due to the uniqueness of each
state's marketplace and the effective framework already in place, we
ask Congress to respect the existing state consumer protections and
allow states to continue to regulate fully insured plans and enact
consumer protections based on the needs of the individual states'
marketplaces. We urge that Congress not preempt state laws that already
address the patient protections Congress hopes to enact.
In this effort, we ask that Congress add the following legislative
language that reinforces the continued state authority to regulate the
business of insurance under the McCarran-Ferguson Act and ERISA's
``Saving Clause'': ``This legislation shall preserve and shall not
interfere with the states' authority granted under 15 U.S.C. sec. 1011
et seq. (McCarran-Ferguson Act) and under ERISA Section 514 to regulate
the business of insurance.''
Second, Congress should include clarifying language in any federal
patient protection bill that uses the ``prevents the application''
standard. From a state's perspective, HIPAA's ``prevents the
application'' standard is problematic because it is unclear and
difficult to use in comparing state laws to the relevant federal law.
If the ``prevents the application'' standard is used, we suggest that
clarifying language be added to give states more guidance when
implementing the standard. Therefore, after the usual ``prevents the
application'' standard language, we offer the following language
suggestion: ``A State statute or regulation that establishes standards,
requirements or administrative processes does not prevent the
application of a requirement of this title if the protection the state
statute or regulation affords any person is equal to or greater than
the protection provided under this title and the amendments made by
this title.''
B. Give Deference to State Laws and Allow for State Flexibility
Although the current legislative proposals generally attempt to
save state laws that are equal to or more protective than the proposed
federal standards, the President's Principles seek to preserve state
authority beyond the federal floor. The President wants to give
deference to state laws that are tailored to the state health insurance
market and to the traditional authority of states to regulate health
insurance. So far this year, the concepts of ``state certification''
and ``substantial equivalence'' have been included in the federal
legislation that will give greater deference to the states and preserve
more of their laws.
Using these concepts, the states would determine whether their
patient protection laws as a whole meet the goals of the new federal
requirements. Deference should be given to the states in their analysis
that their state laws meet the requirements of the federal proposals.
The states then would certify that their statutory and regulatory
patient protections taken as a whole are ``substantially equivalent''
or are comparable to the federal standards and that the state laws
should remain in force. This approach would prevent the debate from
getting bogged down in whether the state language is exactly the same
as the federal bill, especially if the intent and the outcome are
similar.
While this is the prevalent approach that has been introduced so
far in this year's patient protection debate, other approaches may be
developed that also would preserve and give deference to state laws. We
welcome any approach that allows states to continue to enact reforms
based on their state markets and gives states maximum flexibility in
how they meet the federal requirements, while ensuring that all
individuals have a basic level of protection.
IV. INTERNAL AND EXTERNAL REVIEW
Internal and external review processes are the most fundamental and
important of the patient protections. President Bush stated as one of
his Principles that patients should have the right to appeal a health
plan's decision to deny care through internal and independent external
review. The NAIC and the states could not agree more. We recognize the
importance of internal and external review as fair and quick processes
for resolving issues for consumers. The NAIC has model laws on each
process, almost every state has internal review laws in place, and 38
states and the District of Columbia have independent external review
laws in place. There has been a sharp increase in the number of states
adopting these laws over the last few years.3 As such, we
believe state internal and external review processes should not be
preempted by federal law and should be afforded the same level of
deference as the other state patient protection laws.
---------------------------------------------------------------------------
\3\ The Kaiser Family Foundation updated its November 1998 study of
independent review laws in May 2000 documenting a doubling in the
number of such state laws. Geraldine Dallek and Karen Pollitz,
Institute for Health Care Research and Policy, Georgetown University
External Review of Health Plan Decisions: An Update, May 2000, at 1.
---------------------------------------------------------------------------
While we are supportive of the inclusion of internal and external
review processes in any federal legislation (so that all individuals
are afforded this protection, not just those covered by the state
laws), Congress should keep in mind three points: (1) internal and
external review are the heart of any patient protection legislation;
(2) the state external review laws are working; and (3) internal and
external review is a process, not a remedy.
A. Internal and External Review are the Heart of Patient Protections
In passing a patients' bill of rights, Congress is setting minimum
standards in a variety of areas designed to ensure a basic level of
protection for consumers. However, enforcement of those standards,
through internal and external review processes, is crucial to ensure
that the consumer actually benefits from those standards. States
presently enforce internal and external review laws and thus ensure
that consumers get the benefits to which they are entitled. Enforcement
of patient protections by way of internal and external review is what
makes those protections real, rather than illusory rights on paper. For
example, letting states maintain their emergency room prudent layperson
standard, but taking away the state process to ensure that standard is
used, results in an empty right for patients.
It is crucial that Congress extend the same deference to state
internal and external review laws as it does to other state patient
protections. Internal and external review standards are the heart of
patient protections; enforcement of those standards is what makes all
patient protections meaningful. For the federal government to preempt
state laws in this area would be to preempt state insurance departments
from responding to consumer complaints by eliminating an effective
method or process which states use to assure that consumers receive
basic protections under their health plan. To give states the ability
and flexibility to keep their other patient protection laws but to take
away the patient protection process to ensure delivery of these other
protections at the very time that those protections come into play
would be a serious mistake.
B. State External Review is Working, So Do Not Disrupt It
Most of the states have enacted external review laws already and
the appeals process is working in these states. In fact, President Bush
praised the Texas independent external review law as a desirable way to
resolve disputes and for consumers to get the care to which they are
entitled. He even endorsed the Texas law as a model for any federal
legislation. This endorsement combined with his desire for deference to
state law would support the preservation of the Texas law and other
state external review laws from being preempted by any federal
legislation.
Texas is not the only state that has recognized the success and the
importance of external review as a fair and quick process for resolving
issues for consumers. For example, in Maryland last year, the Insurance
Administration reviewed 137 complaints about the denial of health care
by insurers. The agency upheld the denials 69 times, but reversed or
modified them 68 times.4 Similar figures have been found in
other states, with the reviewer finding for the consumer in half of the
cases and for the insurer in the other half.5 The high
percentage of reversals by state independent reviewers proves both the
wisdom and importance of preserving these state laws from federal
preemption. The states believe this review process has been and
continues to be very successful; it is a way for people to challenge a
denial of their claims and a way of holding HMOs accountable.
---------------------------------------------------------------------------
\4\ The Maryland legislature created the appeals procedure in a
1998 law, and the Insurance Administration began hearing appeals in
1999. In 1999, the regulators conducted 91 full reviews, upholding the
insurer about half the time. In 1999 and in 2000, about half the
complaints involved patients wanting to get a service, while the rest
involved patients who have received care but the insurer declined to
pay. The Insurance Administration can have cases reviewed by
independent medical specialists to decide whether care is appropriate.
In 2000, most of the 1,526 complaints received by the Maryland
Insurance Administration did not result in a full investigation
(similar to 1999). A large majority of cases drop out of the process
for various reasons. In 120 cases, the insurer reversed itself during
the review process. In about a third of the cases, the Insurance
Administration did not have jurisdiction because the patient was
covered by Medicare, Medicaid, employer self-insured plans, or state
and federal employee plans. All these are outside the appeals
procedure. Nearly half the complaints did not go to investigation
because the dispute was not about medical necessity, because the
patient had not first tried the insurer's internal appeals process, or
because there was not enough information.
\5\ The 1998 Kaiser Family Foundation Study compiled disposition
statistics of state independent review laws. The study found that
independent reviewers reversed nearly as many health plan decisions as
they upheld, overturning health plan decisions between 32 and 68
percent of the time. The following is a list of states, their effective
dates and the percentage of cases that were decided in favor of the
consumer. Connecticut-January 1998-66%; Florida-1985-60%; Michigan-
1978-39%; Missouri-1994-50%; New Jersey-1997-42%; New Mexico-March
1997-50%; Pennsylvania-1991-37%; Rhode Island-1997-68%; Texas-November
1997-48%; Vermont mental health law-November 1996-33%. Karen Pollitz,
Geraldine Dallek and Nicole Tapay, Institute for Health Care Research
and Policy, Georgetown University, External Review of Health Plan
Decisions: An Overview of Key Program Features in the States and
Medicare, Nov. 1998, note 11, at vii-viii.
---------------------------------------------------------------------------
B. Internal and External Review--A Process not a Remedy
When drafting any federal patient protection legislation, Congress
needs to give special consideration to the internal and external review
processes in terms of their construction and scope and their placement
within the ERISA statute. The NAIC members are concerned about how
these provisions are drafted for two reasons.
Some federal courts have interpreted the remedy provision in ERISA-
-the filing of a civil suit in court--as an ``exclusive remedy'' that
preempts state laws addressing claims handling by insurers. These cases
fundamentally threaten the enforcement authority of state insurance
regulators. Not all courts have adopted this construction, and the
Supreme Court is deciding whether to resolve this conflict between
federal courts.
A related issue is the scope or definition of ``grievance and
appeals processes.'' Last year the patient protection bills in both
chambers included grievance and appeals processes that went beyond
resolving disputes concerning coverage decisions. In fact, the bills
established grievance and appeals processes to handle any question,
complaint or concern a consumer may have. If a court were to determine
that the grievance and appeals section of any new federal law conflicts
with the so-called ``exclusive remedy'' under ERISA, then state
insurance departments would be preempted from handling any consumer
complaints.
Congress must clarify that it intends for state internal and
external review laws, as well as other complaint or grievance
processes, not to be preempted and must amend ERISA accordingly. The
following suggested language will clarify that internal and external
review are ``processes'' not ``remedies'' and ensure that states can
continue answering consumers' questions and complaints. ``Nothing in
this title shall be construed to supersede any provision of State law
or regulation which establishes, implements, or continues in effect any
standard, requirement or administrative process solely relating to
health insurance issuers (in connection with group health insurance
coverage or otherwise) except to the extent that such standard,
requirement or administrative process prevents the application of a
requirement of this title. State laws or regulations that establish
standards, requirements or administrative processes comparable to or
more protective of consumers than federal requirements of this title,
including those that address the resolution of claim or coverage
disputes, do not prevent the application of a requirement of this
title.''
V. INFRASTRUCTURE AND ENFORCEMENT
As Congress drafts legislation, we urge you to consider how
critical an infrastructure is for enforcing any new patient
protections. Not only has each state established a statutory framework
of patient protections, but also each state has a regulatory structure
in place that is able to handle and quickly respond to consumers'
complaints and grievances.6 This regulatory structure
includes: consumer representatives and market conduct reviewers who
respond, investigate and enforce the patient protection standards;
toll-free consumer telephone lines and Internet access; and on-site
representatives to respond to complaints. State insurance departments
have established their regulatory infrastructures based on their
markets and have allocated significant resources to respond to
consumers. Consumers throughout the country have easy access to a
network of assistance. State systems that are working should not be
preempted by Congressional action that cannot guarantee the enforcement
of these protections.
---------------------------------------------------------------------------
\6\ Just to quantify the level of state resources (time, money and
people-power) that is necessary to regulate the business of insurance
and to successfully handle consumer concerns, in 1999 state insurance
departments responded to more than 3.3 million consumer inquiries and
followed-up on more than 448,000 consumer complaints or grievances.
State Departments of Insurance employed 1,045 financial examiners, 345
market conduct examiners, 384 financial analysts, 786 complaint
analysts, and 75 consumer advocates. The examiners conducted 1,562
financial exams, 1,122 market conduct exams, and 554 combined financial
and market conduct exams.
---------------------------------------------------------------------------
We are concerned by the potential impact of any federal patient
protection legislation on consumers. If the federal legislation
preempts state laws and state infrastructure, the federal government
does not have the resources (money and staff) or the infrastructure to
enforce these new protections. The members of Congress should ask
themselves the following questions as they draft and debate patient
protection legislation:
(1) Are we ready to eliminate a state system and a structure that is
already working?
(2) Do we really want consumers all across the country calling
Washington D.C. to ask a question, register a complaint or ask
for a review of a denial of their claim?
(3) How long will it take for the federal government to set up an
infrastructure that replicates what all 50 states and the
District of Columbia have had in place for decades to assist
consumers?
(4) Do we really think that legislation that would preempt state laws
will protect patients from the managed care abuses that we seek
to resolve through a federal patients' bill of rights?
With all due respect, we do not think consumers benefit from the
preemption of state law or state infrastructure. As such, we ask
Congress to recognize the effective state infrastructure already in
place and to preserve it so that consumers in insured plans continue to
enjoy the benefits of state oversight.
Even with state laws and enforcement preserved, there is still the
question of how these new standards will be enforced against self-
funded plans, which are not regulated by the states. As noted, there is
no federal infrastructure in place such as there is in the states to
enforce patient protections. Congress should give the Department of
Labor (DOL) the authority to contract with those states that want to
enforce the federal patient protection standards for all group plans,
including self-funded ERISA plans. This contract arrangement would be
voluntary on the part of those states that want this enforcement
authority and would be done on a state-by-state basis. The DOL-state
contract structure would function like other federal arrangements that
give federal grants to the states to implement and enforce federal
programs.
VI. CONCLUSION
ERISA provides for both federal and state regulation of group
health plans. State insurance regulators are presently shaping and
upholding state consumer protection laws and enforcing many of the
protections being considered by Congress, including internal and
external review. State systems that are working should not be preempted
by Congressional action that cannot guarantee the enforcement of these
protections. As such, when drafting federal patient protection
legislation, we ask Congress to preserve and give deference to state
laws that are tailored to the state markets and to give states as much
flexibility as possible in meeting the federal requirements.
Mr. Bilirakis. Thank you very much, Mr. Larsen.
Senator from the State of Oklahoma, Angela Monson, is here
on behalf of the National Conference of State Legislatures.
Please proceed, ma'am.
STATEMENT OF HON. ANGELA MONSON
Ms. Monson. Thank you, Mr. Chair, members. I am very
pleased to be with you this morning.
I am Angela Monson, a member of the Oklahoma State Senate,
where I serve as Senate Finance Committee Chair.
Today I have the pleasure of wearing the role as Vice
President of the National Conference of State Legislatures, and
it is within that context that I provide these remarks to you
today.
Let me express my appreciation again for your hard work and
your interest given to what is an extremely important issue to
State legislatures across the country, to our constituents,
obviously, your constituents, as well.
NCSL has, over the years, supported various means to expand
coverage, to increase access to health care services. We have
also done so in our States and, of course, the utilization of
managed care, managed care products, has been one of those
means to further the development of delivery systems, to
improve access, to increase coverage throughout our States.
While we use these means to expand coverage, to increase
access, we also, in our States, have recognized a need to enact
State laws that protect individuals, to ensure that persons who
receive their coverage, who receive their care through HMOs,
through other managed care arrangements are protected.
NCSL has continuously recognized and supported efforts to
protect the interests of patients, to protect the quality of
care being received through managed care entities, and we also
recognize that there is a need for a national floor.
However, we quickly hasten to add that we oppose any effort
to preempt State laws, to expand ERISA preemption, as well. We
have, through our States, I think, demonstrated the ability to
provide protections, to establish the means necessary, that
patients are protected and, of course, we will continue to
support that those efforts be maintained.
We believe that the ultimate approach, of course, is the
appropriate balance between State and Federal law.
There is a Federal role, though, that we want to emphasize.
We think that legislation certainly should ensure that
individuals and federally regulated plans enjoy protections
similar to those already available in most States. We think it
is important that you, as Congress, establish a floor of
protections, so that anyone in any managed care entity would be
provided the protection that is necessary.
We think maximum State flexibility, however, is important.
Preservation of State laws that provide patient protections
that are equal to, substantially equivalent to, or more
protective than those established in Federal laws should be
honored.
We also want to emphasize that it is necessary to provide
adequate resources for monitoring and enforcing federally
regulated provisions.
So if and when there are provisions that are federally
regulated provisions, it is important that the resources are
there to appropriately enforce and monitor that law.
The Federal bill being proposed, being discussed today is a
step in the right direction. It is very similar in many
instances to State law.
We, again, emphasize the need that there is a recognition
and a support for State laws that are substantially equivalent
to those that we have in place.
We also want to throw another idea out to you today that
you might consider when there is Federal law that has to be
administered, monitored at this level, at the Federal level,
that you consider the utilization of State processes, the
internal and external review laws that we have in place are
appropriate mechanisms that might be used to actually enforce,
to deliver the regulatory level that your laws provide.
The Department of Labor, your U.S. Department of Labor and
our State Insurance Commissioner offices and other state-based
regulatory entities are more than willing to enter into a
cooperative relationship with you so that we can have the
appropriate enforcement on all levels.
We want you also to give State legislatures adequate time
necessary to implement, to change laws, or to develop
implementation procedures that might be necessary for new
Federal law.
There are clear procedures or there should be clear
procedures for Federal enforcement. So if mechanisms are put in
place that continue or expand Federal enforcement of patient
protection laws, we know that those procedures must be clear.
That does require some public education, public
information; therefore, we, again, offer to assist you in that
opportunity by using certain State mechanisms that are already
in place.
Much of your discussion today is focused on HMO liability.
There are seven States, and I am from one of those States, that
have passed laws which allow HMOs to be held accountable
through the court system for decisions made.
NCSL, however, has not taken a position on that at this
time.
Let me just conclude by saying we are more than willing to
sit with you, to work with you to ensure that appropriate
balance is maintained between State legislatures and our
authority, the traditional authority given to our State, to the
States to enforce these kinds of laws, as well as maintain and
identify the appropriate role for Federal Government.
Thank you very much. Be happy to, at the appropriate time,
answer questions.
[The prepared statement of Hon. Angela Monson follows:]
PREPARED STATEMENT OF HON. ANGELA MONSON, OKLAHOMA STATE SENATE, VICE-
PRESIDENT, NCSL, ON BEHALF OF THE NATIONAL CONFERENCE OF STATE
LEGISLATURES
Chairman Bilirakis and distinguished members of the subcommittee:
My name is Angela Monson. I am a state senator in Oklahoma where I
chair the Senate Finance Committee. I am also the Vice-President of the
National Conference of State Legislatures (NCSL). It is a pleasure to
be here today on behalf of NCSL to talk about moving forward on a
national effort to enact a Patients' Bill of Rights.
NCSL supports the establishment of consumer protections for
individuals receiving care through managed care entities. We also
support the development of public and private purchasing cooperatives
and other innovative ventures that permit individuals and groups to
obtain access to affordable health coverage.
States have taken the lead in providing needed regulation of
managed care entities and these state initiatives have enjoyed bi-
partisan support and have been successfully implemented. Individuals
who receive their health care through federally regulated ERISA plans
have not benefited from the state laws enacted to provide needed
protections for individuals who receive care through managed care
entities. It is appropriate and necessary for the Congress to address
the needs of these individuals. Individuals and families who receive
health care benefits through federally regulated plans should enjoy the
same protections as their neighbors who receive care through entities
subject to state regulation. NCSL strongly supports the efforts here in
Washington to establish a federal floor that sets a national level of
protection for everyone who receives care in a managed care
environment.
As we move toward this goal, it is important to preserve the
traditional role of states as insurance regulators. NCSL strongly
opposes preemption of state insurance laws and efforts to expand the
ERISA preemption.
We believe federal legislation should:
ensure that individuals in federally-regulated plans enjoy
protections similar to those already available in most states;
establish a floor of protections that all individuals who
receive care through managed care entities should enjoy;
preserve state laws that provide patient protections that are
equal to, substantially equivalent to, or more protective than
those established in federal law; and
provide adequate resources for monitoring and enforcing
federally-regulated provisions.
THE BI-PARTISAN PATIENT PROTECTION ACT OF 2001 (H.R. 526)
This bi-partisan bill is moving in the right direction. Most of the
patient and provider protections included in the bill are similar to
those that many of the states have already enacted. The bill would
preserve state laws with patient and provider protections that are
``substantially equivalent to'' provisions in the bill. This is a very
important issue for NCSL and state legislators across the country. The
concept of ``substantial equivalence'' is one we have been pursuing for
some time. The inclusion of this provision will go far to facilitate a
more immediate implementation of the protections that we all believe
are important.
As you know, federal law supercedes state law unless there is
legislation that clearly preserves state law. State insurance
commissioners can only enforce state law. Without the inclusion of the
substantial equivalence standard, state law that would provide
essentially the same protections provided for in the federal law would
be preempted. State legislatures would then have the option of enacting
state laws that mirror the federal statute or handing over the
enforcement of those provisions to the U.S. Department of Labor and the
Health Care Financing Administration.
There are three issues regarding substantial equivalence that I
would like to emphasize during my short time with you today. NCSL urges
you to:
(1) apply the substantial equivalence standard to all of the provisions
of Title I, including those related to grievances and internal
and external appeals.
(2) provide adequate transition time to permit state implementation.
(3) establish a clear process for enforcement should a state opt not to
enact state law to facilitate state enforcement.
Apply the substantial equivalence standard to all of the provisions of
Title I, including those related to grievances and internal and
external appeals.
There are currently conflicting court decisions on whether or not
the ERISA preemption applies to state laws regarding internal and
external appeals. We would like to work with the members of this
subcommittee to craft language that would clarify that for the purposes
of implementing patient protections for individuals receiving care
through managed care networks, that state laws establishing internal
and external appeals processes would not be preempted by ERISA.
The establishment of effective internal and external appeals
processes is critical to the implementation and effectiveness of
patient protections. We believe that these functions are best provided
at the state and local level. NCSL urges you to explore options that
would permit federally-regulated plans to participate in appeals
processes established in the states where they are located. This could
be done through cooperative agreements between the states and the
Department of Labor.
Provide adequate time for state legislatures to take necessary actions
to implement the federal law.
State legislatures are often out of session when major federal
legislation is enacted. In cases where state legislative action is
desired or required, that action is delayed until the legislature
reconvenes for its next regular session. We believe it is helpful to
recognize this reality and to make accommodations for it in federal
legislation. NCSL recommends that states should have at least one
regular session of the legislature to make changes in state law and
regulation related to this legislation that may be required to maintain
state enforcement.
Establish a clear procedure for the establishment of federal
enforcement of some or all provisions of the Act in cases where
a state opts for federal enforcement of any of the provisions
of the Act.
In the event that sufficient transition time is not provided for or
that a state opts to have federal enforcement of some of the provisions
of this legislation, NCSL recommends the Act establish a mechanism for
notifying patients regarding what enforcement authority is responsible
for enforcing the various patient protections.
HMO LIABILITY
NCSL has not taken a position on the inclusion of HMO liability
provisions in Patients' Bill of Rights legislation. I am from one of
the seven states (Arizona, California, Georgia, Maine, Oklahoma, Texas
and Washington) that have laws that specifically permit HMO enrollees
to sue for malpractice. Our law in Oklahoma became effective July 1,
2000. These laws are all relatively new. The Texas law that became
effective September 1, 1997 is the oldest and the Washington law does
not become effective until July 1, 2001. Of the seven states, two
(Georgia and Maine) do not allow the plaintiff to collect punitive
damages.
IN CONCLUSION
NCSL looks forward to working with this committee and your
colleagues in both the House and the Senate to enact Patients' Bill of
Rights legislation this year. I believe it can be achieved and achieved
in a way that preserves the traditional role of states in regulating
insurance and at the same time provides needed protections for all HMO
enrollees.
I thank you for this opportunity to discuss these important issues
with you today and would be happy to answer questions.
Mr. Bilirakis. Thank you very much, Senator.
We will see if we can get through Mr. Pollack. We have a
couple of votes on the floor. So why don't we have you start,
at least, Mr. Pollack, and see how far we can go.
STATEMENT OF RONALD F. POLLACK
Mr. Pollack. Thank you, Mr. Chairman. Mr. Chairman, members
of the committee, thank you for holding this hearing and for
inviting me to it.
One of the things I think that is missed in terms of the
debate about Patients' Bill of Rights is the crazy quilt
pattern that exists today throughout the Nation in terms of
regulating managed care, and it does not serve consumers well,
it doesn't serve the managed care industry well.
When I say there is a crazy quilt pattern, what I mean is
people have different rules that govern then, depending on what
State they are in, and even for people in the same State, there
are very different rules.
One set of rules for people who purchase coverage
independently, another set of rules for people who get their
coverage from an employer who insures, and yet another set of
rules for those people that get coverage from an employer who
self-insures.
For consumers, it is baffling, it is very difficult to
understand.
Now, I was asked, as part of this panel, to talk about
scope of protection. There are three types of variation by
State in terms of the coverage in protection that people get.
First, if you look at the chart that is attached to my
testimony, Chart A, you will see that there is a wide disparity
in the areas covered by consumer State protections.
Of the ten areas of consumer protections analyzed in that
appendix, only one State, the State of Illinois, has adopted
protections in at least nine of those areas.
Two of the States, Wyoming and Mississippi, have adopted
only one such protection. The most common number of protections
enacted is six out of the ten that we analyzed that are in
virtually all the Federal bills.
If I may just take the States of Florida and Ohio, where
the chairman and the ranking minority member come from. Ohio
has adopted the prudent layperson standard for emergency care
and provides access to drugs prescribed by physicians that are
not on a health plan's formulary.
Florida does neither of those things. However, Florida
enables patients with disabling or life-threatening illnesses
to continue receiving transition care from physicians dropped
from a health plan. Ohio does not.
Second, even the States that have adopted specific patient
protections, those laws are not applicable to many of the
people in those States.
With respect to the substantive protections established by
some of these States, these rules do not apply to people in
self-insured plans.
About 43 percent of all employees who get their health
coverage through their employer are not covered by any of these
protections, irrespective of what the State has enacted.
Approximately 56 million people are in that situation. To
make matters worse, it appears that State laws relating to
remedial processes ranging from the right to sue to the right
to independent external appeals may be inapplicable to the vast
majority of people, approximately 124 million Americans who get
their coverage from a self-insured or a fully insured ERISA
plan.
Third, even in the States that have established specific
consumer protections, the details of these protections vary
considerably from one State to the other.
The laws that provide access to emergency rooms are an
excellent case in point. In States, some States have enacted a
provision addressing some aspects of access to emergency
services, but the provisions are by no means uniform from one
State to the other.
This is also true with respect to the independent right of
appeal.
In essence, Mr. Chairman, it is fair for the Congress to
look to the States as laboratories of change. States experiment
and do provide very good data with respect to what works and
doesn't work.
They inform Congress of what works and they frequently help
Congress adopt ideas for the entire Nation based on what has
worked at the State level.
We believe in that laboratory system. We also believe,
however, that consumers need predictability. They need systems
that are easily understandable and they need basic rights that
should not vary based on place of residence or payer of care.
The best way to reconcile these interests is by
establishing nationwide standards, a floor, that cannot be
violated, and States that exceed those standards should be
allowed to do so.
We urge you to establish nationwide standards and allow the
States to exceed them.
Thank you.
[The prepared statement of Ronald F. Pollack follows:]
PREPARED STATEMENT OF RONALD F. POLLACK, EXECUTIVE DIRECTOR, FAMILIES
USA
Thank you for the opportunity to testify at this hearing on
consumer protections. Families USA, the national organization for
health care consumers, supports nationally enforceable consumer
protections. These protections must be designed to ensure that health
plan enrollees receive the care they were promised by their health
plans. They must include basic protections covering a wide range of
consumer concerns, and they must apply to all health plans. We support
H. R. 526, the ``Bipartisan Patient Protection Act of 2001.''
The public needs federal legislation because the protections that
do exist today constitute a veritable patchwork quilt that is
indecipherable and has many holes. Enormous differences exist today in
the protections that are afforded to people based on the accidental
happenstance of a consumer's state of residence and the payer and form
of that consumer's health plan. Enormous differences exist in the
protections provided by one state versus another. Enormous differences
also exist among people within the same state, especially between those
who get their coverage from an employer who is fully insured compared
to those who get coverage from employers that self-insure and compared
even further to those who buy their insurance coverage independently.
Consumers need greater clarity and predictability about the basic
protections that are guaranteed to them. Such clarity and
predictability can only be created, without stifling state-by-state
innovation, by establishing national minimum standards applicable to
everyone. As with other fundamental principles that Americans believe
should apply to everyone in the nation--such as civil rights laws and
environmental laws--consumer protections should apply to everyone.
National standards should establish a basic foundation that nobody can
fall through.
One of the reasons we support H. R. 526 is that it creates such a
basic foundation that everyone will be able to rely on. Everyone--
irrespective of the state in which they live, and irrespective of what
type of plan they are in--will be able to count on the fundamental
protections that consumers need. They will not have to become experts
about the complex ERISA statute and other arcana to determine whether
they are subject to patient protections.
ANALYSIS OF STATE LAWS
Families USA has issued a number of reports on consumer protections
that had been enacted by the states. We named our last report Hit and
Miss because, as you can easily see from the attached updated chart
(see Appendix A to this testimony), the protections vary widely from
state to state. There are three types of variations. First, as the
chart in Appendix A demonstrates, there is wide disparity in the areas
covered by state consumer protections. Of the 10 areas of consumer
protections analyzed in the report, only one state--Illinois--has
adopted protections in at least 9 of those areas. Two states have
adopted only one protection. The most common number of protections
enacted is 6 out of the 10 we reviewed. Ohio adopted the ``prudent
layperson'' standard for emergency care and provides access to drugs
prescribed by physicians that are not on a health plan's formulary;
Florida does neither of these things. Conversely, Florida enables
patients with disabling or life-threatening illnesses to continue
receiving transition care from physicians dropped from a health plan;
Ohio does not.
Second, even in states that have adopted specific patient
protections, those laws are not applicable to many of those states'
residents. With respect to the substantive protections established by
some of the states--such as the ``prudent layperson'' standard for
emergency care and the right to receive prescribed drugs not on a
health plan's formulary--these rules do not apply to people in self-
insured plans. About 43 percent of all employees who get their health
care coverage through their employer are not covered by any of these
protections, irrespective of what the state has enacted. Approximately
56 million people are in this situation. To make matters worse, it
appears that state laws relating to remedial processes--ranging from
the right to sue to the right to independent external appeals--may be
inapplicable to the vast majority of people, approximately 124 million
Americans, who get their coverage from a self-insured or fully insured
ERISA plan.
Third, even in the states that have established specific consumer
protections, the details of these protections vary significantly from
state to state. The laws that provide access to emergency rooms are an
excellent case in point. A majority of states have enacted a provision
addressing some aspect of access to emergency services, but the
provisions are by no means uniform from state to state. In fact, the
very definition of what constitutes an emergency differs depending on
what state you are in. Some states, for example, do not specify whether
severe pain may indicate the presence of an emergency situation. In
some states, plans are prohibited from requiring prior authorizations
for emergency services but have not adopted a ``prudent layperson''
standard as a basis for securing health plan payment for emergency room
services. Other states have adopted the ``prudent layperson'' standard.
States deal with emergency post-stabilization care differently.
States often require plans to pay for emergency services necessary to
stabilize a patient but require doctors to contact the plan directly to
gain authorization for post-stabilization care. States may even require
health plans to provide 24-hour access to plan personnel who can
authorize continued care following stabilization of the patient. But in
some of those states, requests for post-stabilization treatment
approval that receive no response within a specified time period are
automatically approved. Other states, however, impose no time
restraints on how long a plan can take to respond to a request for
post-stabilization care and do not automatically approve care despite
the plan's failure to respond.
Another area demonstrating the variability of state consumer
protection laws is the one relating to external or independent reviews
of health service denials.
A majority of states have passed independent review legislation.
But the breadth and scope of these provisions vary from state to state,
providing consumers absolutely no consistent protection. Some states
reserve independent external review for determinations of medical
necessity. Other states allow independent external reviews to settle
any consumer grievance not resolved internally by the plan.
The make-up of the independent review entity can again vary
depending on the state. In some states reviews are performed by
physicians or providers who are experts in the treatment of the
enrollee's conditions. Other state laws preclude members of independent
review boards from having been involved in the initial denial of care
or from having a direct financial interest in the outcome of the
review. Some states require the Director of Insurance to compile a list
of independent review entities. Others require that a member of the
health plan sit on the review board.
Another factor that varies from state to state is whether or not
the reviewer's decision is binding for the plan or the consumer,
binding for both, or not binding at all. Most states specify that
decisions made by external reviewers are binding on the health plan. A
few states make the decision binding for both the plan and the
consumer. In New Jersey the decisions are not binding at all.
Some states require that requests for independent external reviews
be made within a certain time period after the initial adverse
decision. These time periods range from a low of 15 days after a
consumer exhausts the plan's internal grievance system, to a high of
two years. Several states impose no time limits on consumers to file a
request for an independent external review.
In addition, there is significant variability on the length of time
reviewers can take to rule on appeals. Some, but not all, states
require external review entities to establish a mechanism so consumers
can obtain an expedited review in emergency or urgent cases--and, even
in those instances, there is variability concerning time limits related
to such expedited reviews.
The net result is that--even in the states that address specific
areas of consumer protection (let alone the states that totally fail to
address such specific areas)--there is enormous variability from state
to state concerning how the states treat such areas. Hence, one cannot
assume uniformity--and, hence clarity and predictability--if a state
happens to address a specific area of consumer protection. This
enormous variability cries out for a federal floor so that all
consumers throughout the country have clear, basic rights that do not
change due to the happenstance of where they live.
The creation of a federal floor is not a new idea. There are many
examples of laws that create a federal standard and allow the state
standard to stay in effect if it is the same or more protective. Some
examples include parts of the Clean Water Act, the Endangered Species
Act, the Americans with Disabilities Act and the Medical and Family
Leave Act. A federal floor to protect all consumers is a crucial and
necessary element of H. R. 526.
Before I close my testimony I want to discuss a provision that
should be added to H. R. 526--the creation of consumer assistance, or
ombudsman programs--that is crucial to making the external appeals
process work. The creation of consumer assistance programs is a bill
that will be introduced next week by Senators Jeffords and Reed
entitled ``Health Information for Consumers Act of 2001.'' These
programs are designed to assist consumers in understanding their health
care choices and rights, and to provide assistance to consumers in non-
litigative appeals processes.
Two very diverse states--Vermont and Virginia--established such
consumer assistance programs. These programs are crucial to making
internal as well as independent external review processes work. Simply
stated, consumers need help to make meaningful use of internal and
external appeals processes. At the time consumers wish to appeal a
plan's denial of important health services, those consumers are likely
to be sick or frail--and they have limited capacities to pursue their
appeals alone. It is for this reason that they need someone to help
navigate the system in order to make the promise of the appeals system
more effective.
A Henry J. Kaiser Family Foundation report, entitled External
Review of Health Plan Decisions: An Overview of Key Program Features in
the States and Medicare, indicates how important consumer assistance
programs are in making external appeals systems work. In states where
external appeals processes have been in existence, the number of people
who availed themselves of these processes is very low--less than a few
hundred cases per year in the largest states and fewer in the smaller
states. The report cites studies indicating that these numbers are low
because consumers often are unaware of their rights to an external
review and, when they are sick, they are unable to pursue their appeals
rights. Consumer assistance programs are needed to make the system work
properly.
No matter whether one supports or opposes the right of consumers to
sue HMOs in court and receive a meaningful remedy, there should be
universal agreement that we want to solve consumer-health plan problems
early--thereby reducing the impulse to litigate. That's why the
creation of consumer assistance programs, so that help can be provided
on a timely basis for internal and external appeals, is crucial. It is
a way to provide non-litigative, non-lawyer remedies on a timely basis
before significant damage is done.
Consumer assistance programs help to resolve problems at earlier,
less formal stages and obviate the need for more contentious
proceedings, such as litigation. Consumers need to have someone to go
to for help when they think they are not getting the care they need. A
knowledgeable person who can explain the obligations of the patient and
the plan may be able to run interference and solve a consumer's problem
before a formal grievance is necessary. Additionally, providing
assistance throughout the appeals process could make the system work
more efficiently and thereby lessen the need for further proceedings,
such as litigation.
As a result, any legislative proposal that seeks to deal with
problems early and uses external review mechanisms to achieve that
objective should include a provision for the creation of consumer
assistance programs. We have ample, high-quality precedents in the
states for these programs, and we should implement them as part of a
patients' rights system.
CONCLUSION
Congress often looks to the states as the laboratories of change.
States experiment with various laws. They inform Congress about what
works, and frequently Congress adopts these ideas for the entire
nation. We believe in the benefits of such a laboratory system. We also
believe that consumers need predictability; they need systems that are
easily understandable; and they need basic rights that should not vary
due to place of residence or payer of care. The best way to reconcile
these interests is by establishing nationwide standards--a floor--that
can't be violated. We urge you to establish nationwide standards and
allow states to exceed these standards.
STATE MANAGED CARE PATIENT PROTECTIONS
MARCH 2001
Families USA has issued two reports on state managed care consumer
protections. In July 1996, we released HMO Consumers At Risk: States to
the Rescue and in July 1998, we released Hit and Miss: State Managed
Care Laws. On the back is an update of the Families USA Hit and Miss
chart showing 10 consumer protections that have been passed in various
states. The protections, listed by state, apply to those who are
covered by state regulated health plans. They do not apply to the one-
third of American workers who are covered by employer-sponsored plans
and are therefore subject to federal law only. The 10 selected
protections are:
1. Emergency room services--which states have passed laws setting the
``prudent layperson'' standard. Some states that only prohibit
prior authorization are not included.
2. Standing referrals--requiring plans to allow standing referrals to
specialists for people with chronic or life-threatening
illnesses
3. Ob-Gyn--requiring plans to give women direct access to obstetricians
and gynecologists, or to allow ob-gyns to serve as primary care
providers. States that require direct access for only one
annual visit are not included.
4. Continuity of care--which states have passed laws requiring plans to
allow certain patients to continue to see their physician when
the provider's contract with the plan is terminated. Some
states require plans to provide transitional care for primary
care only and not for specialty care; those states are not
included in this list.
5. Ability to obtain drugs--which states have passed laws requiring the
plan to have a process by which members can obtain non-
formulary prescription drugs. States that require plans to
disclose the procedure for obtaining non-formulary drugs (if
the plan uses a formulary)--but that do not require that plans
have such a procedure--are not included.
6. External Appeals--which states have passed laws that require a
meaningful process for external review of appeals decisions.
Some states have set up independent external review processes
for limited circumstances--only for experimental and
investigational procedures or services, for example; these are
not included. States that allow the plan to pick any provider--
including employees of the managed care plan--to be on the
review panels are not included.
7. Gag laws--which states have passed laws prohibiting plans from
preventing the disclosure of treatment options.
8. Financial Incentives--which states have passed laws prohibiting
plans from offering incentives to physicians for denying or
reducing care.
9. Clinical trials--which states have passed laws that require payment
of certain routine costs when a patient participates in certain
clinical trials.
10. Liability--which states have passed laws that allow consumers to
sue health plans for not exercising ordinary care when making
benefit decisions.
State Managed Care Patient Protections
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standing Ob-Gyn Contin. Ability to External Financial Clinical
State ER Referrals Direct of care Obtain Rx Review Gag Incentive Trials Liability
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama............................................ ..... ........ .......... ..... .......... ........ .........
Alaska............................................. ..... .......... ........ .......... ........ .........
e
Arizona............................................ ..... ........ ..........
e
Arkansas........................................... ........ ........
e
Colorado........................................... .......... ........ .......... ........ .........
e e
District of Columbia............................... .......... .......... ........ .........
e
Georgia............................................ ........
e e
Hawaii............................................. ........ ........ .......... ........ .......... ........ ........ .........
e e
Illinois........................................... .........
e e
Indiana............................................ .......... ........ .......... ........ .........
e e
Kentucky........................................... .......... ........ .........
e e
Maine.............................................. ........ ........
e e
Maryland........................................... ........ ........ .........
e e
Massachusetts...................................... .......... ........ .........
e e
Michigan........................................... ........ .........
e e
Minnesota.......................................... .......... ........ .........
e e
Mississippi........................................ ..... .......... ........ .......... ........ ..... .......... ........ .........
Missouri........................................... ........ ........ .........
e e
Montana............................................ ..... .......... ........ .......... ........ .........
e
Nebraska........................................... ........ .......... ........ ........ .........
e e
Nevada............................................. ........ .......... ........ ........ .........
e e
New Hampshire...................................... ..... .......... ........ .........
e
New Jersey......................................... ..... .......... .......... ........ .........
e
New Mexico......................................... ........ .......... ........ .........
e e
New York........................................... .......... ........ ........ ........ .........
e e
Ohio............................................... ........ ........ .........
e e
Oklahoma........................................... ........
e e
Oregon............................................. ........ ........ .......... ........ .........
e e
Rhode Island....................................... .......... .........
e e
South Carolina..................................... .......... ........ ........ .........
e e
Tennessee.......................................... ..... .......... ........
e e
Utah............................................... ........ ........ .......... ........ ........ .........
e e
Virginia........................................... .........
e e
Washington.........................................
e e
West Virginia...................................... ........ .......... ........ ........ .........
e e
Wisconsin.......................................... 1 Yet, unfortunately, the
current malpractice liability system discourages health care
professionals from identifying and reporting their mistakes, allowing
quality problems to perpetuate. In fact, the IOM itself stated in its
report that the ``fear of legal discoverability or involvement in the
legal process is believed to contribute to underreporting of errors.''
---------------------------------------------------------------------------
\1\ IOM Committee on Quality of Health Care in America, To Err is
Human, 1999
---------------------------------------------------------------------------
In addition, numerous interested parties--some of which have called
for expanded health plan liability--have recognized the flaws with the
current malpractice liability system.
Clinton Commission Report. In its final report, President
Clinton's Advisory Commission on Consumer Protection and
Quality in the Health Care Industry said of the current
malpractice system that ``perhaps the most significant
deterrent to the identification and reduction of errors [i.e.,
treatment-related injuries] is the threat of costly,
adversarial malpractice litigation.'' (President's Commission,
Final Report, March 1998)
AMA Statement. In 1997, then AMA President-Elect Nancy Dickey
said of the current system, ``The problem is that the climate
of blame in this country, fueled by the litigation process
where we have to identify someone at fault who will then pay
exorbitantly, makes it difficult to walk out and finger
yourself [when you make a medical mistake].'' (New York Times,
Dec. 9, 1997)
Expanding health plan liability will also lead to reduced quality
of care by promoting ``defensive utilization management.'' Just as the
current system encourages physicians to practice ``defensive
medicine,'' (i.e., to provide care that is not necessary in order to
protect themselves from malpractice suits) a system that expands health
plan liability will force plans to perform ``defensive utilization
management.'' In other words, plans will be forced to provide coverage
for unnecessary services that do not benefit patients in order to avoid
costly litigation. In its cost estimate of the liability provision in
U.S. Senate Bill 6, the Democrat's ``Patients' Bill of Rights''
legislation, the Congressional Budget Office (CBO) recognized this
implication, stating, ``[expanding health plan liability] would mean
not only that more plans would be successfully sued but, more
importantly from a cost perspective, every judicial decision awarding
damages to a plaintiff for a plan's coverage decision would increase
the risk of suit for all other plans with similar coverage policies.''
2 Thus, instead of making coverage decisions based on the
best available evidence, plans will be influenced to make such
decisions based on the latest jury verdict or court decision.
---------------------------------------------------------------------------
\2\ CBO, June 16, 1999
---------------------------------------------------------------------------
Therefore, it is hard to believe that expanding this flawed system
would benefit any patients. To support this statement, let me share
with you some of the results of the AAHP survey of physicians I
mentioned earlier.
The overwhelming majority of doctors (78%) say that the threat
of malpractice lawsuits does not make them deliver better
quality care.
Over nine out of ten doctors (92%) think the threat of a
liability suit has increased defensive medicine.
Over half of the physicians surveyed (57%) say that the
current medical liability system makes physicians less willing
to report medical errors.
II. IMPACT ON COST & AFFORDABILITY
While I believe that the argument against expanding liability can
be made solely from the quality standpoint, let's talk briefly about
the impact on cost and the number of uninsured Americans.
Proponents of expanding health plan liability claim that such an
expansion will result in a minimal cost increase. But the reality is
that expanding health plan liability will significantly increase costs
and, in doing so, will cause millions of Americans to join the ranks of
the uninsured. In an analysis prepared for AAHP, the Barents Group
estimated that an expansion of health plan liability would result in
cost increases of between 2.7 percent and 8.6 percent
nationally.3 State analyses also reflect similar estimates.
For example, according to the fiscal note submitted by the Minnesota's
Department of Employee Relations in response to liability legislation,
health plan liability requirements would increase premiums by
5%.4 Similarly, a recent AP news article indicated that
health care premiums in Arizona will rise between 4 and 6 percent
because of a new HMO law that exposes health plans to expanded
liability.5
---------------------------------------------------------------------------
\3\ Barents Group, "Impacts of Four Legislative Provisions on
Managed Care Consumers, 1999-2003," April 22, 1998.
\4\ Minnesota Department of Employee Relations, ``Revised Fiscal
Note for S.B. 953,'' April 1999.
\5\ ``Premiums Expected to Rise Further Because of New Law'' The
Associated Press State and Local Wire, January 27, 2001.
---------------------------------------------------------------------------
The AMA has long recognized the large cost impact of the current
medical malpractice system.
AMA Testimony. In testimony before the U.S. House Ways and
Means Subcommittee on Health, the AMA stated, ``Although
patients, physicians, and health care providers are most
directly harmed by the present liability system, society as a
whole is also harmed. The spiraling costs generated by our
nation's dysfunctional liability system are borne by everyone
[emphasis added].'' (AMA testimony, May 20, 1993)
AMA/Reform Coalition Statements. Pronouncements from the
National Medical Liability Reform Coalition, which includes the
signature of the AMA, include the following:
``[W]e believe that in resolving medical and product liability
claims, the civil justice system currently:
--costs too much and works much too slowly;
--adds billions of dollars annually to the national health care
bill in medical liability premium costs and by encouraging
doctors and other health care providers to practice
``defensive medicine'' as a hedge against potential
lawsuits; and
--adds unnecessarily to the cost of pharmaceuticals and medical
devices.'' 6
---------------------------------------------------------------------------
\6\ National Medical Liability Reform Coalition, Medical Liability:
Principles for Reform, Feb. 1993
---------------------------------------------------------------------------
And, in the AAHP survey findings released just yesterday,
nearly every doctor surveyed (95%) believes that the current
medical liability system has raised costs. Of these, 73% say
that the system substantially raises costs.
Despite the increase in costs to the health care system due to the
medical liability system, the scope and breadth of attacks from trial
lawyers continue to expand. To paraphrase remarks made by Pennsylvania
Medical Society president-elect, Howard A. Richter, MD, just last month
in testimony before the Pennsylvania House Insurance Committee--abuse
of the medical liability system is a cancer that is deteriorating life
and is creating serious problems with the care patients receive.
I believe there is perhaps no better example that is indicative of
this abuse of the liability system than the current class action
onslaught by trial lawyers. Presently there are more than 30 class
action lawsuits pending against a number of health plans in a federal
district court in Florida that seek nothing less than the total
dismantling of this nation's employer-based system of health care
coverage. These cases have been brought by various groups of well-known
trial lawyers, some of whom were involved in the tobacco litigation
settled by the States. The enormous fees they were able to obtain in
tobacco litigation are now being used to bring these class actions
against health plans.
What the trial lawyers in the class actions pending in Florida have
brought are lawsuits only in the descriptive sense. Rather they are a
means to squeeze additional funds out of the health care system--which
ultimately means from the pockets of workers and their families who pay
premiums and employers who subsidize their employees' coverage--through
the threat of protracted litigation. The suits question the well-
grounded policy and purchasing decisions of federal and state
officials, who have enacted laws governing managed care plans and
contracted with managed care plans to cover tens of millions Americans.
Such decisions include those made by (1) federal policymakers to create
the Medicare +Choice program, Medicaid managed care, and the managed
care options in the Federal Employees Health Benefit Program, (2) state
policymakers to create a comprehensive regulatory scheme for managed
care plans and the state insurance and health commissioners who enforce
that scheme and (3) state purchasers to select managed care plans for
tens of millions of state employees and Medicaid beneficiaries. Any
changes in the law that would lend support for these types of efforts
will accomplish only one thing--the sapping of resources available for
health care for the benefit of trial lawyers.
III. INDEPENDENT MEDICAL REVIEW--A BETTER WAY TO RESOLVE COVERAGE
ISSUES
AAHP believes that expanding the current flawed liability system
that is designed to assess damages after consumers allegedly have been
harmed, does not give consumers what they truly need--a resolution for
coverage disputes that is expeditious, and based on medical facts.
Instead, AAHP supports a federal independent medical review
process, to ensure that coverage disputes are resolved upfront and
consumers get the care they need when they need it. With an independent
medical review, coverage disputes regarding medical necessity and
appropriateness are resolved by independent doctors with appropriate
clinical experience--not trial lawyers appealing to juries who may or
may not compensate them for their alleged injuries, months or even
years later. I cannot over-emphasize the difference. Independent
medical review--conducted on an expedited basis when necessary--gets
patients coverage when it is warranted. Lawsuits do not. With
independent medical review in place, there is no basis for expanded
liability.
The vast majority of States have chosen to adopt independent
medical review over liability expansion as well. Of the states that
have considered both liability and independent medical review
legislation, 32 out of 39 have chosen to adopt independent medical
review instead of expanded liability.
In my own state of Florida, a bill to expand health plan liability
was ultimately vetoed by then-Governor Lawton Chiles. In his words,
``The key to any dispute resolution system for health care claims is
that it be fast, fair, and efficient. The tort system is often none of
those.'' Governor Chiles wisely believed that Floridians were much
better served by independent medical review rather than an expansion of
liability.
Similarly, the results of AAHP's national survey of physicians show
that:
Three out of four doctors (75%) prefer an independent appeals
process over new lawsuits as the way to resolve disputes with
health plans over coverage; and
The overwhelming majority of physicians (73%) would rather
Congress enact a Patients' Bill of Rights with an independent
appeals process but no new lawsuits than not pass any bill at
all.
A federal system of independent medical review that provides
consumers with consistency and certainty no matter where they live
should be allowed to work. Expanding liability and bypassing the
independent medical review process add nothing to consumer protection.
To the contrary, they would shift the focus from a system that resolves
disputes in a reasonable and timely manner to one that is premised on
high stakes litigation.
In conclusion, the well-documented flaws, many of which have been
identified by physicians, of the current malpractice liability system,
should be sufficient evidence that expanding health plan liability is
an ill-conceived policy. Such an expansion will serve only to reduce
health care quality and lead to more uninsured individuals. Independent
review by physicians is a much more effective and expeditious way to
achieve the goals of providing quality, affordable care and preventing
harm to patients.
I hope that at the end of this hearing you will ask yourself--who
is it that truly benefits from expanding liability? Let me leave you
with one final result from AAHP's national survey of physicians:
Almost three-fourths of physicians (72%) think that trial
lawyers would benefit the most if health plans were made
subject to new lawsuits.
Thank you for the opportunity to share our views on this important
issue.
Mr. Burr. Thank you. Ms. Greenman, we would recognize you
for your opening statement.
STATEMENT OF JANE F. GREENMAN
Ms. Greenman. Mr. Chairman, members of the committee, I am
Jane Greenman, Deputy General Counsel of Honeywell
International.
I am appearing here today on behalf of the ERISA Industry
Committee, also known as ERIC, and I am a member of the Board
of Directors of ERIC.
Mr. Chairman, employers voluntarily offer health plan
benefits to 80 percent of private sector employees to assure a
healthy and productive workforce and to compete for,
successfully compete for and retain valued employees.
Employer-sponsored programs leverage the purchasing power
of large companies and coalitions of smaller companies and the
expertise of benefits specialists employed by these companies
to maximize efficiencies, reduce costs and help employees
navigate through the complex health insurance system.
The position of liability on insurers who offer coverage
creates practical and economic burdens that will be
unacceptable for a benefit that is not part of a company's core
business purpose.
The fundamental objective of patient protection reform as
it applies to employer-sponsored plans should be to ensure
timely processing of health claims and fair review of denied
claims to facilitate the delivery of patient care when it is
needed.
ERISA claims procedures have already been adapted by the
Department of Labor to provide timely and responsive review
processes that are appropriate to both pre-service and post-
service benefit determinations.
Legislation is required and desirable to enable the
department to incorporate reasonable external review procedures
into these claims rules.
I might add that these claims rules have not yet had a
chance to really go in to be implemented and to prove their
efficacy at this point in time.
New causes of action and tort damages are neither necessary
nor desirable to ensure that plan participants have access to
timely and fair review procedures.
Indeed, increased litigation is likely to result in reduced
benefit coverage.
Under ERISA, plan fiduciaries must ensure full and fair
review of denied claims. The Department of Labor revised ERISA
claims procedures clarify full and fair in a managed care
environment.
These procedures will facilitate timely access to care.
Tort liability will do nothing to enable patients to obtain
care, particularly emergency or urgent care.
Bills that permit a patient to obtain such care while their
case is being reviewed will be far more effective than tort
liability if patient protection is really our true goal.
None of the flaws in the current system will be fixed by
attaching the burden of new tort liabilities.
In the face of even the threat of increased liability,
employer health plans are likely to downsize and avoid
liability by adopting strict schedules of covered treatment,
designating reimbursement amounts, avoiding direct
participation as an intermediary between plan participants and
service providers, and abandoning their current role and direct
claims processing on behalf of participants, as well as direct
oversight of that process.
None of these options are desirable to employees or
employers.
Mr. Chairman, a number if bills recognize and seek to
address the serious problem of imposing health care tort
liability on employers. Regrettably, each of them fails. They
would insulate employers from liability only if they avoid
direct participation or are not the designated decisionmaker.
Determination of an employer's role, however, will be a
question of fact requiring significant litigation.
Moreover, if the legislation fails to adequate address what
the burden of proof would be that would have to be met, and an
employer may be forced to prove a negative proposition, the
absence of direct participation or involvement.
Additionally, plaintiffs may be able to bypass this test
all together by suing an employer in its roles both as plan
sponsor and as a plan fiduciary.
Since employers often represent deep pockets, they would be
swept along in this tide of litigation. Under all scenarios,
additional tort litigation will not fix the medical system and
it will increase medical health costs.
Mr. Chairman, in today's fiercely competitive global
markets and in a volatile economy, employers will not accept
the financial risks of a tort system.
Many employers are already investigating a means of exiting
the system or severely curtailing their participation in the
system.
The fact is ERISA does not, has not, nor is it likely to
preempt malpractice liability. No participant is prevented from
seeking judicial relief from medical malfeasance under State
malpractice law, nor do we believe that they should be.
ERISA is neither intended nor should it regulate the
clinical quality of medical care of medical malpractice.
The Supreme Court has held, in the Pegram case, that ERISA
does not regulate medical treatment and does not preempt State
law malpractice actions.
Mr. Chairman, members of the committee, the debate over
patient protection has been conducted as if tort liability is
the only available means of protecting plan participants.
The fact is increased liability will not achieve a better
medical system. It will increase costs, drive employers out of
the system, drive consumers into inefficient systems, and deny
health care to those who need it most.
Thank you for your attention, and I will be pleased to
respond to any questions.
[The prepared statement of Jane F. Greenman follows:]
PREPARED STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL,
HONEYWELL, ON BEHALF OF THE ERISA INDUSTRY COMMITTEE
Mr. Chairman and members of the Subcommittee: My name is Jane
Greenman. I am Deputy General Counsel, Honeywell. I submit this
statement on behalf of The ERISA Industry Committee (``ERIC'').
THE ERISA INDUSTRY COMMITTEE
The ERISA Industry Committee (``ERIC'') is an association
representing the Nation's largest employer-sponsored benefit plans. As
the sponsors of health, pension, savings, disability, life insurance,
and other benefit plans covering tens of millions of participants and
beneficiaries, ERIC's members share Congress's strong interest in the
success and expansion of the employee benefit system in the private
sector.
VOLUNTARY EMPLOYEE BENEFIT PLANS
Employers voluntarily offer health plans to their employees. These
employer-sponsored plans should be supported, subject to ERISA
protections for participants, not penalized.
Major employers provide valuable and important benefits to their
employees through their voluntary employee benefit plans. Although
employers are not required to provide benefits to their employees,
voluntary employee benefit plans have been extraordinarily successful
in delivering needed health, retirement, and other benefits to tens of
millions of employees and their families. Today, over 80 percent of
employees in the private sector receive some form of employee benefit
plan coverage.
Employers have a strong interest in providing voluntary employment-
based health care coverage to employees and their families. Employers
seek to foster a healthy and productive workforce, to respond to
workers' concerns about economic security and affordable basic health
care, and to offer health care coverage as part of a competitive
compensation and benefit package that attracts and retains valued
workers. Employers' health care coverage arrangements represent an
investment in quality and productivity. Each arrangement is tailored to
the specific needs of the employer and its workforce.
Employer-sponsored benefit plans can offer advantages that
employees could not obtain if they tried to purchase the same benefits
on their own. Employers contribute their expertise in plan design and
the organization of delivery systems to obtain high-quality benefits
that are delivered timely, efficiently, and cost-effectively relative
to individually available coverage. Moreover, employer-sponsored plans
representing groups of employees are in a stronger position than
individual consumers to bargain to obtain high quality benefits at a
reasonable price. Plans sponsored by large employers have been very
successful in exercising bargaining power on behalf of their
participants and beneficiaries, and an increasing number of small
employers are able, through voluntary coalitions, to achieve the same
kind of leverage to the advantage of their employees.
the best patient protection is good process, not litigation
ERIC believes the fundamental objective of patient protection
reform, as applicable to employer-sponsored plans, should be to ensure
timely processing of health claims and fair review of denied claims to
facilitate delivery of patient care when needed. ERISA's original
claims procedure regulation was promulgated with pension plans and
indemnity-type health plans in mind. However, ERISA claims procedure
can readily be adopted to provide timely and responsive claims review
processes appropriate to today's managed care environment, which
involves both pre-service and post-service benefit determinations.
Thus, ERIC has repeatedly urged the U.S. Department of Labor to
issue a revised ERISA claims procedure. The revised claims procedure
regulation issued by the Department of Labor in November 2000 can fill
this need, with modifications to correct some of its flaws. The
Department appears to lack authority to address external review
procedures in its regulation, however. To incorporate external review
into its claims procedure regulation, an ERISA amendment authorizing
the Department to do so would be needed.
participants can be pretested without resorting to litigation
It is not necessary to amend ERISA to add new causes of action and
tort damages in order to ensure that plan participants have access to
timely and fair claims review procedures. ERISA requires plan
fiduciaries to ensure that participants receive a full and fair review
of denied claims. Now that the Department of Labor's revised claims
procedure regulation has clarified what ``full and fair'' review means
in a managed care world, plan practice will improve significantly, and
complaints should decrease accordingly. If a plan fails to meet the
regulation's new standard, ERISA gives participants the right to seek
injunctive relief. Fiduciaries who consistently fail to meet the new
standard can be barred from continuing to acting in a fiduciary
capacity.
Tort liability is also not necessary to enforce external review
decisions. For example, some patient protection bills have included
provisions that make external review decisions ``self-executing''--that
is, the external review decision itself would authorize the participant
to obtain care without further action by the plan.
The argument that tort liability is necessary to prevent ``undue
delay'' in claims decisions is also unpersuasive. In addition to
expedited review procedures, all of the leading patient protection
bills include provisions authorizing emergency care without
preauthorization if certain standards are met. Plan participants who
believe they are in imminent danger while their review is pending can
avail themselves of this patient protection.
Admittedly, legislative action may be needed to bridge the gap
between the Department of Labor's revised claims procedure regulation
and the need for external review and liberalized emergency care
procedures. ERIC believes that, working together, we can find
reasonable ways to bridge any gaps left by current claims procedure
rules. Giving participants the right to sue for tort damages instead of
filling those gaps is simply not a reasonable approach to assuring
procedural fairness for participants.
TORT LIABILITY IS MORE COSTLY AND LESS EFFECTIVE THAN AVAILABLE
ALTERNATIVES
There is broad consensus that our medical tort liability system is
broken. A few victims of medical malpractice may receive large monetary
awards after they are injured, but such awards do nothing to improve
the timeliness or quality of health care even for such victims who are
awarded significant damages. Health care providers respond to this
dysfunctional liability system by engaging in ``defensive medicine''--
treating patients for the purpose of lowering their liability risk
rather than improving the quality of care.
Amending ERISA to include tort liability effectively expands our
dysfunctional medical liability system to include employers and the
health plans they sponsor. But expanding tort liability does nothing to
fix the underlying problems in the liability system itself. Health
plans can be expected to take steps to minimize or avoid liability,
such as adopting schedules of covered treatments or medical procedures
and designated reimbursement amounts, to avoid any ``direct
participation'' or exercise of discretion. The ultimate losers in such
a system will be the plan participants. It is irresponsible to subject
group health plans to a broken and dysfunctional tort system when
simpler, faster, fairer, and less costly alternatives are available.
Moreover, in the face of potential tort liability, virtually all
employers will abandon any direct role in claims processing or
determination. Employees would be the ones hurt by employers abdication
of the role they play as employee advocates with insurers or managed
care entities.
To further discourage employer-sponsored plans, a number of patient
protection bills authorize causes of action and tort damages under both
federal and state laws, without assuring consistency between them or
precluding simultaneous suits under both federal and state laws. This
is a serious problem for any employer, but particularly for multi-state
employers like most ERIC members.
Although a number of patient protection bills purport to limit
employers' exposure to lawsuits, under the bills' new cause of action
provisions, the bills, in fact, fail to protect employers from
litigation. A number of bills protect employers only if they avoid
``direct participation,'' or are not the designated ``decision-maker''
in plan decisions. However, before a suit against an employer can be
dismissed, a court will have to find that the employer did not
``directly participate'' in the plan's decision. Since this will
require the court to make a factual determination, litigating the issue
will be time-consuming and costly--even if the employer ultimately
prevails. The patient protection bills do not expressly address the
burden of proof. If the burden is on the employer to demonstrate that
it did not engage in ``direct participation,'' the employer's burden
could be extremely difficult to meet, since the employer will be
required to prove a negative: that it did not engage in ``direct
participation.''
Since an employer can wear ``two hats'' under ERISA--both as the
plan sponsor and as a plan fiduciary--the protection that the ``direct
participation'' provisions appear to offer might be completely
illusory. Plaintiffs could circumvent the limitations imposed by a
``direct participation'' provision by suing an employer in its capacity
as a plan fiduciary and not in its capacity as employer or plan
sponsor. The pending patient protection bills do not expressly
foreclose such suits.
Regardless of who is sued under these new provisions, employers and
employees will ultimately bear the cost of litigation. Employers and
employees pay the cost of administering health plans. If the firms that
administer health plans incur additional litigation costs, the added
costs will inevitably be passed through to employers and employees
through higher premium costs, reduced health coverage or benefits, or
both.
DON'T UNDERESTIMATE EMPLOYERS' AVERSION TO TORT LIABILITY
Policy makers should not mislead themselves into thinking that
employers will not alter their behavior when confronted with health
plan tort liability for the first time. Some will eliminate coverage
under their plans for medical procedures that cause frequent disputes.
Others will move away from managed care plans that feature low
deductibles and copayments in favor of indemnity-type plans with high
deductibles and copayments. Still others will reduce the overall scope
of coverage offered to offset the cost of expected tort litigation.
Finally, and most seriously, recent surveys show more than half the
employers sponsoring health plans will consider terminating coverage
entirely.
TORT LIABILITY HURTS MORE CONSUMERS AND PROVIDERS THAN IT HELPS
Inevitably, the burden of employers' retreat from sponsoring
employment-based health plans in the face of new tort liability will be
borne by employees and their dependents, especially low-wage employees
who can not afford high deductibles and copayments, in the form of
reduced coverage, significantly increased cost-sharing, and higher out-
of-pocket costs. Health care providers are likely to feel the impact as
well, in the form of lower patient volume and increased uncompensated
care.
ERISA DOES NOT PREEMPT MEDICAL MALPRACTICE LIABILITY
If a participant in an ERISA-governed health plan is the victim of
medical malpractice, ERISA does not prevent the participant from
obtaining relief under State malpractice law. ERISA regulates the
administration of employee benefit plans; it does not regulate the
practice of medicine.
In our view, and the view of the courts more recently addressing
the issue, medical malpractice lawsuits against persons or entities
responsible for performing medical procedures are not preempted by
ERISA. The practice of medicine has traditionally been governed by
State law, including State medical malpractice standards. There is no
evidence that, when Congress enacted ERISA, it intended to regulate the
clinical quality of medical care and medical malpractice.
Recent decisions of the U.S. Supreme Court support our view. For
example, in 2000, in the Pegram case, the Supreme Court held that ERISA
does not regulate medical treatment decisions and pointedly observed
that ERISA does not preempt State-law malpractice actions against
HMOs.1
---------------------------------------------------------------------------
\1\ Pegram v. Herdrich, 530 U.S. 211 (2000); see also De Buono v.
NYSA-ILA Medical & Clinical Service Fund, 520 U.S. 806 (1997); New York
State Conference of Blue Cross & Blue Shield Plans v. Travelers Inc.
Co., 514 U.S. 645 (1995).
---------------------------------------------------------------------------
Recent federal appeals court decisions have followed the same
approach. For example, in Dukes v. U.S. Healthcare, Inc., the Third
Circuit Court of Appeals held that claims for injuries arising from
medical malpractice were not completely preempted by ERISA and
therefore did not permit removal of the case from a state to a federal
court: ``There is no allegation here that the HMOs denied anyone any
benefits that they were due under the plan. Instead, the plaintiffs
here are attempting to hold the HMOs liable for their role as the
arrangers of their decedents' medical treatment.'' 2 Other
circuits have come to a similar conclusion.3 The decisions
distinguish benefits claim cases (which seek to recover benefits and
are therefore governed by ERISA) from quality of care cases (which
challenge the quality of care and are governed by State medical
malpractice standards). Although there are some conflicting lower-court
decisions, most of them are older cases, decided before the Supreme
Court's recent decisions. 4
---------------------------------------------------------------------------
\2\ 57 F.3d 350, 361 (3d Cir. 1995).
\3\ See, e.g., Pacificare of Oklahoma, Inc. v. Burrage, 59 F.3d
151, 155 (10th Cir. 1995) (``The present claim does not involve the
administration of benefits or the level or quality of benefits promised
by the plan; the claim alleges negligent care by the doctor and an
agency relationship between the doctor and the HMO...Just as ERISA does
not preempt the malpractice claim against the doctor, it should not
preempt the vicarious liability claim against the HMO if the HMO has
held out the doctor as its agent.'').
\4\ See, e.g., Rodriguez v. Pacificare of Texas, Inc., 980 F.2d
1014 (5th Cir. 1993); Ricci v. Gooberman, 840 F. Supp. 316 (D.N.J.
1993).
---------------------------------------------------------------------------
IN CONCLUSION
In conclusion, the debate over expended ERISA liability is often
conducted as though tort liability is the only available means to
achieve the objective of protecting plan participants. It is not the
only available means, and it is clearly the least desirable.
Mr. Burr. Ms. Greenman, I thank you for your testimony.
At this time, the Chair would recognize Dr. Palmisano for
an opening statement.
STATEMENT OF DONALD J. PALMISANO
Mr. Palmisano. Thank you, Mr. Chairman. Good afternoon. My
name is Donald Palmisano. I am a board member of the American
Medical Association and a practicing vascular and general
surgeon in New Orleans, Louisiana.
Thank you for inviting me to speak with you today.
Managed care organizations, like physicians and all other
health care professionals, must be held accountable for their
decisions. Accountability is the issue.
So if a managed care organization makes a negligent medical
decision that harms or kills a patient, that organization must
take responsibility.
This is a critical point to understand. It is about the
patient. Is it fair to grant a shield of immunity to managed
care organizations, a shield which is not given to any other
business entity, except under very limited circumstances?
We think not, and the vast majority of Americans agree. But
why is this even a question? ERISA was never intended to apply
to managed care. There is no sound policy reason why this law,
this book should leave injured patients with no real remedy
when they have been injured by a negligent health plan.
The judiciary agrees with this point. Numerous Federal
judges have called on Congress to amend ERISA. In one instance,
a Federal judge had to throw out a case and he complained that
``The tragic events set forth in this woman's complaint cry out
for relief. Nevertheless, this court has no choice but to slam
the courthouse doors in her face and leave her without any
remedy.'' This is truly an issue of fundamental fairness and I
think many of us here already would agree that health plans
need to be held accountable.
So what is the best solution for this problem? As we
explain in our written statement, the best solution must
reflect the relative strengths of the different courts and
levels of government.
Under the principle of federalism, the States retain powers
not delegated to the Federal Government. Historically, the
States have retained jurisdiction to govern the practice of
medicine and the delivery of health care.
We are proposing, therefore, a split cause of action. So if
a patient is injured by a negligent health plan, the patient
must have a legal remedy in either the State or Federal court,
but not both, because States retain jurisdiction to govern the
practice of medicine. If a case involves a medical judgment,
the case should go to State court.
Federal courts, on the other hand, should hear cases they
have traditionally decided under ERISA. Eligibility of benefits
claims.
So an acceptable patient protection bill should, in a
limited fashion, remove ERISA preemption. This would allow
State laws to govern the delivery of health care.
The bill also should provide an adequate Federal remedy for
patients injured when a plan makes a negligent non-medical
decision.
Our proposal is no way arbitrary. The Judicial Conference
of the United States has expressed support for this view. The
Judicial Conference, headed by Chief Justice Rehnquist, stated
in a letter to a conference committee just last year, ``The
State courts have significant experience with personal injury
claims and would be an appropriate forum to consider personal
injury actions pertaining to health care treatment.'' The
letter also urged Congress ``to provide that in any managed
care legislation agreed upon, the State courts be the primary
forum for the resolution of personal injury claims arising from
the denial if health care benefits.'' This solution also would
protect the rights of States and their citizens. Every State
legislature has passed laws governing the delivery of health
care services.
In addition to existing common law rights, eight States
have passed laws granting their citizens a cause of action
against negligent health plans.
We urge Congress, therefore, not to pass a Federal only
cause of action and destroy State law.
The insurance industry claims to continue that making
health plans accountable in this targeted way will open
Pandora's box of evils. Those arguments have already been made
in many State capitols and have been rejected.
The doom and gloom predictions by the insurance industry
have not come about.
President Bush has stated repeatedly that the patient
protection laws in Texas are working well. Despite the
insurance industry's claims, health care costs in those States
have not skyrocketed. Employers have no suddenly dropped health
care benefits, and the courts have not been overrun by plan
participants trying to file frivolous suits.
In closing, the patient protections we support, including
accountability, closely reflect President Bush's principles.
We agree, a Federal Patients' Bill of Rights must ensure
that every patient enrolled in a health plan enjoys strong
patient protections, and because many States have passed
patient protection laws that are appropriate for their States,
deference should be given to those State laws.
The AMA believes that these principles are incorporated in
the framework of the Ganske-Dingell patient protection bill,
which is why we support that bill.
Mr. Chairman, the entire committee, Mr. Tauzin, thank you
again for inviting me to speak today.
[The prepared statement of Donald J. Palmisano follows:]
PREPARED STATEMENT OF DONALD J. PALMISANO, MEMBER, AMA BOARD OF
TRUSTEES ON BEHALF OF THE AMERICAN MEDICAL ASSOCIATION
Mr. Chairman and members of the Committee, my name is Donald J.
Palmisano, MD, JD. I am a member of the Board of Trustees of the
American Medical Association (AMA), a Board of Directors member of the
National Patient Safety Foundation (NPSF) and the Chair of the
Development Committee for the same foundation. I also practice vascular
and general surgery in New Orleans, Louisiana. On behalf of the three
hundred thousand physician and medical student members of the AMA, I
appreciate the opportunity to comment on the issue of state and federal
roles in health plan accountability.
Identifying the Issue
The Employee Retirement Income Security Act of 1974 (ERISA)
established an elaborate regulatory system intended to ensure that
employees receive the pension benefits which their employers have
promised them. The statute was enacted in response to widespread
allegations of pension funds mismanagement and fraud. In addition to
preventing these abuses, the statute sought to create uniform
regulatory requirements that would govern the administration of pension
and benefit plans, thereby encouraging employers to offer employees
these benefits. The intention of the bill's sponsors therefore was to
ensure that employers doing business in more than one state could
design financial benefits plans that could operate nationwide and would
not face conflicting state requirements. To override then current state
laws that sought to regulate pension plans, Congress incorporated broad
preemption language into ERISA.
Most of the remedies included in ERISA were also geared toward
protecting plan assets. ERISA's appeals procedures and civil
enforcement mechanisms were all directed at ensuring that plan
fiduciaries handled plan funds properly and prudently for the plan
participants' benefit. The drafters of ERISA never anticipated or
intended the bill to protect plan participants who sought to access
services, such as medical care, as part of a health care benefits
package.
The drafters of ERISA also could not have anticipated the eventual
effects of ERISA and its preemption provision because of the dramatic
changes the health care market itself has undergone. In 1974, the
health care delivery system was entirely different from today's market.
Over the last several decades, we have seen a transformation in
employer-sponsored health care plans from traditionally insured or
``fee-for-service'' to managed care. This transformation has given rise
to new types of arrangements and relationships for financing and
delivering health care that were not foreseen by the framers of ERISA
in 1974.
A Matter of Fundamental Fairness
In the era of managed care, health plans increasingly make
decisions that directly affect the care that patients receive.
Illustrations of these practices include: inappropriately limiting
access to physicians through restricted networks (blocking patient
access to specialists); refusing to cover or delaying needed medical
services (transplants, transfusions, therapies); drawing treatment
protocols too narrowly (patients discharged from a hospital
prematurely); offering payment incentives or creating deterrents to
care (disciplining physicians who refer patients for necessary medical
care); and discouraging physicians from fully discussing health plan
treatment options (gag rules and gag practices).
These non-financial functions were never intended to be covered or
regulated by ERISA. Instead, the states typically regulated the
practice of medicine and, more generally, the delivery of health care.
Even the federal courts have repeatedly noted that the regulation of
quality of care has traditionally been a matter of state law, and that
quality of care standards should be enforced in state courts.
Nevertheless, under many circumstances, ERISA currently preempts
state-based causes of action, thereby preventing injured patients from
recovering against health plans that have acted wrongfully. As a
result, ERISA's federal preemption of state liability actions leads to
harsh consequences for many patients harmed by their health plans.
The federal judiciary has also observed the incongruity and
inherent unfairness resulting from ERISA preemption, with several
federal judges calling on Congress to amend ERISA. One case involved a
41-year-old father of four who went on a drinking binge and committed
suicide. After his death, his widow said that the health plan had
refused to approve a detoxification program after an earlier suicide
attempt. Unable even to look at the merits of the case, the U.S.
District Judge threw it out of court, saying that ERISA gave the health
plan a ``shield of immunity.'' The judge went on to say that ``the
tragic events set forth in Diane Andrews-Clarke's complaint cry out for
relief . . . Nevertheless, this court has no choice but to . . . slam
the courthouse doors in her face and leave her without any remedy.''
1 According to Judge Young, ``the shield of near absolute
immunity now provided by ERISA simply cannot be justified . . . Even
more disturbing to this Court--[he said]--is the failure of Congress to
amend a statute that, due to the changing realities of the modern
health care system, has gone conspicuously awry from its original
intent.'' 2
---------------------------------------------------------------------------
\1\ Andrews-Clarke v. Travelers Insurance Co., 984 F. Supp. 49, 64-
5 (D. Mass. 1997).
\2\ Id.
---------------------------------------------------------------------------
Allowing plans to continue to escape liability for negligent
decision-making through this statutory loophole leaves patients in
serious jeopardy. If ERISA plans know they can avoid liability due to
ERISA preemption of state law, they have no incentive to act
responsibly and provide needed and contracted for medical care.
Consider, for example, some evidence presented in a lawsuit against
one of the nation's largest insurance companies last year. The case
involved a deputy district attorney, Mr. Goodrich, who died of stomach
cancer after trying for 2\1/2\ years to get his insurance company to
approve the cancer treatment that the insurance company's own
physicians had recommended. During the trial, a training video of the
insurance company was admitted into evidence. The training film showed
one of the company's attorneys instructing claims handlers, and telling
them ``[a]s a practical matter, you really may have to do more on a
non-ERISA plan to protect against some of the legal exposure we're
talking about.''
The bottom line is that patients who receive health benefits
through ERISA plans are currently denied the same rights and remedies
as patients in non-ERISA plan. This is a simple question of fairness.
It is also a matter of the public's will and desire. A vast majority of
Americans believe that health plans should be legally accountable for
negligent decisions that injure or kill patients. 3 We
strongly agree.
---------------------------------------------------------------------------
\3\ Fifty-three percent (53%) of Americans favor legislation making
it easier to sue managed care plans that make negligent decisions which
cause injury or harm to patients. Harris Poll #56, September 29, 1999.
Henry J. Kaiser Family Foundation, Harvard School of Public Health
survey conducted on January 25, 2001, found that 75% of Americans
support patient protection legislation, including the right to sue
health plans.
---------------------------------------------------------------------------
While some federal courts continue to view ERISA as preempting all
state-based causes of action against health plans, many federal courts
have allowed injured patients' complaints against health plans to
survive ERISA preemption scrutiny. In fact, most ERISA experts
acknowledge a definite trend in federal courts whereby the courts are
deciding that causes of action against health plans based on medical
decisions or ``mixed'' medical-eligibility decisions are not preempted
by ERISA. In other words, injured patients or the estates of deceased
patients may increasingly pursue legal remedies in state courts under
state law. Legislative ERISA reform, however, is necessary to ensure
that all patients are protected.
A Developing Trend
Because of the existing ``preemption'' provision of ERISA, patients
enrolled in ERISA plans lack the remedies currently available to
patients participating in non-ERISA plans. Many courts have recognized
this problem. In Corcoran v. United Healthcare,4 for
instance, a patient who had a high-risk pregnancy was advised by her
physician to be hospitalized as she approached her due date. The plan,
however, denied the request and instead authorized nursing home care.
When the patient was at the nursing home and the nurse was off-duty,
the fetus went into distress and died. The woman sued the plan alleging
that the plan was negligent in not hospitalizing her. The federal
court, however, decided that because the woman's claim involved a
decision about the availability of hospitalization it was actually a
``benefits'' decision, and consequently preempted by ERISA. As a
result, the woman could only proceed under ERISA, which provides as the
woman's sole remedy the benefits sought--in this case pre-delivery
hospitalization. The woman therefore could obtain no real legal remedy
under either ERISA or state law.
---------------------------------------------------------------------------
\4\ 965 F.2d 1321 (5th Cir. 1992).
---------------------------------------------------------------------------
Several other federal courts, however, have taken the position that
ERISA was never intended to preempt injured patients from suing managed
care plans for negligence simply because the plans contract with
private employers or unions. These courts have looked to the preemption
doctrine as articulated in the Pilot Life Insurance Co. v. Dedeaux
5 and Metropolitan Life Insurance Co. v. Taylor 6
cases, and then focused on the Dukes v. U.S. Healthcare,
Inc.7 case. In Dukes, the Third U.S. Circuit Court of
Appeals acknowledged a previously identified distinction between
``quality of care'' decisions and ``quantity of benefits'' claims, and
found that state law claims addressing the quality of care that the
enrollees received were outside the scope of ERISA remedies and were
not preempted.
---------------------------------------------------------------------------
\5\ 481 U.S. 41 (1987).
\6\ 481 U.S. 58 (1987).
\7\ 57 F.3d 350 (3d Cir. 1995), rev'g Visconti v. U.S. Healthcare,
857 F. Supp. 1097 (E.D. Pa. 1994), and Dukes v. United States
Healthcare Sys. of Pennsylvania, Inc., 848 F. Supp. 39 (E.D. Pa. 1994),
cert. denied, 116 S. Ct. 564 (1995).
---------------------------------------------------------------------------
After the Dukes case, a federal court in Connecticut found in
Moscovitch v. Danbury Hospital 8 that a claim against an
ERISA plan in which the enrollee challenged the medical and psychiatric
decisions of the plan administrator was not preempted by ERISA, despite
the plan's allegations to the contrary. The enrollee had on two
occasions attempted suicide and was hospitalized both times. Determined
to be suicidal on a third occasion, the patient was again hospitalized.
Deciding that hospitalization was no longer medically necessary, the
plan administrator on this occasion transferred the enrollee from the
hospital to a treatment center, where he committed suicide.
---------------------------------------------------------------------------
\8\ 25 F. Supp. 2d 74 (D. Conn. 1998).
---------------------------------------------------------------------------
Similarly, federal courts in Pennsylvania, Missouri, and Illinois,
in the Tiemann v. U.S. Healthcare, Inc.9, Harris v.
Deaconess Health Services Corp.10, and Crum v. Health
Alliance-Midwest, Inc.11, respectively, all found that plan
participants and beneficiaries could bring their negligence claims
against the health plans in state court--ERISA did not preempt them. In
Harris, a plan participant had sought authorization for
hospitalization, for what he thought was appendicitis. The plan denied
him admission and his appendix ruptured. The participant suffered
permanent physical injury as a result. In Crum, a plan participant
believed that he may be suffering a heart attack and sought admission
to an emergency room. The plan's advisory nurses twice denied him
permission for emergency room services, and he died of a heart attack.
---------------------------------------------------------------------------
\9\ 93 F. Supp. 2d 585 (E.D. Pa. 2000).
\10\ 61 F. Supp. 2d 889 (E.D. Mo. 1999).
\11\ 47 F. Supp. 2d 1013 (C.D. Ill. 1999).
---------------------------------------------------------------------------
As we have stated, however, this federal trend remains in its
nascent stage and without clear leadership from Congress, the court
rulings will remain inconsistent and unpredictable. Many patients will
continue to have no legal remedies when their health plans act
negligently and cause them injury or death.
A Complementary Solution
Under the principle of federalism, the federal and state
governments maintain a complementary relationship; the states retain
all powers not delegated to the federal government. The Tenth Amendment
of our U.S. Constitution reiterates this principle by assuring that
``the powers not delegated to the United States'' nor prohibited to the
states ``are reserved to the states respectively, or to the people.''
The political theory underlying this judicial philosophy was that
the local or state governments were best equipped to address the needs
of their citizens. The Founders were also generally concerned about an
excessively powerful, excessively centralized national government. As a
result, many of the Founders sought to ensure that the national
government would be empowered to legislate only in those areas in which
the separate states were incompetent.
Historically, the states have retained jurisdiction to govern the
practice of medicine and, more generally, the delivery of health care
for their citizens. The states, for instance, retain virtually sole
authority to license and regulate health care professionals and
institutions, as well as to provide remedies to citizens who are harmed
by the negligent acts of those practicing medicine. When health plans,
insurance companies, or even employers, make medical treatment
decisions--and in essence, practice medicine--they should therefore be
held accountable under state law, in state courts.
Recent statements by the Judicial Conference of the United States,
which is headed by Chief Justice Rehnquist, prove instructive on this
issue. In a March 2000 letter to the Chairman of the conference
committee on managed care legislation passed in the 106th Congress, the
Judicial Conference stated that: ``Personal injury claims arising from
the provision or denial of medical treatment have historically been
governed by state tort law, and suits on such claims have traditionally
and satisfactorily been resolved primarily in the state court system .
. . The state courts have significant experience with personal injury
claims and would be an appropriate forum to consider personal injury
actions pertaining to health care treatment.'' (Emphasis added).
The Judicial Conference urged Congress ``to provide that, in any
managed care legislation agreed upon, the state courts be the primary
forum for the resolution of personal injury claims arising from the
denial of health care benefits.'' (Emphasis added).
Recent federal case law reflects the Judicial Conference's policy
favoring state court jurisdiction over cases regarding medical
judgments. The Supreme Court in last year's Pegram v. Herdrich
12 case stated that health plan coverage decisions often
involve medical and administrative components which are ``inextricably
mixed,'' and the ``eligibility decisions cannot be untangled from
physicians' judgements about reasonable medical treatment.'' The Court
expressly declined to find a ``fiduciary malpractice claim'' under
ERISA, and noted that permitting such a cause of action would create
the unattractive possibility of ERISA preemption of state medical
malpractice laws. The Supreme Court's reasoning therefore supports the
contention that state courts remain the appropriate forum for holding
health plans accountable. Many lower federal courts have made similar
statements, acknowledging that states retain ``their traditional police
powers in regulating the quality of health care.'' 13
---------------------------------------------------------------------------
\12\ 530 U.S. 211.
\13\ (Corporate Health Insurance Inc. v. Texas Department of
Insurance, 5th Cir., June 20, 2000, No. 98-20940, 215 F.3d 526; 2000
U.S. App. LEXIS 14215).
---------------------------------------------------------------------------
Not only does the federal judicial branch--including the U.S.
Supreme Court--recognize the importance of states retaining
jurisdiction over the practice of medicine, the states also are trying
to exercise their authority over the regulation of medical care. Every
state legislature has passed laws governing the delivery of health care
services to its citizens, whether pertaining to external appeal rights,
utilization review, access to emergency services, or some other patient
protection. Eight states have passed laws expressly authorizing
statutory causes of action against health plans, in addition to the
state ``common law'' actions already recognized by their courts.
Texas, for instance, in 1997 passed a statute that creates a new
state cause of action against health insurance carriers, HMOs, and
other managed care entities who breach their duty to exercise ordinary
care when making health care treatment decisions, and the breach causes
harm to the patient. An additional seven (7) states--Arizona,
California, Georgia, Louisiana, Maine, Oklahoma, and Washington--have
passed similar health plan accountability statutes.
We strongly urge Congress therefore to recognize the legitimate
authority of states and incorporate a bifurcated cause of action into a
bipartisan patient protection bill. The bill would need to remove in a
targeted fashion ERISA preemption, permitting states to pass or retain
their own legislation which would protect the legitimate interests of
their citizens. Additionally, removing ERISA preemption in this manner
would preserve prior federal court decisions that have recognized state
common law causes of action.
The ``split'' between the federal and state causes of action must
be made according to whether the plan exercised medical judgment when
making its decision. The judiciary has repeatedly relied on that
criteria, and so should Congress. When a health plan intervenes in the
medical decision-making process, and imposes its medical judgment on
the patient, the plan is engaging in the practice of medicine and
should be held accountable under state law. If the plan has not made a
medical judgment and has made simply an eligibility decision, the claim
should be brought in federal court.
Because of the gross inadequacy of ERISA remedies, an acceptable
patients' bill of rights must modify ERISA to also permit a meaningful
federal cause of action when an enrollee has been injured by a health
plan's decision that did not involve medical judgment. As we mentioned
above, ERISA was enacted to protect pension plan and other employee
benefit financial assets. ERISA needs to be updated to reflect the
current managed care market and protect plan participants and
beneficiaries when their group health plans act negligently and cause
them harm.
Some advocates of plan accountability have suggested that patient
protection legislation should provide only a federal cause of action. A
federal cause of action alone however would wipe out those state
statutes as well as state common law rights which have provided
citizens with state law remedies against health plans for negligent
medical decision-making. Additionally it would prevent forty-two (42)
other state legislatures from passing similar patient protection
legislation in the future. The AMA firmly believes that Congress should
not override the will of the states by passing a federal-only cause of
action.
Creating solely a federal remedy for health plan and employer
misconduct would also violate the most basic principles of federalism.
Chief Justice Rehnquist has warned that ``Congress should commit itself
to conserving the federal courts as a distinctive judicial forum of
limited jurisdiction in our system of federalism . . . [M]atters that
can be adequately handled by states should be left to them . . .''
14 (Emphasis added).
---------------------------------------------------------------------------
\14\ Remarks of Chief Justice William H. Rehnquist at the American
Law Institute Annual Meeting, May 11, 1998.
---------------------------------------------------------------------------
To provide all patients with adequate remedies, Congress must enact
federal legislation permitting patients to seek legal recourse against
managed care plans under state law when the plans' negligent medical
decisions result in death or injury.
Controlling Litigation
A bifurcated cause of action would grant all Americans who receive
employer-based health benefits an extremely important patient
protection, which they both need and desire. This protection could, and
should, be coupled with other critical patient rights that would
directly benefit patients while both directly and indirectly benefiting
health plans.
As we have noted, many federal courts have begun to allow injured
patients to bring causes of action against health plans in state
courts. The pleadings and legal theories for these cases will
increasingly mimic the pleadings and theories of those cases that have
successfully withstood ERISA preemption scrutiny. As a result, managed
care organizations will most likely become increasingly subject to
liability--despite ERISA--for improper claims decisions that result in
patient injury or death.
When patients have been successful in bringing legal actions
against ERISA plans, current law provides few protections for the
plans. In many jurisdictions, patients would be able to proceed
directly to court without appealing internally or externally, recover
potentially unlimited punitive damages, and theoretically, could
proceed against their employers, as well. Critical to any acceptable
patient protection bill, therefore, are provisions granting employers
protection against unwarranted liability, independent external appeals
provisions that would eliminate unnecessary litigation, and limitations
on punitive damages. With these provisions, health plans and employers
would also certainly benefit from the bill.
Restricting Negligence Actions
Crucial to an acceptable patients' bill of rights are a grievance
system and an internal and independent external appeals provision.
Without a grievance system, disgruntled patients with legitimate,
though perhaps minor, complaints against their health plans would be
required to go to court to resolve their disputes. And patients who are
seeking medical care and have serious coverage disputes with their
health plans, need and want timely coverage determinations and medical
treatment, not lengthy and expensive litigation.
We therefore consider it essential that a patient protection bill
provide patients with access to a grievance system and an internal and
independent external appeals process, which would effectively eliminate
any need for litigation.
An acceptable bill, for instance, could require patients first to
appeal coverage denials directly to reviewers selected by their plans.
The plans could control whether an internal review would be conducted,
but their decision would have to be timely and account for the medical
exigencies of the specific case. If the plan chose not to waive this
requirement, the patient would be obligated to complete the internal
review before proceeding to an external appeal.
External appeals should be independent, binding on the plan, timely
and conducted by qualified physicians (MDs/DOs) of the appropriate
specialty. To ensure that their decisions are truly independent, plan
definitions of ``medically necessary'' and ``investigational and
experimental treatment'' must not be binding on the external reviewers.
An effective independent appeals process would resolve virtually all of
the egregious cases--like Corcoran--without the need for litigation. We
firmly believe that with access to efficient, effective, and truly
independent external appeals entities, patients will rarely need to go
to court.
Employer Liability
The insurance industry and some other opponents of patient
protection legislation have alleged that a patient protection bill
would place employers in jeopardy. They claim that by holding health
plans accountable for their own negligence, the legislation would
somehow expand employers' liability. These concerns, though
understandable, can easily be addressed and remedied in a bipartisan
patients' bill of rights.
A patient protection bill can offer real and meaningful protection
to employers and other plan sponsors. The bill for example could
expressly state that it does not authorize a cause of action against an
employer or other plan sponsor, and only an employer or plan sponsor
that directly participates in making an incorrect medical determination
for an individual claim decision could be held accountable.
Consequently, only if an employer or plan sponsor directly participated
in making an incorrect medical decision for an individual claim
decision under its group health plan, and that decision resulted in
injury or wrongful death, could it be exposed to a state law claim.
Even then, to recover, the injured patient would have to prove: (1)
that the employer directly participated in making an incorrect medical
determination on that particular claim for benefits, (2) that
individual decision caused the patient's injury or death, and then (3)
that the employer's conduct also met all elements of an applicable
state law cause of action.
Some opponents of patient protection legislation have spuriously
alleged that employers will be held liable for simply selecting the
plans, under this scenario. We therefore believe that the bill should
explicitly state that employers and other plan sponsors cannot be held
liable for fulfilling their traditional roles as employers and plan
sponsors. The bill should provide ``safe harbors,'' for instance, for
the following activities: (I) any participation by the employer or
other plan sponsor in the selection of the group health plan or health
insurance coverage involved or the third party administrator or other
agent; (II) any engagement by the employer or other plan sponsor in any
cost-benefit analysis undertaken in connection with the selection of,
or continued maintenance of, the plan or coverage involved; (III) any
participation by the employer or other plan sponsor in the process of
creating, continuing, modifying, or terminating the plan or any benefit
under the plan, if such process was not substantially focused solely on
the particular situation of the participant or beneficiary; and (IV)
any participation by the employer or other plan sponsor in the design
of any benefit under the plan.
Additionally, because many employers and other plan sponsors seek
to advocate for their employees during the review and appeals
processes, an acceptable patient protection bill should explicitly
protect employers and plan sponsors functioning as patient advocates as
well.
Some advocates of patient protection legislation have suggested
that a federal bill should mirror the Texas ``accountability'' statute.
In fact, the provisions we have identified would provide employers the
same if not greater protection than what is offered in the Texas law.
Both our principles and the Texas statute protect employers, and
neither specifically excludes from liability employers who ``play
doctor'' and improperly intervene in medical decisions. We note,
though, that our proposed principles also expressly protect employers
functioning as employers.
We anticipate that some employer advocacy groups will continue to
allege nevertheless that employers would, despite these employer
protections, still be exposed to liability under such a bill.
Interestingly, in our many discussions with many of these
organizations, we and the sponsors of several patients' rights bills
have explicitly requested alternative language that the employer groups
believe would adequately address their concerns. In every instance,
these organizations have failed even to propose such language. After
our repeated and diligent efforts to arrive at an agreement, we have
begun to think that some of the organizations are not genuinely
interested in solving what they claim is a potential problem.
We acknowledge that if an employer ``plays doctor'' and directly
participates in making an incorrect medical determination on a
particular claim for benefits, the employer could potentially be held
liable in state court. In such an extraordinarily rare situation of an
employer directly interfering in a specific medical treatment decision
and injuring a patient, should it not be exposed to liability?
President Bush apparently thinks so, since he stated in his Principles
for a Bipartisan Patients' Bill of Rights that he would hold those
employers accountable ``who retain responsibility for and make final
medical decisions.''
Exhaustion of Remedies
In order to ensure that the external appeals process can
effectively reduce litigation while encouraging timely coverage
decisions, patients must be required to utilize the appeals process.
Patients therefore should have to exhaust all administrative remedies
before going to court.
The purpose of the appeals process is to ensure that coverage
disputes may be resolved in a timely fashion, so that patients may
obtain the medical treatment to which they are entitled before they
unnecessarily suffer harm. If, because of the health plan's conduct,
they suffer serious and irreparable harm or die, they or their estates
should not be required to exhaust all administrative appeals. At that
point, the patient is no longer seeking the medical treatment, but
instead desires and needs court protection. Consequently, the patient
or the patient's estate should not be required to spend additional time
and money unnecessarily in an appeals process. To complete the external
appeals process under those circumstances would be futile. The patient
should at that time be allowed access to the court system.
Texas law includes a very similar exception in its appeals process.
Under Texas law, a person is permitted to bypass the independent review
if harm has already occurred.
Limiting Punitives
As we have shown, several federal appellate courts have found that
patients' claims against their health plans can at times be brought as
negligence actions and therefore are not preempted by ERISA. Managed
care organizations consequently are increasingly becoming subject to
new liability--despite ERISA--for improper claim denials that injure or
kill patients. For those cases, federal courts are permitting state
statutory and common law to govern the resolution of these claims, many
of which also seek punitive damages.
In the past, for non-ERISA cases, juries have been awarding
progressively larger punitive damage awards against health plans. In
1993, a southern California jury awarded $89 million to the estate of
Nelene Fox, finding that her insurer, HealthNet, improperly denied her
autologous bone marrow transplant treatment with high-dose chemotherapy
for her breast cancer. Of the $89 million, 90 percent of the award ($77
million) was attributed to punitive damages. More recently, a jury
rendered a $120 million verdict against Aetna U.S. Healthcare for
improperly delaying treatment for 41-year-old David Goodrich, who had
been diagnosed with leiomyosarcoma of the stomach. Of the $120 million
award, $116 million represented punitive damages.
Presuming that some courts will be favorably disposed--as others
have been--to new legal theories that plaintiffs' attorneys are
presenting, this trend can only be arrested through federal
legislation. An acceptable patient protection bill should, therefore,
include meaningful and reasonable limits on punitive damage awards.
Cost
In the past, many opponents of health plan accountability have
alleged that federal patient protection legislation would cause health
care premiums to skyrocket. Although no cost reports are presently
available for pending federal patients" rights legislation, the fact
remains that if plans were forced to accept responsibility for their
decisions, costs would not be significantly affected.
We are aware for instance that in Texas, the first state to adopt
managed care accountability legislation, this issue was hotly debated.
Milliman and Robertson completed an actuarial determination of the cost
of the Texas liability legislation to a Texas-based HMO and set the
cost at only 34 cents per member per month. A study prepared by William
M. Mercer, Inc. and the AMA demonstrates that managed care
accountability legislation would only increase premiums between .5% and
1.8%.
In fact, the American Association of Health Plans (AAHP) and the
Health Insurance Association of America (HIAA) surveyed their HMO
members in Texas and ``could not find one example'' where the Texas
patient protection law forced Texas HMOs to raise their premiums or
provide unneeded and expensive medical services.15
---------------------------------------------------------------------------
\15\ September 28, 1999, Washington Post.
---------------------------------------------------------------------------
Other representatives of the insurance industry have also publicly
admitted that holding plans accountable will not significantly drive up
health care premiums. Jeff Emerson, the former CEO of NYLCare, stated
in a July 11, 1999, Washington Post article that he is ``. . . not
going to make the argument that it's going to be a lot of money.''
Aetna/USHealthcare spokesman, Walter Cherniak, stated in the same
Washington Post article that ``we would charge the same premium to a
customer with the ability to sue as we do those who do not have the
ability to sue.'' Why? ``Those judgments to date have been a very small
component of overall health care costs,'' according to Cherniak.
In fact, the four-year-old Texas law that allows HMOs to be sued
for their negligent medical decisions has prompted little litigation--
approximately ten lawsuits out of the 4 million Texans in HMOs. Texas
State Senator David Sibley, a Republican, stated two years after this
bill was enacted, that ``those horror stories'' raised by the HMO
industry ``just did not transpire.'' President George W. Bush, who was
then the Texas Governor, has repeatedly affirmed that he thinks this
law has worked well in Texas.
Some opponents of HMO accountability have alleged that employers
would drop their health benefits if ERISA preemption is removed. In
many industries, however, companies provide additional incentives to
attract and keep quality employees or else lose them to competitors,
and one of the basic corporate benefits is full or partial health care
coverage. It is therefore very unlikely that companies will eliminate
health benefits simply because health plans are held accountable for
the coverage and medical decisions they make.
Tort Reform
The issue of liability caps has been raised frequently in recent
discussions of health plan accountability in patient protection
legislation. Within the context of medical malpractice, the AMA has
long supported tort reforms, including reasonable caps on damages. In
recent years, we sought the passage of tort reform legislation, which
passed the House of Representatives but has consistently failed in the
Senate. A number of Senators from both parties have opposed reasonable
limits on non-economic damages.
When discussing caps in a patients' bill of rights, several issues
must be addressed. What would be considered ``reasonable'' caps for
damages? What type of damages would be capped? Would a federal bill
permit state tort reform laws to remain intact? Would the caps apply
only to federal causes of action? Would a disparity between state and
federal caps create undesirable and unnecessary forum-shopping? Would
caps applicable to health plans also apply to all other health care
providers?
The AMA fully recognizes the complexity of these and various other
issues associated with tort reform, and we believe that tort reform
must be addressed. With that said, we question whether adequate support
exists in the Senate to pass meaningful tort reform in the context of
patient protection legislation. If sufficient votes are not present, we
would urge Congress to pass an acceptable patient protection bill at
this time and then continue to push for meaningful tort reform. The AMA
remains fully committed to both issues, but recognizes that coupling
them together, could kill both.
Conclusion
We appreciate the Committee's interest in addressing the issue of
health plan accountability and the respective state and federal roles.
As we have indicated, the AMA strongly believes that ERISA must be
reformed to permit injured patients or their estates to recover against
negligent health plans. The most sensible solution to this problem
parallels the traditional roles of the state and federal governments,
allowing states and their courts to continue to govern the practice of
medicine while the federal courts adjudicate strictly benefits
decisions under ERISA. Without this type of ERISA reform, any patient
protection or health care quality legislation would not fully ensure
fairness for all patients.
The AMA understands that several patient protection bills will be
or are being considered, and we are committed to working with both
Congress and the President to reach agreement on a bipartisan patient
protection bill that can be enacted into law this year. We thank the
Chairman and this entire Committee for the opportunity to discuss this
critical issue.
Mr. Burr. Thank you, Doctor.
The Chair would recognized Ms. Rosenbaum for a opening
statement.
STATEMENT OF SARA ROSENBAUM
Ms. Rosenbaum. Thank you very much, Mr. Chairman. My
testimony addresses two basic issues. The first is an overview
of the current legal baseline that governs managed care
liability, and the second is how Congress should approach the
question of managed care liability in the context of a
Patients' Bill of Rights.
With respect to the first question, outside of a shield
that I believe was unwittingly given to private employers by
Congress 25 years ago when it created ERISA, there is no area
of law, with the limited exception of the kind of sovereign
immunity situation that Mr. Burr asked about, in which a
defendant is not held accountable for the death or injury of
another person.
It is a basic proposition of American law and one that has
its roots in a thousand years of common law that people should
have to answer under the law for the injuries they cause.
Beginning in the 1700's, in England, health professionals
were recognized as accountable under common liability
principles.
In the 1960's, in the United States, the notion of
liability for medical injury was first extended to
corporations, to hospitals. Hospitals predicted when the first
cases came down, the Darling case and other cases that followed
in its wake, that we would stop having hospitals because of
medical liability.
That didn't happen, to put it mildly.
The notion, furthermore, that Congress is considering for
the first time extending medical liability to HMOs is simply
incorrect. For at least 20 years and probably longer, HMOs have
been recognized as liable for the medical harm they cause.
Since the landmark case of Dukes v. U.S. Health Care,
furthermore, it has been recognized that HMOs can be liable for
the medical injuries they cause to members of ERISA plans.
The major contribution of the Supreme Court's unanimous
decision in Pegram v. Herdrich was, in fact, to reframe the
liability issue for the lower courts, to make clear to the
lower courts that when a case involving a beneficiary or a
participant of an ERISA plan comes to the courts, there are
some claims that are Federal ERISA claims that fall within the
limited jurisdiction of Federal courts, and those are known as
fiduciary claims.
There are other claims that fall outside the scope of
ERISA, and those are medical claims. The court simply dismissed
any notion that in the modern health system, we can distinguish
any longer between something called a coverage claim and
something called a care claim.
What we have is medical decisions. So given this baseline
and given the instructions that a unanimous court has now given
to the lower courts, what should Congress do?
Since State law is the source of all law related to medical
liability for injuries, whether individual or corporate, the
remedy for persons who are injured belongs with the States, and
this is true whether the person is injured by an HMO
administering a benefit plan under ERISA or an HMO
administering a Medicare Plus Choice plan.
To create a Federal remedy for medical coverage injuries,
and I put that in quotes, effectively undoes what a unanimous
court did last year attempts to resurrect an ERISA shield for
managed care organizations, while leaving physicians and
hospitals totally exposed in State court.
Furthermore, it would relegate families to a continued
bifurcated obligation where medical injuries are concerned, and
would cause needless disruption in their ability, in the very,
very rare instances where medical injury happens, to pursue
their legal remedies.
In my view, and this has been said a number of times this
morning, the external appeals process that you are likely to
establish under managed care reform will, in fact, take even
the limited number of medical injury cases we see today and
reduce the number even further.
We can probably expect that employers will begin to simply
certify cases over to the external appeals process rather than
spending a lot of time on internal appeals. That is an option
under the Ganske-Dingell bill and one that I presume many
employers would be happy to take.
Some of my best friends are ERISA fiduciaries and have to
make these decisions on a monthly or relatively frequent basis
and it is very difficult.
So if there is a good, fair external appeals process, I
assume that, in fact, a lot of the burden that falls to
employers today will evaporate or at least be significantly
reduced.
Given the very limited role of liability and medical
liability, I would say that it is a very unwise idea to
overturn Pegram at this point.
[The prepared statement of Sara Rosenbaum follows:]
PREPARED STATEMENT OF SARA ROSENBAUM, HAROLD AND JANE HIRSH PROFESSOR,
HEALTH LAW AND POLICY, THE GEORGE WASHINGTON UNIVERSITY SCHOOL OF
PUBLIC HEALTH AND HEALTH SERVICES
Mr. Chairman and Members of this Subcommittee: Thank you for
extending me this opportunity to testify before you today on one of the
most important aspects of the managed care patient protection
legislation now under Congressional consideration--access by families
enrolled in ERISA plans to legal remedies for medical injuries. I
commend Congress for its ongoing effort to find a resolution to this
problem. The task is obviously a difficult one and cannot be resolved
without addressing ERISA preemption, one of the most complicated areas
of social welfare law.
My testimony is based on my work as a health law professor and
draws extensively on my collaboration with Professors Rand Rosenblatt
and David Frankford of Rutgers University Law School in Camden, New
Jersey. Our textbook, Law and the American Health Care
System,1 was the first health law textbook to extensively
present health law in an ERISA context and was cited in the Supreme
Court's opinion in Pegram v Herdrich 2 as a leading textual
authority regarding the legality of managed care design under ERISA.
---------------------------------------------------------------------------
\1\ Foundation Press, NY, NY (1997; 2001-2002 Supplement
[forthcoming, Summer, 2001])
\2\ 120 S. Ct. 2143, 2149 (2000).
---------------------------------------------------------------------------
In this testimony I explore two issues. The first is the emerging
``legal baseline'' regarding the liability of managed care
organizations for medical injury. The second is the question of whether
in fashioning this legislation, Congress should adhere to this emerging
baseline in fashioning remedies for members of ERISA plans who suffer
medical injuries.
1. THE LEGAL BASELINE
For many years it has been settled law that an HMO or other managed
care company can be held liable for injuries flowing from substandard
medical care. Managed care organizations are ``hybrid'' entities that
provide the medical care they furnish; thus, in the eyes of the law
they undertake medical treatment and thus are accountable for medical
acts that injure or kill. Liability can be predicated on theories of
vicarious or direct negligence.3
---------------------------------------------------------------------------
\3\ See. e.g., Boyd v Albert Einstein Medical Center 547 A. 2d 1229
(Pa. Super., 1998); Chase v Independent Practice Asso., 583 N.E. 2d 251
(Mass. App. 1991); Petrovitch v Share Health Plan of Ill. 719 N.E. 2d
756 (Ill., 1999); Shannon v McNulty 718 A. 2d 828 (Pa. Super., 1998);
Jones v Chicago HMO 730 N.E. 2d 1199 (Ill, 2000).
---------------------------------------------------------------------------
Since the 1995 landmark decision in Dukes v U.S.
Healthcare,4 federal courts, in deciding questions of
removal jurisdiction under 28 U.S.C. Sec. 1441, have consistently held
that where an ERISA participant or beneficiary brings a lawsuit that
alleges medical injury, the claim arises under state law and thus is
not a federal claim under ERISA.5 Until this past Supreme
Court term, the Dukes ``quantity/quality'' distinction supplied the
analytical framework for distinguishing between ERISA health benefit
cases that involved state, as opposed to federal law.
---------------------------------------------------------------------------
\4\ 57 F. 3d 350 (3d Cir., 1995); cert. den. 116 S. Ct. 564 (1995).
\5\ See, e.g., In re U.S. Healthcare 193 F. 3d 151; cert. den. 120
S. Ct. 2687; Lazorko v Pennsylvania Hospital 2000 WL 1886619; Corporate
Health v Texas Department of Insurance 215 F. 3d 526 (5th Cir., 2000);
and additional cases cited in Law and the American Health Care System,
Ch. 3(E)
---------------------------------------------------------------------------
In Pegram v Herdrich a unanimous Supreme Court altered this
analytic framework by introducing the concept of ``mixed'' and ``pure''
eligibility decisions. Pegram is best known for its holding that
fundamental aspects of managed care design (Pegram concerned the use of
financial incentives in employer-sponsored health benefit plans) do not
constitute a breach of fiduciary duty under ERISA. However, the Court's
opinion did not end here. The Court went on to discuss at length the
concept of fiduciary decision-making under ERISA.
ERISA's remedies apply to ``fiduciary'' decisions and activities.
Claims challenging the legality of ERISA fiduciary decisions thus are
governed by ERISA remedies.6 But legal claims that do not
constitute a challenge to an ``ERISA fiduciary'' decision fall outside
the limits of ERISA and are not subject to ERISA preemption.
---------------------------------------------------------------------------
\6\ ERISA Sec. 502; 29 U.S.C. Sec. 1132.
---------------------------------------------------------------------------
In Pegram the Court distinguished between medical decisions and
fiduciary decisions. Writing for the Court, Justice Souter
fundamentally restructured the analytic framework for deciding when a
medical injury case is governed by state law. In the view of the Court,
state law should govern in any case in which medical injury is alleged
to have flowed from flawed medical judgement, regardless of the context
in which that judgement is exercised:
[P]ure ``eligibility decisions'' turn on the plan's coverage
of a particular condition or medical procedure for its
treatment. "Treatment decisions," by contrast, are choices
about how to go about diagnosing and treating a patent's
condition: given a patient's constellation of symptoms, what is
the appropriate medical response? These decisions are often
practically inextricable from one another * * * * This is so
not merely because, under a scheme like Carle's, treatment and
eligibility decisions are made by the same person, the treating
physician. It is so because a great many and possibly most
coverage questions are not simple yesorno questions, like
whether appendicitis is a covered condition (when there is no
dispute that a patient has appendicitis), or whether
acupuncture is a covered procedure for pain relief (when the
claim of pain is unchallenged). The more common coverage
question is a whenandhow question. * * *
The kinds of decisions * * * * claimed to be fiduciary in
character are just such mixed eligibility and treatment
decisions * * * * .
[W]e think Congress did not intend * * * * any other HMO to
be treated as a fiduciary to the extent that it makes mixed
eligibility decisions acting through its physicians. * * * *
Our doubt * * * * hardens into conviction when we consider the
consequences that would follow * * * * . What would be the
value to the plan participant of having this kind of ERISA
fiduciary action? It would simply apply the law already
available in state courts * * * * . ERISA was not enacted * * *
to federalize malpractice litigation in the name of fiduciary
duty for any other reason. * * * * .
The mischief of Herdrich's position would, indeed, go further
than mere replication of state malpractice actions with HMO
defendants. * * * * The physician who made the mixed
administrative decision would be exercising authority in the
way described by ERISA and would therefore be deemed to be a
fiduciary. * * * * Hence the physician, too, would be subject
to suit in federal court * * * * . This * * * * in turn would
raise a puzzling issue of preemption. On its face, federal
fiduciary law applying a malpractice standard would seem to be
a prescription for preemption of state malpractice law, since
the new ERISA cause of action would cover the subject of a
statelaw malpractice claim.7
---------------------------------------------------------------------------
\7\ Pegram v Herdrich, 120 S. Ct. 2154-2158.
---------------------------------------------------------------------------
The Court thus restructured the logic of the Dukes case, moving
from a world of quality versus quantity into a world of mixed
eligibility versus pure ERISA coverage decisions unrelated to medical
coverage. This reframing of the analytic structure that federal courts
should use in deciding injury claims brought by ERISA plan litigants is
consistent with the Court's 1995 decision in New York State Conference
of Blue Cross and Blue Shield Plans versus Travelers Insurance
Co.8 which held that ``in the field of health care, a
subject of traditional state regulation, there is no ERISA preemption
without clear manifestation of Congressional purpose.'' 9
---------------------------------------------------------------------------
\8\ 514 U.S. 645 (1995)
\9\ Pegram, 120 S. Ct. at 2158.
---------------------------------------------------------------------------
Two important cases at the federal appellate level have considered
Pegram in the nearly one year since it was handed down--certainly not
enough time to claim a hard trend. But given the subtleties of Pegram,
these cases provide at least some insight into where the courts may go.
The first case, Corporate Health v Texas Dept. of
Insurance,10 considered the legality under ERISA of a multi-
part Texas law which: (a) established a new medical liability cause of
action for substandard care furnished by managed care organizations;
established anti-retaliation and anti-indemnification protections for
physicians; and (c) established independent external review procedures
of managed care coverage decisions. The court found that the liability
and anti-indemnification provisions were not-preempted by ERISA; the
court further held that even if the external review statute was saved
as a law that regulates insurance, it could not apply to ERISA plan
decisions because it directly conflicted with the substantive terms of
ERISA. Following the Pegram decision, this third prong was re-argued
and the Court reaffirmed its earlier holding.11 Little can
be gleaned from the decision in a Pegram context, because at its heart
the Corporate Health case concerned a direct conflict between state and
federal law on the issue of access to external review, not the type of
preemption at issue in the liability cases. Furthermore, the Texas law
itself distinguished between medical torts and review of insurance
coverage cases; in following the old ``quality/quantity'' distinction
first drawn in the Dukes case, the statute was not-easily re-filtered
through a post-Pegram analysis.
---------------------------------------------------------------------------
\10\ 215 F. 3d 526 (5th Cir., 2000); reh. 2000 WL 1035524.
\11\ Id.
---------------------------------------------------------------------------
The far more important case in this context is Lazorko v
Pennsylvania Hospital 12 decided by the Court of Appeals for
the Third Circuit, the appellate court that first identified clearly
the ``quality/quantity'' distinction in the Dukes case. Lazorko was a
medical injury case brought against a physician and a health plan
following the death of a plan member from severe and untreated mental
illness. The plaintiff in the case alleged that the physician's
decision to cut off her treatment led to the woman's death and that the
company's practice guidelines were a proximate cause of the physician's
decision to stop permitting treatment. In holding that neither the
claims against the physician nor those against the plan were preempted,
the court specifically considered the impact of Pegram:
---------------------------------------------------------------------------
\12\ 2000 WL 1886619 (3d Cir.)
---------------------------------------------------------------------------
U.S. Healthcare counters with two basic arguments, neither of
which we find persuasive. First, it argues that Dr. Nicklin's
refusal to hospitalize Patricia Norlie-Lazorko amounts to a
denial of benefits because hospitalization is a benefit under
Jonathan Lazorko's HMO plan. We reject this characterization of
the claim. Lazorko is not arguing that his plan is supposed to
permit hospitalizations for mental illness and that U.S.
Healthcare refused his wife's request for guaranteed service.
Instead, he is arguing that, when confronted with his wife's
requests for additional treatment, Dr. Nicklin, influenced by
U.S. Healthcare's financial incentives that penalized a
decision to grant additional hospitalizations, made the medical
decision not to readmit her to the hospital. Because Lazorko's
claim is one concerning the propriety of care rather than the
administration of that care, the claim is not completely
preempted. In other words, the claim here is that the denial of
Norlie- Lazorko's request for hospitalization occurred in the
course of a treatment decision, not in the administration of
the Lazorkos' plan. * * * *
U.S. Healthcare's second contention is that, in light of the
recent Supreme Court decision in [Pegram] subjecting an HMO to
liability is improper because Pegram recognized the centrality
of financial incentives to the operation of an HMO. Pegram,
however, does not alter our analysis. In evaluating the
question of the circumstances under which an HMO owes a
fiduciary duty to the members of an ERISA plan, the Pegram
court held that mixed eligibility decisions by an HMO (i.e.,
decisions involving not only the coverage of a particular
treatment by the plan but the reasonable medical necessity for
the treatment) are not fiduciary decisions under
ERISA.13
---------------------------------------------------------------------------
\13\ Id. pp. 6-7.
---------------------------------------------------------------------------
The bottom line in all of this is that cases involving a challenge
to the quality of decisions regarding the propriety of a course of
treatment belong in state court and that pure coverage decisions--i.e.,
where there are no medical facts in dispute and medical judgement is
not called for--fall within the ambit of ERISA fiduciary decisions and
remain subject to ERISA's exclusive federal remedies.
2. CONGRESS' CHOICES
Given this legal baseline, I believe that Congress has three
choices in the area of remedies for medical injuries to persons who
receive their health care through ERISA plans. First, it can elect to
do nothing and allow the issue to further develop in the lower courts.
Second, it can elect to depart from the Supreme Court's framework and
instead create a federal remedy for medical coverage injuries. Third,
it can amend ERISA to codify the Supreme Court's interpretation of
ERISA and allow the application of state remedies for injuries
involving the faulty exercise of medical judgement.
For four reasons, the sensible approach is the final one. First,
this approach parallels the guidance to the lower courts provided by
the Pegram decision. To now try to fashion new statutory remedy rules
for the courts to apply will throw the entire matter into chaos. The
Court drew this line because of states' historic primacy in the
regulation of medical care; remedies for medical injuries tied either
to the exercise of substandard professional judgement or the
substandard operation of medical care corporations are a direct
extension of this state power. In recasting the issue of remedies in
this manner, the Court essentially recognized the role that states
always have played in the oversight of medical care. Its review of the
history and purpose of ERISA in both the Pegram and Travelers Insurance
decisions underscores the vital but limited purpose of the law. ERISA
is intended to allow covered entities the ability to administer
employee benefit plans free of variable state law; it was not intended
to create a federal tort for medical malpractice.
Second, the Court's reasoning flows from the very fabric of managed
care. In a managed care environment, any attempt to resurrect some
notion of a ``medical coverage'' decision that can be spliced from the
medical care itself is simply futile. In the concept of health care
quality, managed care is an attempt to allocate medical resources in
the treatment of patients in accordance with sound principles of
medical care. When this effort goes wrong--either because the deciding
physician makes a bad call or because the treatment guidelines under
which the physician is practicing are themselves medically defective--
the case should be viewed as a medical care case. Only those decisions
that involve neither medical facts nor the exercise of medical
judgement belong in federal court and covered by ERISA remedies.
Third, to force the creation of a new federal remedy for something
called a ``medical coverage injury'' will inevitably as the Supreme
Court predicted, federalize control over the quality of medical care by
federalizing remedies for poor medical performance. Were a federal
remedy to be created, all medical injury cases would get dragged into
federal court and extensive time would be invested in deciding whether
each particular claim is a federal one that relates to ``coverage'' or
a state claim that relates to ``treatment.'' Pegram actually provides
relatively clear guidance to lower courts: medical injury cases are
state law cases, while cases with no allegation of substandard medical
judgement or standards remain federal.
Resurrecting the concept of ``medical coverage'' for federal tort
purposes would be worse than simply leaving matters alone. Writing
federal remedies is extremely difficult, particularly when they get
grafted onto an already complex jurisprudential picture. In creating a
new federal remedy, Congress inevitably will introduce new terms,
concepts, and nuances that will cause the courts to not merely to
depart from Pegram but even to reconsider whether the new Congressional
remedy follows the earlier Dukes approach. This task of learning new
``case sorting rules'' will be added to an already overburdened federal
system that is supposed to be a system of limited jurisdiction to hear
uniquely federal claims, not state medical liability claims except in
diversity situations. Furthermore, by introducing medical quality
accountability as an express matter of federal law, Congress would
begin to tip the entire matter of oversight over medical care quality
into the federal domain.
Fourth, to federalize medical judgement torts would be anything but
supportive of families. The best research into the area of medical
liability claims suggests that these cases are quite rare.14
States themselves maintain strict controls over medical liability
claims, frequently requiring exhaustion of preliminary review
procedures, limiting the types of remedies that can be made available
for medical injuries, and generally imposing procedural requirements
that are designed to weed out frivolous litigation. Furthermore, S.
283, recently introduced by Senator McCain, contains adequate
protections to shield employers from claims of liability under state
law.
---------------------------------------------------------------------------
\14\ Harvard Medical Practice Study Group, Patients, Doctors and
Lawyers: Medical Injury, Malpractice Litigation, and Patient
Compensation in New York (1990).
---------------------------------------------------------------------------
State courts are not the Wild West when it comes to medical
liability cases. To put medical injury cases in federal courts works an
extreme hardship on the few families whose need for judicial access is
the result of death or injury from substandard treatment decisions.
Federal courts are typically far away geographically, federal practice
is a specialized area of law practice, and federal courts are actually
far less experienced in the management of medical injury claims.
If Congress completes work on a federal patient protection act, the
final law surely will contain an external appeals system to permit
access to prospective help before the injury happens. I remain
confident that a strong external review process will aid considerably
in heading off medical injury before it occurs and thus reduce
liability litigation generally in the long run and further, that
retaining state law authority over medical claims is the correct thing
to do.
Mr. Burr. I thank you for your statement, Ms. Rosenbaum.
At this time, the Chair would recognize the chairman of the
full committee, Mr. Tauzin, for the purposes of questioning.
Chairman Tauzin. Thank you, Mr. Chairman. Dr. Palmisano, in
your statement, you draw a clear bright line between decisions
of the health plan that impose a medical judgment on the
patient and decisions that simply make an eligibility decision.
Ms. Rosenbaum talks about the Pegram case and how it gets
into the subtleties of that issue.
You drew a nice bright line. When is eligibility of
coverage not a medical decision, in your view?
Mr. Palmisano. Yes, sir. One example would be when there is
a dispute as to whether the contract would cover some service.
Whether or not a stepson who comes to live with a family is
covered under that policy, when it is not clear at the
beginning that those were the people enrolled in the plan,
issues like that.
The State court issue that we talk about, the medical
decisionmaking would be where the doctor decides whether or not
a patient has appendicitis and needs an operation.
An example that I had that I have testified to Congress
before about, where someone is telling me that a patient who
has a piece of clot in the carotid artery that breaks off and
goes to the brain and the patient has a transient stroke, and I
witness this, because the patient cleared up in a matter of
minutes, they tell me it is not an emergency and, therefore,
the patient will have to be worked up as an outpatient. Those
are medical decisions.
Chairman Tauzin. I think I understand clearly when
something looks like a medical decision, but what really eludes
me, and I think Pegram talks about these mixed eligibility and
treatment decisions, is how you draw a bright line between
them.
I am trying to find a common sense way of doing that. You
try to say, clearly, when it is a medical decision, this ought
to be something treated under State law. When it is an
eligibility decision, you treat it under the Federal ERISA
preemption statute.
But when I think about real instances, and I asked you to
give me a couple of them, I can envision a decision on
eligibility resulting in denial and a patient not getting the
medical treatment he needed, being severely harmed and asking
for a remedy somewhere.
Why is that less of a medical malpractice case or a
treatment decision than about whether or not this is an
emergency?
Mr. Palmisano. Hopefully, those types of issues will be
resolved with greater information so that the customer of the
insurance of the employee would understand better what is
actually covered under the policy in the plain light of day
before the emergency comes up, before the need for medical
services comes up.
Chairman Tauzin. But you do concede that as the Pegram case
pointed out, that you get into an awful lot of gray areas,
where you don't know whether it is an eligibility decision or
whether it is a medical treatment decision or whether it is
both.
Mr. Palmisano. My esteemed colleague here is reminding me
that one example would be that if there is treatment for a
condition and the policy clearly states in the policy that we
don't give certain types of chemotherapy, it is not covered in
here, and, again, it goes back to what the contract says.
My view is that if you are informed, like when I operate on
a patient, I hope my truly informed and gives an informed
consent, because we spend time explaining what the diagnose and
treatment options are.
Chairman Tauzin. But you see, the problem is, as I
understand it, the difficulty arises not where there is a clear
statement about whether something is not covered. It is in the
ambiguities. It is whether this is medically necessary or
whether this is an emergency or whether the language covers
this particular circumstance.
It is not very clear whether it does or not. On the one
hand, I can look at it and say that is an eligibility decision.
On the other hand, someone else may look at it say, no, no, no,
no, if the person doesn't get this treatment, there are serious
medical consequences, this is a malpractice case if he doesn't
get the treatment.
Mr. Palmisano. I think if the policy was clearly written in
plain English, and some policies are not, as we can all attest
to, where you have to get several lawyers to understand what
the words mean, and then we are still not sure, because there
are different opinions, what we really need to do is understand
what is covered and what is not covered.
Chairman Tauzin. Let me ask further. It looks like, in the
Pegram case, that Justice Souter did acknowledge that there
were mixed decisions.
Mr. Palmisano. Yes.
Chairman Tauzin. Where would you treat those mixed
decisions under your scheme?
Ms. Rosenbaum. You are certainly right, Mr. Chairman, to
note that this is very complicated. The kind of dichotomy that
the courts are laboring under today or before Pegram were
laboring under, the quantity versus the quality distinctions,
raised similar problems.
In any legal system that is a system driven by federalism,
whether it is Federal law that applies to some classes of
action and State law that applies to other classes of action,
whatever court gets the case at the first blush is always going
to have to make a threshold decision about where the case
belongs.
So I would say it is probably not likely that Congress, no
matter how hard it works, can draw the kind of bright that line
that would forever eliminate the need for somebody to make a
judgment call for a court right at the outset about what
belongs where.
The nice thing about Pegram and the reason why it is so
much better a framing of the issue than the Dukes quality/
quantity distinction is that the court actually sets up a
pretty simple test.
What the court is asking lower courts to look to in Pegram
is whether, in order to resolve the patient's case, somebody
had to exercise some medical judgment.
In an example where I want acupuncture to relieve my
backache, and my plan, no matter how much I might need or
benefit from acupuncture, simply doesn't cover acupuncture, I
happen to be a law professor, I could read the contract for a
managed care company and tell somebody that acupuncture is not
a covered benefit. There is no medical judgment.
If, however, the decision is whether a child's cleft palate
is cosmetic or a medical condition, any court can look at that
kind of case quickly and know that there was no way that the
case could have been resolved without somebody with
professional qualifications deciding the case.
Now, this will all become a lot easier under a new bill
because it will be the very cases that went to external review,
and that is how you will know that there is either State
jurisdiction or Federal jurisdiction.
Chairman Tauzin. My time is out, but I want to put a
question before all the panelists, and you don't have to answer
it now. I would love for you to do it in writing.
The court, in Pegram, did specifically note that ERISA
makes separate provisions for suits to receive particular
benefits and that the court would not ``discuss the interaction
of such claim with State law causes of action.'' That's a
footnote that you don't refer to, Ms. Rosenbaum, in either your
memorandum last year or in your testimony today.
The question is, isn't the legislation we are discussing
today dealing with specific benefits and how can you claim to
provide an objective legal analysis when you don't address that
language in your analysis, language of the Pegram court.
Don't answer it now. I don't have time, I am out. Just give
me a legal--if you will, an answer in writing. If you will all
respond, I would appreciate it.
Mr. Burr. The gentleman's time has expired. The Chair would
recognize Mr. Brown for questions.
Mr. Brown. Thank you, Mr. Chairman. Charts seem to be the
order of the day, so if Courtney would put up just three charts
that I want you to look at. These are simple, with big print,
easy to read, even for us.
The first one is under current law, this is current law,
doctor orders treatment, HMO denies the medical treatment,
patient appeals to the HMO, HMO is the judge and jury of the
case, treatment is denied, the patient is injured or dies, the
patient or the family go to Federal court under ERISA, and it
is tough luck, ERISA says HMOs are exempt.
Patients can only recover the value of the benefit itself
denied.
The next chart is the Ganske-Dingell bill. Doctor orders
treatment, HMO denies medical treatment, patient appeals to
independent external review, and patients gets treatment, or
doctor orders treatment, HMO denied medical treatment, the
patient is injured or dies before the appeal is completed,
patient goes to State court, the court awards appropriate
damages, according to State tort limits, if warranted.
We have seen today and heard certainly since really before
the Presidential race, but certainly during the race, of the
law in Texas. We have seen a very similar law to the Ganske-
Dingell proposal, and we have seen that there have been very
small number of lawsuits, although the discussions, the other
side often are a high litigious society as in how this will
bring on a cascading of lawsuits.
Mr. Wynn and Mr. Pollack today established, I thought,
pointed out the possibility of lawsuits certainly makes managed
care plans behave differently if there were not the possibility
of a lawsuit hanging over them, so that patients are much more
likely to get appropriate care, what the physician and the
patient have decided is the best care from that HMO.
The President now, though, says he wants to keep us out of
State court and his proposal and some opponents to this bill
say the same thing.
Would you, Ms. Rosenbaum, point out to those of us up here
that are non-lawyers the differences, explore the differences
for us between what State and Federal court means here in terms
of access to the courts, the waiting period, the waiting time,
the expense to the plaintiff and, for that matter, the expense
to the defense, all of that, so we better understand the
difference between State and Federal court and what all this
means.
Ms. Rosenbaum. Certainly. The first thing to recognized,
which I know that Congress is well aware of because if your
authority over the Federal courts, is that Federal courts are
set up as courts of very limited jurisdiction. They are only
supposed to hear certain kinds of cases.
They are not actually the broad backbone judicial system of
the country. The broad backbone judicial system is the State
court system. It is the State court system that reflects the
common law, that decides most of the legal disputes that happen
in the United States, and certainly when it comes to personal
injury actions, the kinds of actions that we can trace all the
way back to a thousand years ago, when courts first got going,
those are the bread and butter of the State court system.
Certainly, anybody who has been in the State court knows
that State courts are hardly perfect, there can be backlogs in
State courts, but there are many more of them. There are many
more State courts and State court judges.
In addition, States supplement their State courts with
various kinds of preliminary steps they could take to resolve
disputes.
State courts are close to home. Most lawyers who practice
today are familiar with the legal procedures and the rules of
their State courts.
Just as Federal courts are courts of limited jurisdiction,
lawyers who spend their time doing Federal litigation tend to
be a much rarer breed. They are more specialized, they may be
less accessible, particularly if you look in a small town or a
rural area.
If you look at the travel time that it takes to get to
Federal court, it can be quite considerable, where a court sits
only in one part of a State.
I used to live in Maryland and now live in Virginia. If you
are in the Cumberland area of Maryland and you have to travel
to Baltimore, except when the court is riding circuit, it is a
real burden.
Federal courts are supposed to hear specified claims. So
under ERISA, they have a major role to play with those claims,
when they arise, that are ERISA claims.
What Pegram makes clear is that there is a big difference
between an ERISA claim and a claim brought by an ERISA
participant.
You can be an ERISA plan participant and have a lawsuit
that has nothing to do with ERISA, and the whole message from
the Supreme Court back to its lower courts was you shouldn't be
involved in medical injury cases.
We have a perfectly good thousand year old, to put it most
simply, legal system which has evolved in this country into our
State court system, supplemented by State legislatures, and
that is where these cases belong.
Mr. Greenwood [presiding]. Mr. Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman. I appreciate the
testimony of this panel. I did get a chance to read your
testimony in advance.
Dr. Palmisano, I want to begin with you. As you might
guess, I agree with probably the vast majority of your
testimony. I certainly agree that health care plans should be
held accountable and that ERISA, as interpreted today, saying
that they are absolutely immune for consequential damages from
negligent decisions that incense bad public policy, as I said
earlier.
I want to focus on a couple of issues. I think, quite
frankly, there are perhaps three issues that divide the two
sides, or three big issues that are dividing the two sides,
precluding us from reaching a compromise.
One of those is the State court versus Federal court issue.
A second issue, also, is the question of employer liability.
The third is the question of exhaustion of external review.
And I think everybody here has said external review is very
important to incenting care, and I am glad there is agreement
on that point.
I would like to start with page 15 of your written
testimony. Your testimony, quite frankly, is very, very well
written and it clearly is, I think, conformed to the language
of the Kennedy-Dingell-Edwards legislation.
But I think it is, in part, mistaken and I want to discuss
that issue with you.
On this question of employer liability, I think you
probably would agree with me that passing legislation that
will, in fact, allow employers to be sued under circumstances
when all they did was procure an insurance plan is going to be
impossible. I don't think we can do that, and I desperately
want to pass legislation.
At the bottom of page 15 of your testimony, after having
said that you think employers should be not able to be sued,
you say, and this is the last full sentence, ``Consequently,
only if an employer or plan sponsor directly participated in
making an incorrect medical decision or an individual claim
decision under its group health plan and that decision resulted
in injury or wrongful death, only in that circumstance could it
be,'' and then turning over to the next page, ``exposed to a
State law claim.''
Now, that statement is technically incorrect, is it not,
Doctor? And the reality is you are exposed to the claim, that
is, you may be sued by the mere allegation that you directly
participated, right?
Mr. Palmisano. Well, what we want to do is set a standard
in America. Of course, anybody can sue you if they have got
enough money. In fact, if they don't have the money, they can
just go get somebody.
Mr. Shadegg. Precisely the point. But under other language,
for example, the designated decisionmaker language, you would
not have that fact question in front of the jury.
You would designate a health care decisionmaker who was
responsible for making that decision and could respond in
damages and in that circumstance, you would not be able to sue
the employer and raise that fact question and hold the employer
in all the way into the lawsuit.
I guess I am wondering why you would not support or if
indeed you would consider supporting the designated
decisionmaker language that I have actually spent hours
discussing with your colleagues at the American Medical
Association.
I am trying to find out, is this an in-stone position or
are you willing to look at language that further protects
employers when they don't make the medical decision?
Mr. Palmisano. I think, Mr. Shadegg, we all are on record
saying that if the employer does not make the medical decision,
the employer should not be liable. So we agree on that.
Mr. Shadegg. And you make the statement they shouldn't be
exposed to a claim. That is what it says.
Mr. Palmisano. They shouldn't be exposed to liability, but
wait a minute. We are all exposed to claim. Somebody can sue
you tomorrow, sue me tomorrow.
Mr. Shadegg. No, that is not true. That is absolutely not
true. The reality is HMOs are not exposed to a claim for
consequential damages today. That is why we are here.
Mr. Palmisano. Well, that is why we are here, right.
Mr. Shadegg. That is my whole point.
Mr. Palmisano. And that is why there is a great injustice
in the system, and that is why we are trying to fix it.
Mr. Shadegg. I agree. But I guess my point is there is
language called the designated decisionmaker language which
precludes this possibility and does not allow employers to be
sued.
You see the exception there that says an employer may be
sued.
Mr. Palmisano. May I say one more thing? Another
possibility is that someone could be designated and that could
be some sort of sham corporation with no assets.
Mr. Shadegg. Well, the law actually requires that they be
responsible for the medical decision and that they be able to
respond in damages, and indeed in the language that I discussed
with Mr. Norwood's staff last year, you would say that if it is
an insured plan, as opposed to a self-insured plan, the
insurance company is automatically designated.
So for my little restaurant, Joe Jordan's, Joe Jordan
doesn't self-insure. He goes out and buys a plan from Aetna.
Aetna would be automatically on the hook for damages.
I would like to ask the other two witnesses if they don't
agree that this language does expose the so-called direct
participation language.
Does it not, in fact, expose employers to being sued and to
be held in the case all the way to the end because it is a fact
question?
Ms. Greenman. In my view, there is absolutely no question
that the language of direct participation would expose
employers to expensive and ongoing litigation.
The one issue or question that I would raise, even with the
designated decisionmaker concept, is that employers, if you
look at--this really comes up more in self-insured plans as
opposed to fully insured plans.
Within self-insured plans, which tend to be maintained by
larger employers, since they have the wherewithal to do that,
the claims that--the role that employers typically will play is
to intercede or to get involved in reviewing a claim after it
has been denied by the plan administrator, the contract plan
administrator.
So that if the claim has already been denied and denied
again, if it is appealed back to the administrator, the
employer may be the sort of court of last resort from an
internal review perspective.
I was both in private practice and now represent in-house
with Honeywell. I have never seen an employer step in to
overturn a grant of a benefit. I have seen employers step in on
behalf of employees to try and get them the coverage or to make
a decision overturning the contract administrator.
It is that benefit, even with a designated decisionmaker
concept, because employers, you are absolutely correct,
employers will refuse to play the role of designated
decisionmaker and exit the decisionmaking process all together.
Mr. Shadegg. Under designated decisionmaker language, an
employer could step in and say we think you ought to grant the
benefit and that would not change that there is still somebody
who is liable. That is, the designated decisionmaker, whether
they accept that advice or don't.
Mr. deMontmollin. I don't know now to pronounce your last
name.
Mr. deMontmollin. It is deMontmollin. We believe that the
bill clearly does bring the employer closer to that litigation.
Mr. Whitfield made the comment that there are no bounds on
the innovation or the originality of trial lawyers in this
area.
Clearly, already under COBRA and under HIPAA, COBRA for the
extension of benefits and HIPAA on discrimination, the employer
is making those decisions, for the most part, and is getting
closer to this issue.
So we feel very strongly that as happened in California,
where a suit was brought under the criminal torture statute
against the HMO for not extending physical therapy benefits
beyond the amount that was contained in the contract and an
effort to made to bring the employer in at the same time, we
believe an expansion of health plan liability would get us
closer, a slippery slope closer to that point where employers
would be included.
Mr. Shadegg. Could I ask all the witnesses to respond in
writing to the designated decisionmaker language that is out
there and has been discussed?
Thank you.
Mr. Palmisano. We will be happy to do that.
Mr. Greenwood. Without objection. The gentleman's time has
expired. I apologize to the panel for missing the first 3\1/2\
hours of his hearing, but the last 12 minutes has been
fascinating.
A question that I would like to pose to Mr. deMontmollin.
We have heard a lot of discussion over the course of the debate
on this issue about whether or not the Texas statute would give
us some inclination as to what to expect in terms of the
frequency of claims and those who argue for State jurisdiction
argue that Texas demonstrates to us that, see, there weren't a
lot of suits, there was no flurry of legal activity.
My understanding is that it is not quite that simple, but,
in fact, the law was held in abeyance for some time by the
courts.
Could you comment on that, please?
Mr. deMontmollin. I believe that the Fifth District Court
of Appeal has made it clear and has limited the Aetna decision
in such a way so that it applies only to a medical malpractice
action in the State and then vicarious liability for the
particular health plan.
So clearly there is no comparison between what is being
debated by this subcommittee and what happened in the Texas
scenario.
However, with respect to Texas, we believe that there is
clearly a strategy on the part of the trial bar to select only
those cases that they think are most likely to lead to
substantial damages and then hopefully to use those particular
cases for that purpose of setting a precedent and then I think
that the potential for floodgates opening is very realistic.
A second issue I think that is very important is one that
was brought up by the Physician Insurance Association of
America, PIAA, and their studies reflect that it takes about 54
months really for a case to get to the court ultimately.
Of course, the Texas law has only been in effect since
1997.
We think that the biggest problem here is the misimpression
that the Texas law in some way provides aid and comfort to
those who would expand health plan liability at the Federal
level, and we would suggest that the clear opinion of the
Circuit Court of Appeal was that it is a run of the mill
medical malpractice type of case that, in the opinion of that
court, the HMO could be held vicariously liable for, which is
similar to the quality/quantity dichotomy that we have seen in
other circuits.
Mr. Greenwood. Did you want to comment?
Ms. Greenman. Yes, if I may, to add to my colleague's
comments. I would suggest that the Texas statute cannot be
looked at as comparable to the proposed legislation, because
that statute was enacted in the--ERISA protections and ERISA
preemptions still exist.
So that there has not been any change to ERISA preemption.
To the extent that an action is brought that is pure medical
malpractice, an employer cannot be brought in because of ERISA
protections and ERISA preemption, and if it is purely a payment
determination, I think even under the Texas provisions, there
would be no cause of action.
So I don't think that you can necessarily analogize, even
if the course of litigation had run, between the Texas statute
and proposals now before Congress.
Mr. Greenwood. Thank you for that.
Mr. Palmisano. Mr. Greenwood, we would take the position,
also, that Pegram is not a change in the current law, but that
rather it is a preservation of what the existing law is.
Mr. Greenwood. Speaking of pure medical malpractice, let me
just question Dr. Palmisano.
Some of us who are advocates of medical malpractice for
your profession, and I have introduced legislation of my own in
the past Congress and I will in this one, have been a bit
dismayed that your association has not supported the notion
that we ought to marry medical malpractice provision to
patients' protection legislation.
I would appreciate it if you could comment on why that is.
I think it was in your testimony that you felt that such
legislation would bring down both pieces.
Particularly, I think you have expressed concern about the
Senate. Have you actually done the vote counting there? Are
sure of whereof you speak?
Mr. Palmisano. I guess the only people that can be of
things in the future are a higher level than myself.
Mr. Greenwood. Oh, no, we can do that.
Mr. Palmisano. But we have looked at the votes and we don't
have the votes and we think the whole thing would go down. But
you are absolutely right. The American Medical Association is
on record as being for tort reform, and we think that ought to
be a separate bill all by itself.
And we think a meaningful Patients' Bill of Rights is
essential, because right as we talk today, people are being
hurt around the country right now and we think something needs
to be done.
So someone talked about being on the head of a pin, some
reference to that. I think whatever we need to do, we need to
reason together, look at everyone's ideas, and come up with
something that will get help for the people out there now, and
we will support a meaningful tort reform bill and we are on
record.
The bill that we support is essentially the California
bill, which is the MICRA legislation in California, with the
cap on----
Mr. Greenwood. But would it be fair to say, and then I will
yield, that if, in fact, the calculus changed or the calculus
were determined to be that adding tort reform for medical
malpractice, in fact, gained us votes for this legislation,
would the American Medical Association then support the
marriage?
Mr. Palmisano. The American Medical Association is not
going to go against two of its policies, but what we would do
is make a careful analysis and talk to everyone as best we
could in the House and Senate to see whether or not it would
destroy, so that we end up with nothing.
In other words, what we would like to do is get tort reform
done separately.
Mr. Greenwood. None of us wants that. Thank you. The
gentleman from Texas, Mr. Green, is recognized.
Mr. Green. Thank you, Mr. Chairman. I have a number of
questions, but let me follow up on that line of questioning
first.
Most medical malpractice lawsuits are filed in State
courts, from my understanding. The State of Texas has addressed
medical malpractice.
Do we really have a national problem, a Federal problem
with medical malpractice lawsuits, Doctor?
Mr. Palmisano. Well, the problem with medical malpractice
lawsuits or suits that are filed against health care
professionals is a serious problem, it has been a problem in
the United States, and some States have taken dramatic action
that has stopped the increase in premiums and allowed patients
to have access to physicians.
California is one example, Indiana is another example, and
our own State of Louisiana is another example.
Mr. Green. I only have 5 minutes, but let me say that that
is a State option now and I am sure my Republican colleagues,
you really wouldn't want to take away that States' rights
effort.
Mr. Palmisano. We certainly would not want any Federal law
to supersede a better State law. So it would basically a floor
that you all have talked about before. In medical mal, it would
be a floor.
We would never want it to preempt a better State law. We
think Louisiana is head and shoulders above some of the other
places.
Mr. Green. Instead of adding to making a bill better, I
would look at adding that maybe more like a poison pill. Would
you look at that?
Mr. Palmisano. Some people have used that term. We have
deliberately not used that term. What we are saying is that we
think that everyone wants to do what is in the best interest of
the American public, both the people that have the opportunity
to vote, as you all do, and those of us who participate in this
discussion.
So what we are trying to do is just reason together and we
have--according to our count of the votes, this would destroy a
meaningful Patients' Bill of Rights by doing that.
Mr. Green. I appreciate that. Mr. deMontmollin, in fact, my
question was to talk about the Texas experience, and I am sorry
if you have to repeat, but we have another committee going on
in Telecom also.
You said that it takes 54 months for a lawsuit to come to
fruition, to be filed?
Mr. deMontmollin. That is a study by the Physicians
Insurance Association of America.
Mr. Green. Again, since you are testifying on Texas law,
and I wasn't there and I came to Congress in 1993, but served
20 years in the legislature, Texas still has a 2-year statute
of limitations, if I am correct.
Mr. deMontmollin. Correct.
Mr. Green. From the date of discovery or 2 year statute. So
where do you get 54 months? Because if I discover some problem,
I have 24 months to file that lawsuit. So there should be
lawsuits on file right now, shouldn't there be, in the State of
Texas?
Mr. deMontmollin. I don't believe that would necessarily be
the case. For instance in Florida, there is a period----
Mr. Green. I want you talk about Texas, because I am
familiar with it and that is the law we are looking at, that we
are comparing the Dingell-Ganske bill with Florida. Does
Florida have a 2-year statute of limitations?
Mr. deMontmollin. Yes.
Mr. Green. But if I discover some injury by a doctor or by
denial of coverage, I guess it bothers me that 54 months seems
pretty long, because do you know how many lawsuits have been
filed in Texas since 1997 based on the Patient Protection Act
that was passed in Texas? How many lawsuits?
Mr. deMontmollin. It may just be one, and the reason for
that has already been expressed by me in my opinion in my
strategy.
Mr. Green. I want you to say it again so I can ask you
questions about that.
Mr. deMontmollin. I believe that it is the strategy of the
trial bar in Texas to allow--to make sure that that process in
Texas does not impact on the deliberations of both Congress, as
well as some other States. But clearly those States----
Mr. Green. Let me say I think you give the trial bar in
Texas much more organization efforts, because I think the
biggest complaint mostly is our plaintiff's lawyers are really
out there doing their own thing instead of that.
But you are saying that the law has been effective since
1997 in Texas and there is only one lawsuit filed. I heard
there were five.
Mr. deMontmollin. I don't know how many there are, but even
if there were only one, I believe that it is consistent.
Mr. Green. But if there was a date of discovery of an
injury, someone is not filing that lawsuit then in Texas for
the last 4 years.
Mr. deMontmollin. And potentially the agreement by Aetna
and the other carriers in Texas voluntarily to have external
review would suggest that the external review process is
working in Texas, or it suggests that most HMOs are providing
100 percent of all of the necessary and appropriate care and
simply trying to impact that one-third of all health care that
is inappropriate and unnecessary.
Mr. Green. Again, I think what you said is that the review
process, external review process has been very successful, and
that is part of the Ganske-Dingell bill, but it is also--I know
the statistics I looked at a year ago is that just over half of
decisions by those external review boards were in favor of the
patient.
Is that your statistics?
Mr. deMontmollin. It is not in Florida, but I will accept
yours in Texas.
Mr. Green. Which causes me some concern because if we don't
have an external review process, then half the time, the people
who make that complaint are not receiving adequate medical are.
Does that seem reasonable?
Mr. deMontmollin. No, to this extent. We certainly support
external review systems and independent review by physicians of
requests for care under a concurrent review system, which
explains the difference between the actions of a physician who,
once he delivers the care and an injury occurs, clearly, the
only thing that is left is recompense in a medical malpractice
action.
On the other hand, if an HMO makes a coverage decision, one
Mr. Tauzin and others have described today, then clearly there
is an opportunity in most States to go to an internal and then
external review system.
Mr. Green. But that is not a medical decision. That is a
coverage decision.
Mr. deMontmollin. It is a mixed coverage----
Mr. Green. I think we could probably draft it to take care
of that. Mr. Chairman, since I am the only one on my side, do I
get any more time to follow up?
Mr. Greenwood. We will think about that. For the moment,
the gentleman's time has expired. The Chair recognizes the
gentleman from Iowa, Mr. Ganske.
Mr. Ganske. Thank you, Mr. Chairman. Mr. deMontmollin and
Ms. Greenman, maybe you don't think that anything should be
changed on liability and ERISA, but do you think that one
should have to complete a course of the internal and external
review before that would happen?
Ms. Greenman. I think we need to give external review and
the new DOL claims regulations a chance to see whether they
are, in fact, effective. I don't think tort liability is the
answer when you are talking about employers, in particular.
If you look at the mixed----
Mr. Ganske. I am not talking about employers. I am just
talking about the health plans.
Ms. Rosenbaum. I think it might be helpful to define what a
plan is.
Mr. Ganske. No. I only have so much time. I just want to
know. Do you think that before you can go to court, in whatever
bill comes out of Congress, that the appeals process should be
exhausted, yes or no?
Ms. Rosenbaum. Yes.
Mr. deMontmollin. Yes.
Mr. Ganske. Okay. I want to talk about one of the anecdotes
that the HMO industry always says doesn't exist or that we
shouldn't legislate on.
Here is a little boy. He's tugging at his sister's shirt.
Sometime later, his parents found out he had a temperature of
105. His mother phoned their HMO. This is all documented in a
book called Health Versus Wealth.
They phoned the HMO, and were told they could only get
authorized treatment from one hospital, about 75 miles away,
even though the kid was really sick, according to the mother.
So that HMO reviewer didn't say take this baby to the
nearest hospital, if you want it to be paid for by us, you only
can take it to one hospital. In route, the kid suffers a
cardiac arrest, after they have passed three emergency rooms.
They are lucky, because the nurses and the doctors, when
they finally get there, are able to revive the kid. They are
lucky.
But he ends up with gangrene in both hands and both feet
and all have to be amputated.
Now, that was a medical judgment decision on the part of
that reviewer when they phoned in and it resulted in
irreparable harm.
Now, under ERISA, the only remedy allowable to this little
boy is the cost of care denied.
Mr. deMontmollin, is that fair?
Mr. deMontmollin. I would be happy, Mr. Ganske, if you
would provide me----
Mr. Ganske. Yes or no, is that fair?
Mr. deMontmollin. It may very well be fair, depending upon
the circumstances of that particular case. Let me explain what
I am talking about.
Mr. Ganske. The judge reviewed the case.
Mr. deMontmollin. In Florida, as an example, and,
certainly, I don't know what year that occurred in, but in
Florida and in most of the States, first of all, it was
obviously an emergency condition and the person could have gone
immediately to the closest emergency room.
Mr. Ganske. This wasn't a----
Mr. deMontmollin. We have a system called----
Mr. Ganske. These parents----
Mr. deMontmollin. [continuing] admit one to one with
nurses----
Mr. Ganske. Excuse me, Mr. deMontmollin.
Mr. deMontmollin. I'm sorry. Excuse me.
Mr. Ganske. These parents were not health care
professionals.
Mr. deMontmollin. I wouldn't expect them to be.
Mr. Ganske. You wouldn't expect them to. But they talked to
somebody at the HMO who made that medical judgment and it
resulted in this little boy never again being able to hold in
his hand a basketball, or touch the face of the woman he
marries with his finger.
And I will tell you what. If he had a finger and you
pricked it, it would bleed. And if you are going to tell me
that that HMO should only be liable for the cost of his
amputations and that that is justice, let me tell you, this was
reviewed by a judge and he thought it was atrocious.
Now, I am going to get to the point on this. Okay. You tell
me how we can devise language that will provide justice for
this without having a segment that says you have to complete
external review unless you have suffered irreparable harm or
injury or death.
Provide me with the language, because this is a matter of
fundamental justice.
Ms. Greenman. If I may, Mr. Ganske. I believe that if HMOs
are required, in the situation of urgent care or emergency are,
which this was, that parents took the child to the nearest
emergency room, subsequently went through external review, you
don't have time in that kind of emergency situation to go
through external review, but getting recompense in court is
little comfort to that little boy.
Mr. Ganske. Under our bill, when it passes, these parents,
because of the emergency, the layperson's definition of
emergency, would have been able to take him and drop him off at
the first hospital.
Ms. Greenman. They would be able to go to the nearest
hospital and it would be able to go through external review.
Mr. Ganske. It would have prevented that.
Ms. Greenman. In order to be reimbursed, if it is
determined that it was, in fact, an emergency.
Mr. Ganske. Under external review?
Ms. Greenman. He would get care first is what I am saying.
Mr. Ganske. Well, we certainly hope that under our bill,
that we can prevent cases like this. But let me give you
another example.
The patient sustains injuries to his neck and spine from a
motorcycle accident. He is taken to a hospital. The hospital's
physicians recommend treatment.
He is refused that treatment by the HMO. By the time the
HMO finally gets around to getting an authorization, he is
paralyzed.
Ms. Greenman. Well, let me ask. What confused me about
that----
Mr. Ganske. I want to just ask something, okay? Under ERISA
today, that employer plan is liable for nothing other than the
cost of his treatment denied, isn't that right?
Mr. deMontmollin. No.
Ms. Greenman. No.
Mr. Ganske. Well, you are liable for--yes, you may have
ongoing medical expenses because he is now quadriplegic or
paraplegic.
Ms. Greenman. Let me ask a fundamental question. If this
person came in with a broken neck and spine, why did the
hospital refuse to deliver care while they were waiting for
prior authorization of payment?
Payment, this is about payment and not the delivery--there
is a distinction between the payment and the provision of
urgent care.
Mr. Ganske. But the fact of the matter is that for most
people, payment makes the determination; i.e., Mr. Plosicka, in
Texas, whose HMO, NowCare, told him we are not going to pay for
your hospitalization anymore, even though your physician says
that you are suicidal and if you go home, and if the patient
goes home, he may commit suicide.
NowCare said, hey, you can stay in the hospital if you want
to, but we are not going to pay for it, and for most people
that means they can't.
So they took him home and he drank half a gallon of
antifreeze and he died.
And you know what? Under Texas law, that company is liable,
and it should be. They are liable. And this is why we need the
enforcement, because under Texas law----
Mr. Greenwood. The gentleman's time has expired.
Mr. Ganske. Under Texas law, they were supposed to get an
expedited review before they sent him home, and they just
ignored it.
Mr. Greenwood. The gentleman from Arizona, Mr. Shadegg, is
recognized for 5 minutes.
Mr. Shadegg. Thank you, Mr. Chairman. I think the last
discussion by my colleague, Mr. Ganske, whose passion on this
issue I admire and respect, illustrates how sad the situation
currently is.
The reality is we are allowing the debate over liability to
create a situation that just happened, that he just showed you.
I have discussed with a number of people the prospect of
passing separately the patient protection provisions of this
bill and putting aside the liability issues.
The reality is, as Mr. Ganske knows, the patient
protections provisions of his bill and of the last bill I
dropped are virtually identical. They have been signed off by
the patient advocacy groups and they would have prevented that
incident.
They would not have given that family a lawsuit, but they
would have prevented them from even needing a lawsuit, because
under those patient protection provisions, the law would have
said you may go to the first emergency room that is closest to
you and you may get the care, and that is not an issue, you do
not have to drive 75 miles.
And I guess one question I would put to Mr. Ganske and my
colleagues on the other side of the aisle is if, at the end of
this session of Congress, or, for that matter, tomorrow, we
cannot resolve these liability issues, would they be willing to
join me in passing the patient protection provisions, because
those are critical.
I don't expect an answer here today.
Let me turn to the issue of exhaustion of administrative
remedies and, again, put out some language.
Dr. Palmisano, again, I want to focus on this issue,
because I think it is one of the critical ones. The question of
exhaustion of administrative remedies really doesn't apply in
the case that we just heard about, because there were, of
course, no administrative remedies that could have been
utilized under that circumstance.
But under either bill, any bill that is being considered
here right now, save and except perhaps for the Senate bill
from last year, this problem would have been solved, because
the law would have said you get emergency are immediately.
But your testimony, which, again, I said I agreed with most
of it, at page 18, says twice, ``Patients must be required to
utilize the appeals process,'' and then it goes beyond that and
says ``Patients, therefore, should have to exhaust all,'' and
you use the word all, ``administrative remedies before going to
court.''
I couldn't agree more with that language and that
statement. I think it is critical. I think it is critical
because of what we talked about before, and that is if you
require all cases to go through administrative appeals, then
you get a decision by a panel of doctors telling the plan what
is the right care, what should be given under this
circumstance.
By the way, in that circumstance that we just heard about,
if you went through an external appeal after the incident--
actually, under the law, there wouldn't have been any injury in
that case if we had either bill now, but the panel of doctors
could have said, yes, the care should have been delivered at
the closest hospital.
On the other hand, that panel of doctors could have said,
you know what, these injuries would have been sustained no
matter what, they would have been sustained before you got even
to the first hospital.
But I guess my question is in the language of the Kennedy-
Edwards bill, there are two very large exceptions. One is
called late manifestation of injury. That is to say, you wait
until after the time that appeal, external appeal had to be
filed, and then you file your lawsuit.
Now, that is a loophole that allows a trial lawyer to take
100 percent of all cases and say I am not going through an
external appeal, I might lose an external appeal, I am just
going to wait until the deadline passes and I am going to file
my lawsuit.
So that exception consumes 100 percent of the rule.
The second exception is called immediate and irreparable
harm, and you talk about this in your testimony.
At the middle of page 18, you say ``If they suffer serious
and irreparable harm or die, they should not be required to
exhaust administrative appeals.''
Of course, if they suffer it, but the exception here is all
they have to do is--all the lawyer has to do is allege it. You
see the word there and you have the language before you that
says if the lawyer doesn't want to go through external appeal,
if he wants to get straight into court and exact a settlement,
he simply alleges immediate and irreparable harm.
My question of you is why, if you understand the importance
of external appeal, allowing doctors to tell plans how to
practice medicine and what care Americans ought to get, which
doctors ought to do, they went to school to do that, why do you
favor these two exceptions that will create complete loopholes
to the administrative appeal process?
Mr. Palmisano. The two exceptions, death and irreparable
harm----
Mr. Shadegg. It is not death and irreparable harm. It is
irreparable----
Mr. Palmisano. Death is one exception.
Mr. Shadegg. That is one of them.
Mr. Palmisano. Irreparable harm is the second exception.
Mr. Shadegg. But the second one I asked you about is this
one which simply says late manifestation of injury, which says,
look, I don't want to go through external appeal because my
lawyer told me not to, because I might lose, I am just going to
wait until after the deadline is passed and go ahead and file
my lawsuit.
That exception consumes 100 percent of the cases.
Mr. Palmisano. Certainly the plan has the right under the
bill, the plan has the right to institute the external appeal.
Mr. Shadegg. Actually, that language has been taken out of
this latest version.
Mr. Palmisano. In the latest version, it has been taken
out. Well, again, what we are saying, any refinements that need
to be done, in regard to your other question, we are happy to
look at any language you have, to work with you, but what we
want to do is we do not want people--if someone dies, we don't
want the family to have to say, well, we are going to wait
until external review, we are going to go forward, and they can
bring their experts and so on.
So in other words, would you deny someone, if, after
external review, would you deny them the right to go to court?
Mr. Shadegg. Actually, under the legislation I wrote, I
would not. I would let them go to court even after external
review, but I would give the external review panel a
presumption, a rebuttable presumption in the court, because,
quite frankly, I think we ought to let these decisions be
driven by medical doctors' advice.
That is where I come down on this issue.
What I wouldn't do is what this legislation does, which
creates two loopholes through which an aggressive trial lawyer,
and I know good ones and I know bad ones, and the good ones
would never pursue those loopholes, because they really care
about the people they are representing and they would say go
through external review, get the care.
But there are, sadly, in that profession, like there are
probably in every profession, some people that work at the
fringes and they will take those two loopholes that are in the
current Edwards-Kennedy bill and they will file a lawsuit in
100 percent of the cases and their goal won't be care and their
goal won't be a jury verdict, because they know they can't ever
prove these points.
Their goal will be to extort money and they extort that
money and drive up the cost of health care for reasons that
have nothing to do with caring for patients.
Mr. Greenwood. The gentleman's time has expired. The Chair,
sensing the eagerness of the gentleman to inquire again, erred
and recognized him prematurely and to make up for that, I will
recognize the gentleman from Texas for a second round, and then
Mr. Buyer.
Mr. Buyer. I have not had a first round.
Mr. Greenwood. Mr. Buyer, would you be willing to let Mr.
Green go, and then you will close?
Mr. Buyer. Fine.
Mr. Greenwood. Thank you.
Mr. Green. Thank you, Mr. Chairman.
Mr. Shadegg. Point of order. Mr. Chairman, is there going
to be a chance for a third round after Mr. Buyer?
Mr. Greenwood. Perhaps informally, Mr. Shadegg. We will
consult with the Democrats and see if that is a possibility.
Mr. Green. Thank you, Mr. Chairman, and I won't take any
more than my 5 minutes.
I, again, appreciate my colleague from Arizona's line of
questioning about certain trial lawyers would file lawsuits.
That goes against the testimony you heard that it is organized
in Texas and organizing trial lawyers anywhere is like herding
cats, I think. None of them fit in there.
So I think you read a lot into the Texas trial bar that I
haven't seen in my 25 years.
But let me ask a question of Ms. Rosenbaum. Ms. Rosenbaum,
health plans and even employers today and we have heard it
argued that they aren't making medical decisions, they are
making coverage decisions, and they argue that they are not
acting like doctors, but they are administering the plan.
It seems to me that that may be an artificial distinction
that plans are using to try to shield themselves from
liability.
In your testimony, you discussed how the traditional
concept of coverage can no longer be separated from decisions
about care itself in a managed care environment.
How can managed care blur the line between coverage and
treatment or care?
Ms. Rosenbaum. When an employer decides to offer a managed
care product, and I use that phrase broadly, there are a lot of
different kinds of managed care products, but what
distinguishes a managed care product from a traditional or
conventional insurance product is that if you look at the
contract, which the center which I direct studies, we have
studied the contracts for about a decade now, the
distinguishing feature is that it is the sale of health care
and, in fact, in the leading case, the leading managed care
liability case, which was sort of the fundamental building
block on which most managed care law is built today, a case
called Boyd v. Albert Einstein, the court made it very clear
this was not an ERISA case and it was a straight liability
case.
And the court made very clear that the reason that an HMO,
unlike a conventional insurer, can be liable for lapses in
medical judgment is because it sells health care.
Now, it is very true that there are--and this is exactly
what the Supreme Court was trying to drive at in Pegram.
There are certainly some cases that would still fall on
what the court calls pure coverage side of the line. There is
no medical judgment involved at all in deciding the issue.
But as a unanimous court pointed out, a lot of what an HMO
does or managed care organization does, because it is a hybrid
creature, because it is simply a modern version of a health
care provider, from the law's point of view, it makes treatment
decision and it allocates health care resources to its members
based on those decisions.
If you look at the writings of people like Dr. David Eddy,
who are leading writers on managed care, they understand that
what an HMO does is it allocates the resources it has to make
the best possible care choices it can for its patients.
Now, I know that the industry would very much like for
footnote seven, I believe it is, to swallow up the entire main
holding in the Pegram case.
There was a footnote, an aside by the court, saying, look,
we are not passing on whether there are certain kinds of pure
cases left that fall outside of the reach of ERISA. We know
there are cases that are still ERISA cases.
But it is simply contrary to the case to continue to deny
that what the court did was to say that the old way we have of
thinking about medical care is gone in managed care, because we
are buying and selling medical care now and we are ensuring
what we buy and sell.
And so that changes the whole way we approach these
liability questions and that is why the court said there is
simply no coverage issue left in these medical judgment cases.
They are professional liability cases.
The court could have said, and it didn't, that our holding
today only applies to the personal treating physician of the
patient.
It didn't. It simply said that when physicians who work for
HMOs make medical decisions, what they are doing is making
decisions about treatment.
It is inevitably going to take a while for that kind of
change and thinking to filter down.
But you saw the first real sign of this, actually, not in
the Corporate Health Case, but in the LaZorko case, which came
out of the third circuit a few months ago, in which a physician
said to a woman, it was very much like the Texas case, ``You
can't have any more mental health treatment. I am not allowing
you to have any more treatment,'' and she committed suicide,
and the court said, citing Pegram, this is a medical judgment
case. It doesn't belong in Federal court.
And that is why I think the only answer here is to send the
cases back to State court and State law.
Mr. Greenwood. The gentleman's time has expired. The Chair
thanks the gentleman from Indiana for his forbearance, and
recognizes him for 5 minutes.
Mr. Buyer. Thank you. I read the testimony last night and I
want to associate myself with the comment by the counsel from
Honeywell, that the best protection for plan participants is a
strong claims review process, not litigation and tort damages.
There are a lot of employers who self-insure and the last
thing we want to do is grow a population in the uninsured.
There are many corporations in Indiana who self-insure, I
am very concerned about them.
And I would like to yield the balance of my time to Mr.
Shadegg.
Mr. Shadegg. Thank you, Mr. Buyer. Mr. deMontmollin, let me
start. Have you had a chance to read the language of the
Kennedy-Edwards bill?
Mr. deMontmollin. Yes, I have.
Mr. Shadegg. Would you agree that the exceptions that I
have pointed out to exhaustion consume the rule?
Mr. deMontmollin. There is no question about it.
Mr. Shadegg. Would you agree with me that they consume it
200 percent of the time?
Mr. deMontmollin. Yes. To that end, because I am the
general counsel of a health plan and because I have done for--
after I was an assistant U.S. Attorney, medical malpractice
defense work for a long period of time, the problem with this
kind of language is there is no question but that the thin
liability case that heretofore would not be filed will be filed
in this scenario and there won't be an effort to get to the
right decision from a medical standpoint, but rather it will go
directly into court.
Mr. Shadegg. Ms. Greenman, have you read the language of
the Kennedy bill?
Ms. Greenman. Yes, I have.
Mr. Shadegg. And would you agree that the exceptions
consume the rule?
Ms. Greenman. I would. I would also suggest that, to Mr.
Buyer's comment, that the likely result of employers exiting
their role in self-insured plans would, because of these
exceptions, swallow up the rule or the intended exclusion,
would be to have--to revert to the kind of cookbook lists that
we had 25 years ago, where there is a list of covered
procedures, there is a list of fees that are reasonable and
customary in a given location, and you eliminate the exercise
of medical judgment or discretion in making coverage
determinations.
Yes, there are gray areas. Yes, there are knotty problems
that have to be worked through. But I think a formulaic
approach, which will avoid liability and is the most likely
result, is not the right answer for consumers or patients.
Mr. Shadegg. Ms. Rosenbaum, I would like to ask you kind of
a final question that I haven't addressed, which is the
question of the state-Federal court split.
In his testimony, Dr. Palmisano says, ``When a health plan
intervenes in the medical decisionmaking process and imposes
its medical judgment on the patient, the plan is engaging in
the practice of medicine and should be held accountable under
State law.''
I absolutely agree with that in concept. I think when plans
decide to become doctors, they ought to be held liable.
I don't necessarily agree with your reading of Pegram.
There is a split going on here.
On the one hand, you had the Corporate Health Insurance
case, which, in your testimony, you say really doesn't analyze
this issue properly, and that might be a valid point.
Then you have the LaZorko case, which clearly has decided
this issue in the third circuit and says, yes, these are state-
based claims.
I want to ask you a question that is going to require you
to stop and reflect for a moment.
The trial lawyers that I have talked to have said with
regard to this emerging exception for so-called medical
malpractice, which has been growing, but in LaZorko,
dramatically following Pegram, one reading of Pegram.
Trial lawyers that I talked to, I went to and said, look,
doesn't this solve the problem; can't we now bring these HMOs
to the bar and get at them when they make medical decisions and
harm people.
They have come back to me and said no. All of you make the
point that this is the trend in the law and that we are going
there, which raises the question whether we need a bill. But
the trial lawyers I talk to say, ``Look, Congressman, to prove
a medical malpractice case, you have to bring in multiple
expert witnesses. You have to establish that the plan engaged
in the practice of medicine. You have to establish that there
is a standard of care. You have to establish that they breached
that standard of care, and you have to establish that as a
proximate result of that breach, there has been damage.''
And they say, ``Congressman, that is an incredibly
complicated and very expensive lawsuit to bring.''
And what they say is ``I want a simple lawsuit for breach
of the duty to provide the care, denial of a benefit. I want
the same bad faith lawsuit. You promised to insure me. You
didn't deliver the benefit. I am suing you for bad faith,
hey.'' And they want that simple, straightforward breach of
contract lawsuit, not this complicated medical malpractice
lawsuit.
And the concern I have is if we allow this to sort itself
out, at least until the Supreme Court says the fifth circuit is
right or the third circuit is right, if we allow to sort this
out and all cases have to be med mal cases, aren't we going to
drive doctors--one of the problems in these med mal cases is
that the insurance company, as soon as it has been sued, or the
HMO, as soon as it has been sued for malpractice, it names as
the defendant the doctor himself.
And my trial lawyers say now we have the doctor as a
defendant in the case when we wanted the doctor as the
patient's witness, the patient's expert in the case.
My question to you is have you thought that through and do
you have the same concern I have of converting all these simple
breach of contract cases into med mal cases, where only the
very expenses ones will get compensated and the little ones
won't?
Ms. Rosenbaum. If I understand the question, you are asking
whether in order to aid consumers at this point, it would not
be better actual to hold on to the Federal tort potentially to
the concept of a bad faith breach of contract or wrongful
denial of contractual benefits.
Actually, I would say, from my reading of the bad faith
breach of contract cases, that they are very difficult to
prove, because you have to demonstrate that either the
defendant acted with flagrant disregard for the terms of the
contract or with actual knowledge of an intentional withholding
of a covered benefit.
Mr. Shadegg. To that point, all of the bills that we have
been writing use the mere negligence standard. So you really
don't have to establish bad faith.
Ms. Rosenbaum. Even if you use a mere negligence standard,
you are actually, I think, not that far removed from a medical
tort. That is, you are going to have to demonstrate that
somebody failed to use due care.
If you look at the leading case in the field, really, which
is the Wickline case and you look at the standard that the
court set for negligent utilization review, or the Bedrick
case, which is one of the leading cases on medical necessity
denials of coverage, you look at the proof that a lawyer had to
mount to win the case for Ethan Bedrick and it was very
similar.
Once you are into medical judgment you have got to
demonstrate a standard, a duty, a breach, and with a--and,
therefore, I don't know that framing the issue as a contractual
issue, if the contract is for medical care, gets you out of the
box you are in.
So the issue then is whether Congress, in the middle of
this haziness, wants to try it is hand at a contractual medical
care standard cause of action, and run the risk of yet sending
the court's off in another direction as opposed to staying with
where the Supreme Court set us off now a year ago, seeing where
this plays out.
Mr. Greenwood. The gentleman's time has expired. The Chair
recognizes the gentleman from Kentucky, Mr. Whitfield, for 5
minutes.
Mr. Whitfield. Thank you, Mr. Chairman. I'm sorry that I
was late, and I was particularly interested in the liability
issue, and because I don't know what questions have been asked,
I am just going to ask a few simple questions and hope that you
all bear with me.
Dr. Palmisano, I just want to make sure that I understand
what the position is of the AMA at this point.
It is my understanding that if it is determined to be a
medical decision under your proposal, the lawsuit would be in
the State court.
If it is determined to be a non-medical decision or a
fiduciary decision, then it would be in Federal court. And that
you have listed three or four safe harbors that you feel like
would provide protection for employers.
Is that basically correct?
Mr. Palmisano. That is correct, sir.
Mr. Whitfield. Where are you all on putting a cap on
punitive damages, non-economic damages, some of those issues?
Mr. Palmisano. On page 19 of the testimony that we handed
in, we are saying that an acceptable patient protection bill
should, therefore, include meaningful and reasonable limits on
punitive damage awards.
Mr. Whitfield. So you all are not supporting, at this
point, any cap on non-economic damages.
Mr. Palmisano. No, we are not. We are not. But you see, the
reason I hesitate, if this becomes a State action, then it goes
to the law of the State.
In Louisiana, for instance, there is a cap. In Louisiana,
there are no punitive damages, except for a death caused by
drunk driving or a toxic tort. In California, there is a cap of
$250,000 on non-economic.
But it would go to the State, whatever the State law is on
a limitation of damages.
Mr. Whitfield. But on the Federal claim, would you support
a cap on punitive and non-economic?
Mr. Palmisano. The American Medical Association supports a
cap on punitive damages and we are open to discussions on any
other damages. But we think it is absolutely critical that the
insurance companies, the managed care companies also be in the
same position as everyone else in the United States.
It has to be under the laws and subject to suits. And some
of the discussion that you did miss about some of the problems
that some of your colleagues, one of your colleagues has with
this particular bill that is up on the podium right there,
remember that the courts have the responsibility under Federal
law and the Rule 11 and the States have similar laws.
If something doesn't have merit, it is a frivolous suit,
then they can award punishment damages for that. Also, you have
to have a reason to stay in court. So if somebody brings a
completely frivolous case to court, you have to have an expert
to sustain. Otherwise, you are going to be sent out on a
summary judgment that you don't have an expert to support your
view.
Mr. Whitfield. And who is it that is from George Washington
University? I'm not sure I remember the name of the case, but
the most recent Supreme Court decision, that began with a P.
Ms. Rosenbaum. Pegram.
Mr. Whitfield. Pegram. Your understanding of the ruling of
that case is what?
Ms. Rosenbaum. My understanding of the Pegram case is that
it is a clarification of what--Pegram does two things. One is
make clear that managed care is a perfectly legal form of
employee benefit to give, and the other is that it makes clear
what is and is not an ERISA fiduciary decision.
It is the ERISA fiduciary decisions that fall within the
remedies that ERISA gives. Those are the Federal cases. And
what the court said basically is that when HMOs, through their
physicians, make mixed decisions, those are not fiduciary
decisions. Those are simple medical judgment decisions and they
belong under State law.
Mr. Whitfield. Under that case, would it be possible for
employers to make mixed decisions?
Ms. Rosenbaum. Would it be impossible?
Mr. Whitfield. No. Would it be possible. Well, my
understanding of the way most employer benefit plans work is
that an employer generally doesn't hire its own physicians.
There may be a few employers who literally run the equivalent
of their own HMO. They literally have physicians on staff or
under contract and they administer their own plans to a literal
degree.
Most employers actually are in a position of, as Mr.
Greenman pointed out, of reviewing the treatment decisions that
were made by the HMO who either administers their plan or who
gives them an insured plan.
Mr. Whitfield. Well, I spent a number of years with CSX
Corporation, which is a railroad holding company, and it was
not my responsibility to deal with managed are plans that were
available, but I do know that the department responsible was on
the phone a lot with the company that they had contracted to
provide the coverage and there were decisions going back and
forth and discussions and everything else.
So I am assuming that you would agree that if you wanted to
protect employers as much as possible, not just because they
are employers, but because you do not want to do anything that
would encourage them to drop plans or to change plans and
create more uninsured.
Ms. Rosenbaum. Absolutely not.
Mr. Whitfield. You do agree that this area of trying to
define specifically what is a medical decision and what is not
is a difficult issue, I am assuming.
Ms. Rosenbaum. Yes, although it is in this regard that I
found Mr. Shadegg's proposal most interesting, because actually
the effect of directed decisionmaking would be to draw quite a
bright line between what is the ERISA fiduciary and what is, in
fact, a medical decision that does not fall within the ambit or
ERISA.
I think that that is a very important point that bears
further analysis because it might, in fact, add the very thing
that you would need to be able to recognize very quickly when a
decision is a medical decision and when the decision is simply
the decision that goes to the administration of the non-medical
part of the employee benefit plan.
Mr. Whitfield. But you feel like that his proposal, which I
didn't hear, is certainly worth exploring.
Ms. Rosenbaum. Certainly worth exploring.
Mr. Whitfield. May I just ask one other question? Then I
will close out.
On the safe harbor conditions that you all proposed at the
AMA, were they significantly the same as what was in the
Ganske-Dingell bill, as far as you know? The safe harbor.
Mr. Palmisano. The answer is yes.
Mr. Whitfield. Thank you.
Mr. Greenwood. The gentleman's time has expired, as has
this round of questioning. The committee thanks the witnesses
for their testimony.
The Chair asks unanimous consent that members may insert
additional remarks and extraneous materials into the record of
the hearing.
The Chair intends to hold the record open for written
questions to the witnesses and their responses for 30 days.
The hearing is adjourned.
[Whereupon, at 2:31 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
The George Washington University
Medical Center
march 22, 2001
The Honorable John B. Shadegg
United States House of Representatives
432 Cannon House Office Building
Washington, D.C. 20515-0304
Dear Representative Shadegg;
It was, as always, a pleasure to appear before you at last week's
hearing. You asked me to respond to you in writing regarding your
proposal to allow employers and other entities that maintain ERISA
group benefit plans to enter into agreements with ``directed decision-
makers'' for purposes of liability for injuries under health benefit
plans.
Obviously it is difficult to answer you without more information,
and I would need to study a written proposal closely in order to be
able to give you a solid response. However, my immediate reaction is
that I find the idea intriguing and worth pursuing. There may indeed be
valid reasons where injuries arising from ERISA health benefit plans
are concerned to permit the use of designated decision-makers.
I look forward to learning more about your proposal.
Sincerely,
Sara Rosenbaum, J.D.
Harold and Jane Hirsh Professor of Health Law and Policy
cc: The Hon. John D. Dingell; The Hon. Mike Bilirakis, Chair,
Subcommittee on Health; The Hon. Sherrod Brown; The Hon. Joe Barton;
The Hon. Fred Upton; The Hon. James C. Greenwood; The Hon. Nathan Deal;
The Hon. Richard Burr; The Hon. Ed Whitfield; The Hon. Greg Ganske; The
Hon. Charlie Norwood; The Hon. Barbara Cubin; The Hon. Heather Wilson;
The Hon. John Shadegg; The Hon. Charles W. Pickering; The Hon. Ed.
Bryant; The Hon. Robert Ehrlich, Jr.; The Hon. Steve Buyer; The Hon.
Joseph Pitts; The Hon. Henry A. Waxman; The Hon. Ted Strickland; The
Hon. Tom Barrett; The Hon. Lois Capps; The Hon. Ralph Hall; The Hon.
Edolphus Towns; The Hon. Frank Pallone, Jr.; The Hon. Peter Deutsch;
The Hon. Anna G. Eshoo; The Hon. Bart Stupak; The Hon. Eliot Engel; The
Hon. Albert R. Wynn; The Hon. Gene Green
______
The George Washington University
Medical Center
March 22, 2001
The Honorable W. J. ``Billy'' Tauzin
Chairman
Committee on Energy and Commerce
United States House of Representatives
2183 Rayburn House Office Building
Washington, D.C. 20515-1803
Dear Mr. Chairman;
It was an honor to have been invited to testify before your
Committee last week. This letter provides the analysis you requested
regarding Footnote 9 in Pegram v Herdrich, 120 S. Ct. 2143, 2154.
Ever since Pegram was decided, the managed care industry has
invested a great deal of energy touting Footnote 9 as an important
limit on Pegram's reach. There are indeed rare instances in which a
footnote in a Supreme Court decision rises to a level of importance
that literally transcends the decision itself. Perhaps the most famous
example of this is the Court's ``discrete and insular minorities''
footnote in U.S. v Carolene Products Inc. 304 U.S. 144, 154 (fn. 4)
(1938). This footnote, which was remembered long after the decision,
presaged much of the Court's later work in the area of civil rights
law.
The Pegram footnote in question is hardly the type of note that
students decades from now will be studying. Indeed, the very wording
and placement of Footnote 9 in Pegram underscores the Court's view
regarding the necessity under ERISA of separating claims that arise
from the exercise of medical judgement by managed care physicians (not
fiduciary acts) from those that arise from non-medical acts of plan
administration (fiduciary acts).
In my written testimony before the Subcommittee, I presented a
lengthy excerpt from the main text of Pegram itself. In the opinion
itself, Footnote 9 essentially falls within this excerpt. The excerpt
concerns the Court's separation of ERISA-governed fiduciary decisions
from medical decisions that lie beyond the limits of ERISA. As the
excerpted language underscores, the decision draws a distinction
between ``pure eligibility'' decisions that fall into the area of non-
medical plan administration from those decisions that are medical and
relate to the medical operation of managed care. Only the former
decisions, according to the Court, are subject to ERISA's exclusive
remedies. There are other ``mixed eligibility'' decisions made by plan
physicians during the course of treatment, that relate to the standard
of care that a patient will receive from the managed care company. The
Court was concerned that these medical decisions not be confused with
``pure'' decisions and classified as decisions subject to the reach of
ERISA.
In attempting to illustrate which types of decisions fall where,
the Court readily acknowledged (as I likewise did my testimony) that
there certainly are limits to what can be classified as a ``mixed
eligibility'' decision. This is all that Footnote 9 says and this is
why the footnote is placed where it is, i.e., as a general caveat to
the Court's concept of where ERISA's reach ends.
No one disputes that at some point a decision becomes ``pure.'' The
Court even supplies us with an example of a ``pure'' decision. Pegram,
120 S.Ct. at 2154 (whether in a case of appendicitis, where no medical
facts or judgement is in play, a certain procedure is covered under the
terms of the contract.) Furthermore, the placement of footnote 9
(squarely in the middle of the Court's discussion as to why the Pegram
case in fact represents just such an example of a mixed decision)
serves to make the ``mixed eligibility'' analysis stand out even more
clearly.
I did indeed consider Footnote 9 carefully when I originally read
the case and concluded as I have indicated that it simply states the
obvious. In its wording and its placement, Footnote 9 seems to me to
constitute no more than a restatement of the fact that when medical
judgement, medical fact, and medical treatment are not on the line,
ERISA remedies should apply.
I thank you for this opportunity to follow up. Please do not
hesitate to contact me if I can be of further assistance.
Sincerely,
Sara Rosenbaum, J.D.
Harold and Jane Hirsh Professor of Health Law and Policy
cc: The Hon. John D. Dingell; The Hon. Mike Bilirakis, Chair,
SubCommittee on Health; The Hon. Sherrod Brown; The Hon. Joe Barton;
The Hon. Fred Upton; The Hon. James C. Greenwood; The Hon. Nathan Deal;
The Hon. Richard Burr; The Hon. Ed Whitfield; The Hon. Greg Ganske; The
Hon. Charlie Norwood; The Hon. Barbara Cubin; The Hon. Heather Wilson;
The Hon. John Shadegg; The Hon. Charles W. Pickering; The Hon. Ed.
Bryant; The Hon. Robert Ehrlich, Jr.; The Hon. Steve Buyer; The Hon.
Joseph Pitts; The Hon. Henry A. Waxman; The Hon. Ted Strickland; The
Hon. Tom Barrett; The Hon. Lois Capps; The Hon. Ralph Hall; The Hon.
Edolphus Towns; The Hon. Frank Pallone, Jr.; The Hon. Peter Deutsch;
The Hon. Anna G. Eshoo; The Hon.Bart Stupak; The Hon. Eliot Engel; The
Hon. Albert R. Wynn; The Hon. Gene Green
______
AvMed Health Plan
Gainesville, Florida
April 9, 2001
The Honorable Michael Bilirakis
Chairman, Subcommittee on Health
United States House of Representatives
2269 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Bilirakis: Thank you for the opportunity to testify
before the Subcommittee on Health hearing on March 15, 2001 entitled,
``A Smarter Health Care Partnership for American Families: Making
Federal and State Roles in Managed Care Regulation and Liability Work
for Accountable and Affordable Health Care Coverage.'' Per your
request, I have attached the written responses to your follow-up
questions from the hearing.
Again, thank you for the invitation to testify before the
Subcommittee on Health and please do not hesitate to contact me should
you need further information on these issues or any other health issue
that may come before Congress.
Sincerely,
Stephen J. deMontmollin
Vice President and General Counsel, AvMed Health Plan
Attachment
Responses for the Record
Question (1) All of the managed care bills involve more Federal
government regulation. They may raise the cost of health care and will
allow for more litigation. Many of the patient protections appear to be
common-sense and the external appeals process, at least, seems to have
good consensus as an alternative to litigation and consumer
frustration. A weakening economy increases concerns over new government
programs and increased costs. What could be the result if we do not
have carefully-crafted legislation that minimizes these potential
problems?
Legislation that increases costs and expands employer and health
plan liability will produce serious and adverse consequences for
working families. Cost increases generated by legislation will add to
the number of uninsured workers. Based on well-documented historical
patterns, it is evident that this loss of coverage will be concentrated
among low income workers. (See R. Kronick and T. Gilmer, ``Explaining
the Decline in Health Insurance Coverage, 1979-1995,'' Health Affairs,
March/April 1999)
In some instances, employers will be forced to stop offering
coverage altogether, due to cost increases and/or the risk of
multimillion dollar verdicts against them in connection with their
activities administering the health benefits plans that they
voluntarily offer. In other instances, employers will pass the cost
increases through to employees in the form of higher premiums and cost-
sharing or reduced benefits. Already, approximately 10 million
Americans are offered employer-sponsored health coverage but decline it
and are left uninsured. These are predominantly lower wage workers who
find it difficult to pay their share of premiums; with expanded
liability forcing employers to increase employees' share of premiums,
many more workers and their family members will decline coverage
offered to them and be left uninsured. (P. Cooper and B. S. Schone,
``More Offers, Fewer Takers For Employment-Based Health Insurance: 1987
and 1996,'' Health Affairs, Nov/Dec 1997)
Notably, there would be no offsetting benefits to adopting policies
that increase costs and expand liability. There is no evidence that
expanded liability would in any way improve the quality of or access to
care; to the contrary, physicians report that the current liability
systems produces lower quality care and reduces access to care.
Question (2) There has been a lot of talk about how some of the
current bills would really just codify existing court interpretations,
such as that in the recent Supreme Court decision in Pegram, or
existing state laws, such as those in Texas. Can you address how
similar or dissimilar these proposals are to these existing laws?
Liability under current proposals--such as the Ganske-Dingell
bill--is very different and much more expansive than liability under
either the Texas law and the Pegram decision.
Texas liability does not apply to health plan coverage denials and
only pertains to medical malpractice--where a physician was negligent
in delivering medical services and the health plan is vicariously
liable for this negligence. According to the 5th Circuit Court
decision,
[w]hen the liability provisions are read together, they impose
liability for a limited universe of events. The provisions do
not encompass claims based on a managed care entity's denial of
coverage for a medical service recommended by the treating
physician: that dispute is one over coverage, specifically
excluded by the Act. (emphasis added) Rather, the Act would
allow suit for claims that a treating physician was negligent
in delivering medical services, and it imposes vicarious
liability on managed care entities for that negligence.
Liability under Pegram pertains only to treating physicians and
medical malpractice. Specifically, Pegram applies to situations where a
treating physician makes a treatment decision that was both negligent
and had implications for ``eligibility.''
Unlike liability under the Texas law and Pegram, the proposed
expansion of liability under the Ganske-Dingell bill would allow state
and federal law claims for a much broader scope of issues, including
health plan coverage denials and virtually all administrative duties
under the plan.
For further discussion on liability under Pegram, see Pegram's
Significance for Managed Health Care by Louis Saccoccio, General
Counsel for AAHP at Appendix I.
Question (3) Can you provide some of the most common reasons why
health plan coverage decisions sometimes take longer than some of us
think they should?
Nearly all coverage decisions are made quite rapidly. It is
important to recognize that health plans are required to make decisions
within timeframes specified by federal and state law.
One reason why some coverage decisions may take longer than
expected is that plans are not always provided with all the information
necessary from providers to make coverage decisions. A significant
problem with the way the Ganske-Dingell bill is structured is it holds
plans liable for delays that commonly are due to physicians not getting
plans the information they need. There should be an affirmative
obligation on physicians to give a plan the information necessary for
the plan to make a coverage decision. This will protect patients by
ensuring that plans have the information needed to make decisions as
quickly as possible.
This is an issue that is not particular to commercial plans. The
U.S. Department of Health and Human Services' Office of the Inspector
General recently found that improper Medicare payments cost the
government $13.5 billion in 1999. One of the top reasons for improper
payment was due to providers submitting insufficient documentation or
no documentation to support the services for which they were billing
Medicare.
A second reason why coverage decisions may take longer than
expected is that sometimes physicians and patients believe the
patients' medical conditions warrant expedited decisions, yet the
physicians do not request that decisions be made in accelerated
timeframes. Virtually all of the state laws relating to appeals provide
for accelerated timeframes in urgent circumstances, yet physicians do
not always request that such decisions be made under the accelerated
timeframes. There should be an obligation on the physicians to let the
plans know when they believe coverage decisions should be made under
the expedited timeframes. That will eliminate any potential for delay
in coverage decisions.
Question (4) What do you believe the impact of expanded liability
will have on quality of care?
Based on the experience with the current liability system that
applies to physicians, it is clear that expanded health plan liability
will diminish the quality of medical care. Physicians recognize that
the current malpractice system does not improve quality of care. In a
recent national survey of physicians, 78% of doctors say the threat of
malpractice lawsuits does not make them deliver better quality care.
(Ayres, McHenry & Associates, Inc., National Survey of Physicians
Regarding Liability Issues, prepared for AAHP, Feb. 2001)
Additionally, it is widely agreed that malpractice liability
inhibits error identification and improvements in patient safety and
quality. Over half of physicians say that the current medical liability
system makes physicians less willing to report medical errors,
according to the same national survey. In 1998, the AMA House of
Delegates directed the AMA to oppose a reporting system which would
have required notifying the Joint Commission on Accreditation of Health
Care Organizations (JCAHO) of all unexpected occurrences that resulted,
or could have resulted in a patient's death or serious injury.
According to a headline in the AMA publication, American Medical News,
on this issue, ``[l]iability concerns override patient safety in house
[of delegates] debate on new Joint Commission reporting requirements.''
Moreover, President Clinton's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry, referring to the
current malpractice system, has said that ``perhaps the most
significant deterrent to the identification and reduction of errors
[i.e., treatment-related injuries] is the threat of costly, adversarial
malpractice litigation.'' It is also widely agreed that malpractice
liability causes physicians to practice defensive medicine.
These negative influences on quality and patient safety would only
be compounded by expanded liability for health plans. For instance,
just as the current system encourages physicians to practice
``defensive medicine,'' a system that expands health plan liability
will force plans to conduct ``defensive utilization management'' and
provide coverage for unnecessary services that do not benefit patients
in order to avoid costly litigation.
Question (5) What do you think the impact will be of expanded
liability on the cost of health insurance?
Again, looking to the experience with the current medical
malpractice system, it is clear that expanded health plan liability
will substantially add to health care costs. Nearly all doctors--95%--
believe that the current medical liability system has raised costs,
according to the national survey of physicians. Of these doctors, 73%
said that the system substantially raises costs.
Additionally, analyses have found that the expansion of health plan
liability will have a significant cost impact. The Barents Group has
estimated that expanded liability will result in cost increases of
between 2.7 and 8.6% nationally. State analyses reflect similar
estimates. The state of Minnesota estimated that health plan liability
would increase premiums by 5%. Most recently, in Arizona, health plan
premiums are increasing 4-6% in response to a new law that expands
health plan liability.
The Congressional Budget Office (CBO) estimated the cost of
expanded health plan liability as part of S. 6, the Patients' Bill of
Rights Act of 1999, legislation introduced and considered in the 106th
Congress. However, CBO's cost estimate appears to consider only a
narrow portion of the liability expansion--coverage denials--
contemplated by the Ganske-Dingell bill. This bill creates liability in
situations that extend far beyond coverage denials. For example, the
bill creates a basis for liability caused by an alleged delay in
approving coverage, even when the plan decision is made within
specified deadlines. The Ganske-Dingell proposal also creates liability
for failure to perform any other duty under the plan, which encompasses
any alleged violation of the bill's scores of new provisions and
alleged violations of previously enacted statutes, such as COBRA and
HIPAA.
Question (6) According to a recently issued report by HCFA (March
12, 2001), the US spent more than $1.2 trillion dollars on health care
in 1999, 5.6% more than in 1998. In this environment, we need to
carefully evaluate enacting legislation that will further add to this
burden and drive up costs. What concerns do you have with respect to
additional liability provisions and health care costs?
See answers to questions 1 and 5 above.
Question (7) Today, when consumers have problems with their health
plans, they may call either their state or the Federal Department of
Labor. Various legislative proposals in Congress have attempted to
craft changes to this structure which would subject certain health
plans to dual federal and state regulation. This arrangement would not
only seem to add to the cost of coverage, but create confusion for
patients about who to call for help when necessary. Is this a fair
assumption?
Dual regulation will cause confusion for consumers, health plans
and regulators. Some legislative proposals would simultaneously apply
differing federal and state standards to health plans. Given the
extraordinary breadth, complexity and detail of the federal proposals
and the layering of these proposals on top of a large body of state
statutes and regulation, it often will be difficult to tell which
standard applies to a given set of circumstances. This confusion will
apply to consumers seeking help, regulators implementing standards and
health plans working to adhere to those standards. Moreover, health
plans required to adhere to differing standards covering the same
subject matter will be forced to increase resources devoted to
administrative costs and will find it difficult to adopt consistent
policies. For instance, some proposals now being considered appear to
permit both federal and state external reviews of the same claim. Plans
receiving differing decisions from each review will find it impossible
to adopt consistent coverage policies.
Question (8) Have lawsuits been a successful tool in achieving
health care quality for consumers?
No. As noted in the answer to question #4, lawsuits have not been a
successful tool in achieving health care quality for consumers in the
medical malpractice context. In addition to recognizing that the
current malpractice system does not improve quality of care, numerous
interested parties--including physicians--have noted that the current
malpractice liability system discourages the identification and
reporting of mistakes, allowing quality problems to perpetuate. For
example, last year, the AMA testified that ``the very fear of existing
legal liability or its misapplication are the greatest hurdles to
pioneering patient safety efforts . . . If the fear of litigation
continues to pervade efforts to improve patient safety and quality, our
transformation into a culture of safety on behalf of our patients may
never be fully realized.''
As noted before, according to a recent national study, 92% of
physicians think the threat of a liability suit has increased defensive
medicine. Expanding health plan liability will only lead to reduced
quality of care by promoting ``defensive utilization management'' by
health plans in an effort to avoid lawsuits.
Question (9) What other mechanisms are available that serves to
measure health plan quality?
Currently, there are numerous mechanisms which serve to measure
health plan quality, including state and federal quality assurance
requirements, accreditation, and quality measure reporting, such as
HEDIS reporting.
State laws: States generally require an HMO to file a description
of its internal quality assurance (QA) program and activities before
obtaining a state license. Regulators review the description and,
during site reviews, interview staff and check records to assure that
the description is accurate. Some states, such as Pennsylvania, Iowa,
and Kansas, even require HMOs to obtain periodic accreditation by an
independent external accrediting body.
Under the NAIC HMO Model Act, which has served as the basis for
many state laws, HMOs are required to establish procedures to assure
that services meet reasonable standards of quality of care consistent
with prevailing professionally recognized standards of medical
practice. These procedures must include an internal program to monitor
and evaluate the quality of care provided. At a minimum, this program
must include a written statement of goals and objectives, a written
quality assurance plan specifying who within the HMO is responsible for
implementing the plan, systems for ongoing and focused evaluations, a
system for credentialing and peer review of providers, and processes to
initiate corrective action when deficiencies are identified. In
addition, HMOs are required to record formal QA activities, develop an
adequate patient record system, make clinical records available to
determine compliance with QA standards, and report QA program
activities to the HMO's board, providers, and staff periodically.
Reflecting growing state interest in quality-related issues, the
NAIC also has adopted three new model acts dealing in greater
specificity with standards for quality assurance, utilization review,
and credentialing activities for all types of health plans.
Federal HMO Act: ``Federally qualified'' HMOs are required to have
an ongoing QA program that: stresses health outcomes to the extent
consistent with the state of the art; provides review by physicians and
other health professionals of the process followed in the provision of
services; uses systematic data collection to evaluate performance and
patient outcomes, provides interpretations of these data to
participating providers, and institutes needed changes; and includes
written procedures for taking corrective action whenever the QA program
determines that care has not been provided when it should have been or
that care that is unnecessary or does not meet quality standards has
been provided.
Other Standards: Plans that participate in Medicare, Medicaid, and
FEHBP must also comply with additional standards relating to quality
assurance.
Accreditation and HEDIS reporting: Accreditation is an evaluative
process in which a healthcare organization undergoes an examination of
its operating procedures to determine whether the procedures meet
designated criteria as defined by the accrediting body, and to ensure
that the organization meets a specified level of quality. Given that
employers and other purchasers are using this data to determine whether
plans meet certain standards of care quality, health plans are
increasingly being accredited by bodies such as the National Committee
for Quality Assurance, the Joint Commission on Accreditation of
Healthcare Organizations and the American Accreditation HealthCare
Commission/URAC.
Similarly, plans are increasingly participating in the Health Plan
Employer Data and Information Set (HEDIS)--a performance-measurement
tool designed to help healthcare purchasers and consumers compare the
quality offered by different managed care organizations--since many
public and private healthcare purchasers now require HEDIS reporting.
Beginning in 1999, HEDIS reporting was also integrated into the
accreditation process by NCQA.
To better comprehend how health plans promote health care quality
through accreditation and/or compliance with applicable laws, see the
chart attached at Appendix II, ``Summary of Health Plan Quality
Oversight Reporting Requirements.''
Question (10) The standards of conduct for processing claims for
coverage for employee benefits plans are under Federal law. There are
Federal remedies for breaches of such conduct. There are federal
processes for appeals and we are talking about expanding the federal
requirements. All of ERISA case law for the past 25 years is in federal
court. All of the regulations are set out by the Department of Labor.
Why should we now have 50 state courts create new and inconsistent
standards of conduct for the processing of claims for benefits? What
experience do state courts have in interpreting ERISA and do we want 50
different interpretations of what are now federal standards of conduct?
State courts have very little experience in interpreting ERISA.
Virtually all ERISA actions are required to be brought in Federal
court. The sole exception is an action under 502(a)(1)(B) to recover
benefits or enforce rights under the terms of the plan. There is
concurrent Federal and state jurisdiction for this type of action.
Nevertheless, a state court must always apply Federal ERISA law when
deciding this type of case. Additionally, only ERISA remedies are
available. As a result, even in the rare circumstance where an action
is brought in state court, the Federal law is applied.
Under the Ganske-Dingell bill, benefit decisions involving medical
necessity are carved out of federal law and allowed to be the subject
of lawsuits in state court under state law. Therefore, this is a
significant departure from current ERISA practice. For the first time,
state law and state causes of action with state remedies would be
applicable to ERISA benefit decisions. Therefore, what may be a basis
for liability in one state may not be a basis for liability in a second
state. ERISA plans would be subject to having to comply with 50
different state concepts of what is or is not an acceptable benefit
determination, including what remedies may apply.
Additionally, utilization management often involves the use of
guidelines or criteria developed through national panels, national
societies, the Agency for Health Care Research and Quality, etc. These
guidelines are evidence-based and promote an alignment between evidence
and practice as recommended in a recent Institute of Medicine (IoM)
report. (IoM, Crossing the Quality Chasm, March 2001) Having 50
different state standards would interfere with meeting the challenge
recently posed by the IoM and closing the gap between scientific
evidence and how medicine is actually practiced.
Question (11) Under the bifurcated Federal-State liability approach
in H.R. 526, what is there to prevent a plaintiff from suing
simultaneously in state and federal court on the same denial--alleging
failures in both the medical and non-medical areas? Why would a
plaintiff's attorney ever not sue in both venues simultaneously?
The Ganske-Dingell bill creates a bifurcated process, which
includes no barrier to allowing patients to file suits in both state
and federal court based on the same set of facts and circumstances. For
example:
An individual could file a claim in state court for a claims
denial based on medical necessity. He/she could also bring suit
in federal court for the same harm based on a plan's alleged
failure to disclose its utilization review procedures.
An individual could file a claim in federal court based on a
decision concerning a contract exclusion for cosmetic
procedures. He/she could also bring suit in state court for the
same harm for a claims denial based on the allegation that the
decision required an evaluation of medical facts and thus is a
medically reviewable decision eligible for state court.
An individual could file a claim in state court for a claims
denial alleging failure to cover a medically necessary
prescription drug. He/she could also file a claim in federal
court for the same harm alleging (1) improper application of
cost-sharing under a tiered formulary or (2) failure to perform
a duty under the terms of the plan when making a formulary
exception decision under Section 118 of the Ganske-Dingell
bill.
As a result, it is entirely possible that plaintiffs' attorneys
will file suits in both venues. In many cases, trial lawyers would more
actively pursue the forum which allows them to circumvent lower limits
on damages by having a case tried in the court with higher limits
(forum shopping). For example, trial lawyers could pursue the suit in
state court, rather than federal court, because the $5 million punitive
damages (civil assessment) cap contained in the Ganske proposal would
only apply in federal suits. Alternatively, trial lawyers could pursue
whatever forum had a more favorable judge or had more favorable
demographics for selecting potential jurors. In the alternative, trial
lawyers could pursue the suit in federal court, rather than state
court, if a state has enacted strong tort reform.
Question (12) Since employers voluntarily provide health care
benefits, do you agree that if we increase the uncertainty from the
threat of litigation or the cost of providing coverage that some
employers will stop providing coverage?
Yes. According to a recent poll conducted by Harris Interactive, if
the cost of health insurance increased by an average of about four
percent, seventy-six percent of employers say their companies would
``pass most of the costs through to their employees with either reduced
benefits or increased premiums.'' Under this same scenario, the poll
reported that a ``sizable number of employers say they would reduce the
number of retirees covered (45%), the number of dependents covered
(17%) and the number of employed covered (17%).'' (Harris Interactive,
``Unintended Consequences: How the ``Patients Bill of Rights' Could
Greatly Increase the 44 Million Without Health Insurance,'' February
16, 2000)
Moreover, the Lewin Group LLC has estimated that every 1% real
increase in premiums would result in an additional 300,000 uninsured
Americans. This relationship disproportionately affects low-income
workers. A recent study found that low-income workers are
disproportionately affected by increases in health care spending.
(Kronick and Gilmer, ``Explaining the Decline in Health Insurance
Coverage, 1979-1995,'' Health Affairs, Vol. 18, March/April 1999)
Question (13) The White House principles state that after an
independent review decision is rendered, patients should be allowed to
hold their health plans liable in federal court if they have been
wrongly denied needed medical care.
I want to ask questions about what it means to be denied medical
care, because it seems to me all a plan can do is deny coverage. I want
to know what is broken and what is not broken in terms of remedies for
wrongful denial of claims for coverage.
First, if coverage is agreed to but a doctor provides poor quality
care or is alleged to have committed malpractice that is addressed by
state common law. In other words, the ERISA preemption applies to the
denial of coverage not to malfeasance in the performance of a medical
service. Do you agree on this point?
Yes. Under the bill, ERISA preemption does not affect physician
medical malpractice. Physician medical malpractice would continue to be
addressed by state law in state court.
Question (14) Second, if the patient does get the care but the
issue is later reimbursement of the cost of care, current Federal law
has a full remedy for that under ERISA. If the patient got the care
there is no harm to the patient due to a coverage decision--only the
need to get reimbursed. Is this correct?
This is correct--retrospective denials do not implicate patient
care, and thus, there would be no harm to the patient due to a coverage
decision. In such situations, there is a remedy under ERISA available
in which the patient can recover the benefits due under the plan. The
Ganske-Dingell bill, however, would expose health plans to expanded
liability even for retrospective denials where the patient has already
received the care and the only dispute is over payment.
Question (15) Third, if a plan follows the rules on expedited
appeals and fully complies with whatever decision the external appeals
board has made--they have done everything right in terms of the
independent entity--why should they be subject to further action for
damages in court?
External review is an alternative to expanded liability; there is
no rationale for adding expanded liability to external review.
Unfortunately, the Ganske-Dingell bill permits health plans to be sued
for uncapped damages when they follow the bill's rules relating to
appeals and comply with the external review decision. In fact, the
Ganske-Dingell bill permits health plans to be sued even if the plan
decision is upheld by independent medical review. Additionally, it
permits lawsuits in federal court against plans even if a plan approved
rather than denied coverage and acted within the bill's timeframes for
making coverage decisions, if the plaintiff alleges the decision should
have been made more rapidly. Thus, under this bill, health plans can be
sued even if they follow the rules and make correct coverage decisions.
It is difficult to fathom what purposes such lawsuits serve.
Question (16) If the plan makes a final decision denying a claim
and follows all the time lines in the law and the new law requires an
expedited external appeals process where there is an emergency, why
should the plan be liable for what may or may not be an erroneously
denied claim?
Nearly all states have emergency care rules which prohibit prior
authorizations in emergency situations. As a result, the alleged claims
denials referred to in the question will only arise in non-emergency
situations. For such non-emergency situations, an expedited external
appeals process is available and can get consumers coverage on an
expedited basis when warranted.
As stated in the previous answer, there is no basis for adding
expanded liability when an external appeals process--which can be
conducted on an expedited basis when necessary--is available. This
appeals process ensures that coverage disputes are resolved upfront and
consumers get the care they need when they need it. With an independent
review, coverage disputes regarding medical necessity and
appropriateness are resolved by independent doctors with appropriate
clinical experience. Plans should have the opportunity to address
coverage disputes through external appeals before harm occurs, rather
than having to pay for damages that could easily have been avoided
through such appeals.
Question (17) Please address this fact pattern. A plan makes an
initial denial of claim because the patient or the doctor has not
provided enough information for coverage to be granted. Later during
the appeals process the patient or doctor does provide the information
and coverage is awarded. As a result, there was a week delay in the
doctor performing a treatment. Should the plan be held liable where the
right information was not provided to them by the patient or doctor?
No. As noted in the answer to question #3, a significant problem
with the way the Ganske-Dingell bill is structured is that it holds
plans liable for delays that are due to providers and patients not
providing plans with the information they need to make coverage
decisions. An affirmative obligation on the part of physicians to give
the plan the information necessary for the plan to make a coverage
decision will protect patients by ensuring that plans have the
information needed to make decisions as quickly as possible.
Question (18) A plan makes an initial denial of coverage on an
item. The patient does not pursue any appeals but later it is clear
that the item should have been covered and would have helped the
patient. Should the plan be liable where the patient did not even seek
an appeal?
First, plans have an obligation to notify their members when they
have the right to file an appeal and how to file an appeal. Plans
should not be held liable when the patient has not appealed a coverage
decision. The patient, in consultation with his or her physician--not
the health plan--is in the best position to know if there is a need to
file an appeal. Effective appeals systems--both internal and external--
are an opportunity to avoid harm. Plan can not be held liable for harm
alleged to result from a coverage denial where no appeal was filed.
Similarly, as noted in the answer to question #3, a health plan
should not be held liable for delays when physicians and patients
believe their medical conditions warrants and expedited decision, yet
there is no request that a decision be made in an accelerated
timeframe.
______
AvMed Health Plan
Gainesville, Florida
April 9, 2001
The Honorable W.J. Tauzin
Chairman, Energy and Commerce Committee
United States House of Representatives
2183 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Tauzin: Thank you for the opportunity to testify
before the Subcommittee on Health hearing on March 15, 2001 entitled,
``A Smarter Health Care Partnership for American Families: Making
Federal and State Roles in Managed Care Regulation and Liability Work
for Accountable and Affordable Health Care Coverage.'' Per your
request, enclosed is a written response to your question posed at the
hearing.
To paraphrase your question: The court in Pegram specifically
noted, in footnote 9, that ERISA makes separate provisions for suits to
receive particular benefits and that the court would not discuss the
interaction of such claim with state law causes of action. How does
liability under Pegram relate to liability under the Ganske-Dingell
proposal? Doesn't the Ganske-Dingell bill deal with specific benefits?
Can you address the language in this footnote?
Answer: Liability under current proposals--such as the Ganske-
Dingell bill--is very different and much more expansive than liability
under the Pegram decision. Liability under Pegram pertains only to
treating physicians and medical malpractice. Unlike liability under
Pegram, the proposed expansion of liability under the Ganske-Dingell
bill would allow state and federal law claims for a much broader scope
of issues, including health plan coverage denials and virtually all
administrative duties under the plan.
Footnote 9 in the Pegram opinion further emphasizes the point that
the Court's decision is not directed at coverage decisions made by
health plans, even if the decision involves an evaluation of medical
necessity (like the emergency care example addressed by the footnote).
Instead, Pegram deals with the treatment decisions of treating
physicians that have implications for eligibility. In Pegram, the
physician's failure to correctly diagnosis an urgent care situation
(appendicitis) meant that the plan would not cover urgent care. A
correct diagnosis by the physician would have resulted in coverage for
urgent care. The Court decided that these treatment decisions made by a
patient's doctor should not be turned into ERISA fiduciary decisions.
In contrast, coverage decisions made by the plan fall within the
purview of ERISA plan administration.
To further supplement my answer, I have enclosed a paper prepared
at the request of the Yale Journal on Health Policy, Law and Ethics, by
Louis Saccoccio, General Counsel at the American Association of Health
Plans, entitled: ``Pegram's Significance for Managed Health Care.''
Again, thank you for the invitation to testify before the
Subcommittee on Health and please do not hesitate to contact me should
you need further information on this issue or any other health issue
that may come before Congress.
Sincerely,
Stephen J. deMontmollin
Vice President and General Counsel, AvMed Health Plan
Attachment
Pegram's Significance for Managed Health Care
By Louis Saccoccio
On June 12, 2000, in an unanimous opinion written by Justice
Souter, the U.S. Supreme Court, reversing a decision of the U.S. Court
of Appeals for the Seventh Circuit, held in Pegram v. Herdrich
1 that ``mixed eligibility'' decisions made by HMO
physicians are not fiduciary decisions under the (``ERISA'')
2. In so ruling, the Court upheld the concept that the
reasonable sharing of financial risk with HMO 3 network
physicians for providing health care to a given patient population does
not run afoul of ERISA's fiduciary requirements. This result is a
significant victory for managed health care plans, their network
physicians, and their members.
---------------------------------------------------------------------------
\1\ 530 U.S. 211, 120 S.Ct. 2143 (2000).
\2\ 29 U.S.C. Sec. 1001 et seq. (1994).
\3\ Although the form of managed health care plan in Pegram was a
health maintenance organization, or HMO, the analysis in this paper
equally applies to other managed health care plans to the extent they
share the financial risk for the delivery of health care services with
their network providers.
---------------------------------------------------------------------------
Although the decision's impact on the viability of physician risk
sharing is clearly positive, the decision's impact on the question of
HMO liability under ERISA remains less clear. Some, including the U.S.
Department of Labor, argue that this case represents a shift in ERISA
preemption law. They argue that Pegram would now preclude ERISA
preemption of state law causes of action aimed at HMO coverage
determinations that involve questions of medical necessity or
experimental or investigational treatments. A more reasonable reading
of the case consistent with its facts, however, leads to the conclusion
that Pegram represents nothing more than a common sense answer to a
simple question. What law should apply when a treating physician makes
a treatment decision that may arguably raise issues of eligibility for
coverage? Pegram's answer does not represent a shift in the law
regarding ERISA preemption of HMO coverage decisions.
The importance of Pegram does not end, however, with its resolution
of the question of the scope of ERISA's fiduciary requirements in the
realm of a physician's practice of medicine. The greater impact of the
Pegram decision may lie in its language addressing the proper role of
the courts in addressing the social and policy questions that arise
from managed health care. In this regard, the Court in Pegram
unambiguously stated that the debate about managed care belongs not in
the courts, but in the legislature. This clear message already is
having an impact in class action litigation filed against health plans
where broad allegations under ERISA and the Racketeer Influenced and
Corrupt Organizations Act (RICO) 4 seek to challenge (some
would say destroy) managed health care practices.
---------------------------------------------------------------------------
\4\ The Racketeer Influenced and Corrupt Organizations Act, 18
U.S.C. Sec. Sec. 1961-1968 (1994).
---------------------------------------------------------------------------
Pegram Background
Mrs. Herdrich originally brought medical negligence claims against
Dr. Pegram, and state law fraud claims against Carle, and the HMO owned
by Carle in Illinois state court.5 The medical negligence
counts went to trial in state court resulting in a $35,000 verdict for
Herdrich. Additionally, the defendants removed the state fraud claims
to federal court alleging they were preempted by ERISA. The federal
district court dismissed the state fraud claims, but allowed Herdrich
to amend her claims to state a claim under ERISA. Herdrich then amended
her claim alleging a breach of ERISA fiduciary duty on the part of the
defendants. The claim was premised on the fact that the physician/
owners of the HMO potentially were entitled to year-end bonuses based
on the difference between the cost of providing medical care and HMO
revenues. Herdrich argued that this created an improper incentive to
limit treatment. The federal district court subsequently granted
defendants' motion to dismiss the amended ERISA claim for a failure to
state a proper claim, and Herdrich appealed.
---------------------------------------------------------------------------
\5\ For a summary of the procedural background of Pegram in the
lower courts, see Herdrich v. Pegram, 154 F.3d 362, 365-367 (7th Cir.
1998).
---------------------------------------------------------------------------
The U.S. Court of Appeals for the Seventh Circuit reversed the
decision, finding that Herdrich had alleged sufficient facts to make
out a claim for breach of fiduciary duty under ERISA.6
---------------------------------------------------------------------------
\6\ Herdrich v. Pegram, 154 F.3d 362 (7th Cir. 1998).
---------------------------------------------------------------------------
Pegram, Medical Malpractice, and ERISA Preemption
The issue before the Court in Pegram was the application of ERISA's
fiduciary duty principles to HMO treating physicians who make ``mixed
eligibility decisions''.7 The Court had no occasion to
address the issue of whether HMO coverage decisions involving medical
necessity issues fall outside the scope of ERISA's preemption of state
law. Nevertheless, the issues are closely enough related to pose the
question of whether Pegram has brought a shift in the law that narrows
the application of ERISA preemption with respect to HMO coverage
decisions involving medical necessity.
---------------------------------------------------------------------------
\7\ The term ``mixed eligibility decision'' is one created by the
Court. It arises from the Court's view that Dr. Pegram's treatment
decision that Herdrich's condition did not warrant immediate attention
resulted in the HMO's not covering immediate care, while it would have
done so had Dr. Pegram made the proper diagnosis and judgment to treat.
120 S.Ct. at 2154. The Court's use of the term ``eligibility'' appears
to be interchangeable with the concept of coverage.
---------------------------------------------------------------------------
Any application of the Pegram decision to the question of ERISA
preemption of state law for liability arising from HMO coverage
determinations must be made in light of the facts before the Court. The
heart of the case before the Supreme Court was simply a treating
physician's misdiagnosis of appendicitis. As a result, Herdrich was
able to convince an Illinois state court jury that Dr. Pegram failed to
properly and timely diagnose her condition, and was awarded $35,000 in
damages for her injuries. However, because it was alleged that Dr.
Pegram's year-end compensation in part was based on the financial
health of the HMO, Herdrich argued that Dr. Pegram's misdiagnosis,
coupled with her ostensible interest in the financial health of the
HMO, raised the issue of breach of fiduciary duty under ERISA.
The Court rejected Herdrich's claim that the HMO, acting through
its physician owners, breached its duty to act solely in the interest
of beneficiaries by making decisions affecting medical treatment while
allegedly being influenced by the terms of the HMO physician
compensation structure. In doing so, the Court expressed doubt that
Congress intended physicians to be treated as ERISA fiduciaries to the
extent that they make mixed eligibility decisions during the course of
treating their patients.8
---------------------------------------------------------------------------
\8\ 120 S.CT at 2158.
---------------------------------------------------------------------------
The Court correctly recognized that when examining the question of
whether a treating physician acted for good medical cause as opposed to
his or her own financial interest, the answer to that question ``would
require reference to standards of reasonable and customary medical
practice in like circumstances.'' 9 But, the Court pointed
out, this is the very standard used in medical malpractice cases:
``[F]or all practical purposes, every claim of fiduciary breach by an
HMO physician making a mixed decision would boil down to a malpractice
claim, and the fiduciary standard would be nothing but the malpractice
standard traditionally applied to physicians.'' 10 As a
result, the Court saw no reason to turn traditional medical malpractice
cases into ERISA fiduciary cases simply because the treating physician
assumed some of the financial risk for the treatment of the patient.
---------------------------------------------------------------------------
\9\ 120 S.Ct at 2157.
\10\ Id.
---------------------------------------------------------------------------
Thus, Pegram is a case about treating physicians, medical
malpractice, and the ERISA fiduciary implications of malpractice in
light of physician risk sharing. The Court rightly recognized that it
would be folly to convert run of the mill malpractice actions involving
treating physicians that take place within the HMO context into ERISA
fiduciary actions. However, this conclusion is a far cry from the
position taken by some in the trial bar and by the Department of Labor
(see below) that Pegram stands for the proposition that HMO coverage
decisions involving questions of medical necessity are now subject to
state tort actions.
The Department of Labor Interprets Pegram
In September, 2000, the Department of Labor (``DoL'') filed an
amicus curiae brief before the Supreme Court of Pennsylvania in Pappas
v. Asbel.11 This case is again before the Pennsylvania
Supreme Court after the United States Supreme Court, on June 19, 2000,
vacated the Pennsylvania court's earlier decision and remanded the case
for reconsideration in light of Pegram.12 The DoL's brief in
Pappas sets out its interpretation of how it believes Pegram narrows
ERISA preemption of state tort claims for negligence. As discussed
below, the DoL interpretation ranges far beyond the holding in Pegram.
---------------------------------------------------------------------------
\11\ The amicus curiae brief was filed in the Supreme Court of
Pennsylvania No. 00098 E.D. Appeal Docket 1996, Pappas v. Asbel. Copies
of DoL briefs are available on DoL's website at www.dol.gov.
\12\ United States Healthcare Systems of PA, Inc. v. Pennsylvania
Hospital Insurance Co., 120 S.Ct. 2686 (2000).
---------------------------------------------------------------------------
The issue before the Pennsylvania Supreme Court in its initial
decision in Pappas was whether state law negligence claims against an
HMO, U.S. Healthcare, were preempted by ERISA.13 The claim
arose from an alleged delay in the HMO's authorization to transfer the
plaintiff to a hospital capable of treating his condition. The
Pennsylvania Supreme Court held in this initial decision that
negligence claims against an HMO do not ``relate to'' an ERISA plan,
and are therefore not preempted.14
---------------------------------------------------------------------------
\13\ Pappas v. Asbel, 555 Pa. 342, 344; 724 A.2d 889, 890 (1998).
\14\ 555 Pa. At 351-52; 724 A.2d at 893-94.
---------------------------------------------------------------------------
Interestingly, DoL previously had filed an amicus curiae brief with
the U.S. Supreme Court supporting U.S. Healthcare's petition for
certiorari in Pappas.15 In that earlier brief, DoL argued
that the Supreme Court of Pennsylvania's decision was overbroad and
incorrect. DoL stated that ERISA's fiduciary standards preempt state
law because an HMO's coverage decision is considered an act of plan
administration even when medical judgment about how to treat a patient
is involved.16
---------------------------------------------------------------------------
\15\ The DoL brief in the U.S. Supreme Court was filed in December
1999 in docket No. 98-1836, United States Healthcare Systems of PA,
Inc. v. Pennsylvania Hospital Insurance Co.
\16\ DoL amicus curiae brief before the U.S. Supreme Court at 6-10,
docket No. 98-1836, United States Healthcare Systems of PA, Inc. v.
Pennsylvania Hospital Insurance Co.
---------------------------------------------------------------------------
In the brief filed before the Supreme Court of Pennsylvania in
Pappas on remand from the U.S. Supreme Court, DoL now argues that the
case should be remanded to the Court of Common Pleas to decide whether
U.S. Healthcare made a ``mixed eligibility decision''.17 DoL
claims that ``Pegram holds that treatment decisions and mixed treatment
and eligibility decisions by physician employees of an HMO are governed
by state malpractice standards and not by ERISA fiduciary standards.''
18 According to DoL, if the Court of Common Pleas finds that
U.S. Healthcare made a ``mixed eligibility decision'', as the U.S.
Supreme Court in Pegram used that term, then there is no preemption and
the state law claims may proceed against U.S. Healthcare.19
---------------------------------------------------------------------------
\17\ DoL amicus curiae brief before the Supreme Court of
Pennsylvania at 17, No. 00098 E.D. Appeal Docket 1996, Pappas v. Asbel.
\18\ Id. at 10-11.
\19\ Id. at 11-12.
---------------------------------------------------------------------------
DoL's interpretation of Pegram as set out in its recent amicus
brief attempts to expand the holding of the case far beyond what the
plain language of the decision supports. It extends the concept of
mixed eligibility decisions beyond the HMO treating physician addressed
in Pegram to the HMO itself with no support or basis.
The foundation for the Pegram decision was a clear reluctance by
the Court to expand the concept of ERISA fiduciary principles to
physicians treating patients with its resulting interference with
traditional state medical malpractice law. In contrast, HMO coverage
decisions within the context of ERISA employee benefit plans, even when
involving medical necessity, have traditionally been recognized as
benefit determinations within the purview of ERISA
preemption.20 Contrary to the position taken by the DoL,
Pegram, dealing as it does with the decisions of treating physicians,
does little to change the landscape of ERISA preemption for HMO
coverage decisions.
---------------------------------------------------------------------------
\20\ See, e.g., Cannon v. Group Health Service of Oklahoma, Inc.,
77 F.3d 1270 (10th Cir. 1996); Kuhl v. Lincoln National Health Plan of
Kansas City, Inc., 999 F.2d 298 (8th Cir. 1993); Corcoran v. United
Healthcare, Inc., 965 F.2d 1321 (5th Cir.), cert. denied 506 U.S. 1033
(1992).
---------------------------------------------------------------------------
Pegram and the Role of the Federal Courts in Health Care Policy
Maybe more significant than the holding of Pegram is Justice
Souter's discussion of managed care and the respective roles of the
federal judiciary and Congress when it comes to addressing the debate
over managed care. After all, the holding that mixed eligibility
decisions made by HMO treating physicians should be left to state
medical malpractice law does little more than confirm what is probably
already common practice. As a direct example, Herdrich proceeded with
and won a judgment in a state malpractice action in her case. However,
with the filing in the last eighteen months of multiple class action
lawsuits against several large health plans alleging general violations
of ERISA and RICO,21 Pegram gives the lower federal courts
clear direction as to how they should go about dealing with these cases
and their attempts to set health care policy through litigation.
---------------------------------------------------------------------------
\21\ MDL-1334, MDL-1364, MDL-1366, and MDL-1367 pending before the
U.S. District Court for the Southern District of Florida.
---------------------------------------------------------------------------
The Court recognized that for over 27 years, Congress has promoted
the formation of HMO practices, and stated that ``[i]f Congress wishes
to restrict its approval of HMO practice to certain preferred forms, is
may choose to do so. But the Federal Judiciary would be acting contrary
to the congressional policy of allowing HMO if it were to entertain an
ERISA fiduciary claim portending wholesale attacks on existing HMOs
solely because of their structure, untethered to claims of concrete
harm.'' 22
---------------------------------------------------------------------------
\22\ 120 S.Ct. at 2157.
---------------------------------------------------------------------------
Maio--Pegram's Message on Class Actions
The impact of this message already has been felt in a recent
decision that should directly influence the outcome in the numerous
class action lawsuits mentioned above. The case, Maio v. Aetna, was
decided by the U.S. Court of Appeals for the Third Circuit on August
11, 2000.23 It affirmed the dismissal of a class action
lawsuit filed against Aetna and its regional subsidiaries that was
based on alleged violations of RICO. Significantly, the Third Circuit
relied in part upon the Supreme Court's analysis in Pegram when finding
that plaintiffs failed to state a claim under RICO.
---------------------------------------------------------------------------
\23\ 221 F.3d 472 (3rd Cir. 2000).
---------------------------------------------------------------------------
In its opinion, the Third Circuit examined the plaintiffs' damage
theory in light of Pegram. The court indicated that absent specific
allegations by plaintiffs that the quality or quantity of their
benefits under the health plans had been diminished, the ``only
theoretical basis for appellants' claim that they received an `inferior
health care product' is their subjective belief that Aetna's policies
and practices are so unfavorable to enrollees that their very existence
. . . demonstrates that they overpaid for the coverage.'' 24
---------------------------------------------------------------------------
\24\ Id. at 496.
---------------------------------------------------------------------------
Looking to Pegram, the Third Circuit rejected this theoretical
basis for recovery. The court stressed that under this theory the
plaintiffs would be asking the court to pass judgment on Aetna's
policies and practices leading to a ``myriad of practical problems
which undoubtedly arise in a situation in which the federal courts are
asked to determine the social utility of one particular HMO structure
as compared to another.'' 25 The court refused to accept
plaintiffs' notion implied by their complaint that it should evaluate
the social utility of Aetna's health plans. To stress this point, the
court indicated that this theory would require the trier of fact to
``inappropriately act as a state regulatory commission and determine
the value of Aetna's product.'' 26
---------------------------------------------------------------------------
\25\ Id. at 499.
\26\ Id.
---------------------------------------------------------------------------
The Third Circuit's refusal to go down the road of passing judgment
on a health plan's otherwise legal policies and practices with its
``myriad of practical problems'' gives a clear signal that Pegram's
most significant impact may come from its clear message of restraint to
the federal judiciary in the debate over managed care.
Conclusion
The Court's decision in Pegram has given the federal courts
direction when addressing physician compensation arrangements and risk
sharing in the context of ERISA. It has validated the concept that the
treatment decisions of physicians, even if mixed with ERISA eligibility
questions, are to be left to the purview of state medical malpractice
law. Moreover, the Court's resolution of these issues does not mean a
shift in how the federal courts should analyze ERISA preemption
questions relating to HMO medical necessity decisions. Contrary to the
views of the DoL, Pegram did not hold that HMO coverage decisions
involving medical necessity issues are subject to state medical
malpractice law.
Pegram's most significant impact, however, may be in its call for
judicial restraint when federal courts are faced with broad challenges
to managed health care practices. The Court's clear message was that
the courts were not the appropriate venue for the making of health care
policy. That responsibility remains with Congress.
______
The ERISA Industry Committee
Washington, DC
April 23, 2001
The Honorable W.J. Billy Tauzin
Chairman, House Committee on Energy & Commerce
2125 Rayburn House Office Building
Washington, D.C. 20515
The Honorable Michael Bilirakis
Chairman, Subcommittee on Health Committee
House Committee on Energy & Commerce
2125 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Tauzin:
Dear Chairman Bilirakis:
I am writing to respond to your request for our view on whether the
Supreme Court's decision in Pegram v Herdrich, 530 U.S. 211 (2000),
changed the law governing ERISA preemption and, specifically, on the
relevance of footnote 9 of the Court's opinion to this question.
In our view, footnote 9 makes it clear that Pegram does not change
the law governing ERISA preemption.
In Pegram, the Supreme Court addressed the question of whether an
HMO's mixed eligibility and treatment decisions are fiduciary acts
within the meaning of ERISA. A plan beneficiary had claimed in Pegram
that an HMO, acting through its physician-owners, violated its ERISA
fiduciary duty to act solely in the interest of beneficiaries by making
medical treatment decisions while influenced by an arrangement under
which the physician-owners profited by minimizing medical services. The
Court held that ERISA does not treat HMOs as fiduciaries when they make
mixed eligibility and treatment decisions and that therefore the
beneficiary did not have an ERISA cause of action against the HMO for
breach of fiduciary duty.
In footnote 9, the Court observed:
``ERISA makes separate provision for suits to receive
particular benefits. See 29 U.S.C.
Sec. 1132(a)(1)(B).[1] We have no occasion to
discuss the standards governing such a claim by a patient who,
as in the example in text[ 2], was denied
reimbursement for emergency care. Nor have we reason to discuss
the interaction of such a claim with state-law causes of
action, see infra, at 235-37.''
---------------------------------------------------------------------------
\1\ By contrast, ERISA Sec. 502(a)(2), 29 U.S.C. Sec. 1132(a)(2),
authorizes suits for appropriate relief under ERISA Sec. 409, 29 U.S.C.
Sec. 1109(a), which makes a fiduciary personally liable for any losses
incurred by the plan (or for any profits made by the fiduciary) as a
result of its breach of fiduciary responsibility.
\2\ In the text, the Court referred to an example in the
Government's amicus brief involving an HMO that refused to pay for
emergency care on the ground that there had not been an emergency.
---------------------------------------------------------------------------
At pages 235-37, the Court observed that if the plaintiff's
position in Pegram had prevailed, the question whether ERISA preempts
state malpractice law would have been raised since, under the
plaintiff's theory, the treating physician (as well as the HMO) could
be held liable under ERISA for breach of fiduciary duty:
``This result, in turn, would raise a puzzling issue of
preemption. On its face, federal fiduciary law applying a
malpractice standard would seem to be a prescription for
preemption of state malpractice law, since the new ERISA cause
of action would cover the subject of a state-law malpractice
claim. See 29 U.S.C. Sec. 1144 (preempting state laws that
``relate to [an] employee benefit plan''). To be sure, New York
State Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645, 654-655 (1995), throws some cold water
on the preemption theory; there, we held that, in the field of
health care, a subject of traditional state regulation, there
is no ERISA preemption without clear manifestation of
congressional purpose. But in that case the convergence of
state and federal law was not so clear as in the situation we
are positing; the state-law standard had not been subsumed by
the standard to be applied under ERISA. We could struggle with
this problem, but first it is well to ask, again, what would be
gained by opening the federal courthouse doors for a fiduciary
malpractice claim, save for possibly random fortuities such as
more favorable scheduling, or the ancillary opportunity to seek
attorney's fees. And again, we know that Congress had no such
haphazard boons in prospect when it defined the ERISA
fiduciary, nor such a risk to the efficiency of federal courts
as a new fiduciary-malpractice jurisdiction would pose in
welcoming such unheard-of fiduciary litigation.''
The Court thus decided nothing at all about ERISA preemption. To
the contrary, footnote 9 emphasized that the Court was not deciding the
standards governing benefit claims, such as claims for reimbursement of
health care expenses, or the interaction between benefit claims and
state-law causes of action. There was no reason for the Court to decide
these issues. The only issue in the case was whether mixed eligibility
and treatment decisions by HMO physicians were fiduciary decisions
under ERISA.
Both footnote 9 and the Court's comments on pages 235-37 emphasize
that the Court deliberately chose not to ``struggle'' with the
``puzzling issue of preemption.'' The Court's comments on preemption
were dictum in any event, since the Court was able to resolve the issue
before it--which involved the application of ERISA's fiduciary
standards, not state law--without deciding the preemption issue.
It is perilous to seize on dictum to predict how the Court will
decide a future case. For example, on the same day Pegram was decided,
the Court refused to follow dictum in its 1993 Mertens decision. See
Harris Trust & Savings Bank v. Salomon Smith Barney Inc., 530 U.S. 238,
249 (2000) (``Salomon invokes Mertens as articulating an alternative,
more restrictive reading of [ERISA] Sec. 502(l) that does not support
the inference we have drawn . . . But the Mertens dictum does not
discuss--understandably, since we were merely flagging the issue, see
508 U.S. at 255, 260-61--that ERISA defines the term `person' without
regard to status as a cofiduciary . . .''). The Harris Trust decision
thus demonstrates that dictum in an opinion is not a reliable indicator
of how the Court will decide an issue when the issue is actually
presented to the Court for decision in the future.
We hope our comments will be helpful to you. If we can be of
further assistance, please let me know.
Sincerely,
Mark J. Ugoretz
President
cc: The Honorable John Shadegg
U.S. House of Representatives
432 Cannon House Office Building
Washington, D.C. 20515
Nandan Kenkeremath
Counsel, House Committee on Energy & Commerce
H316 Ford House Office Building
Washington, D.C. 20515
Doug Stoss
Legislative Assistant to Representative John Shadegg
432 Cannon House Office Building
Washington, D.C. 20515
______
National Association of Insurance Commissioners
April 19, 2001
The Honorable Michael Bilirakis
Chairman
Committee on Energy and Commerce
Subcommittee on Health
U.S. House of Representatives
2125 Rayburn House Office Building
Washington, D.C. 20515
Dear Representative Bilirakis: Attached please find our responses
to the questions raised by you in connection with the testimony of the
National Association of Insurance Commissioners (NAIC), at the March
15, 2001 hearing regarding federal and state roles in managed care.
On behalf of the members of the NAIC, I would like to thank you for
the opportunity to testify before your Subcommittee.
Sincerely,
Steven B. Larsen
Chair, Health Insurance & Managed Care (B) Committee
Commissioner, Maryland Insurance Administration
Attachment
Responses for the record of Commissioner Steven Larsen
Question 1. The White House, in its statement of principles, has
provided for a broad set of patient protections through a system that
provides ``deference'' to State patient protection laws and to ``the
traditional authority of states to regulate health insurance.'' Can you
explain the current system, what is the traditional authority of the
States, and why such deference is important?
The enactment of the Employee Retirement Income Security Act of
1974 (ERISA) created a dual federal-state regulatory structure in this
country for health insurance and health benefits. Under ERISA,
generally, federal law governs employer-sponsored group health plans.
However, state laws that regulate the business of insurance are saved
from preemption by virtue of the saving clause (Section 514 of ERISA).
As a consequence of the saving clause, states regulate fully insured
employer-sponsored plans by regulating the health insurers and HMOs
that cover the services and benefits under the plan. The saving clause
was enacted to preserve the states' traditional role of regulating
insurance, including the regulation of insurance policies purchased by
ERISA plans (fully insured plans).
The states have taken this role seriously. They have enacted
patient protections for consumers in individual and group plans under
their authority to regulate the business of insurance, and they have an
established infrastructure to enforce these rights. State regulators
are presently enforcing many of the patient protection provisions that
are being considered by the Congress and that are included in the
President's ``Principles for a Bipartisan Patients' Bill of Rights''.
Deference is important because states have adopted protections
tailored to their state markets based on size, population, structure
and need. One size regulation does not fit all. To require all states
to adopt the same blanket regulation for all situations could result in
over-regulation of and unneeded expense to the marketplace. State
legislatures are sensitive to their marketplaces and consumer concerns,
and when needed, they have been proactive in establishing consumer
protections that are tailored to the needs of their individual states'
health care markets. In addition, states have expertise in their laws
and their markets, and they have an effective infrastructure in place
that can quickly and efficiently respond to consumers. Consumers are
not forced to call Washington, DC with a local issue. Congress should
recognize the states' efforts and expertise in developing these
protections and give the states the greatest amount of flexibility in
preserving and enforcing these protections.
Question 2. Your testimony uses the term ``taken as a whole''. What
are your views on the use of ``substantially equivalent'' and the
modifier ``taken as a whole''? How important is it that the standard be
flexible?
It is critical that the standard be flexible for states. Although
some of the legislative proposals generally attempt to save state laws
that are equal to or more protective than the proposed federal
standards using the HIPAA ``prevents the application'' standard, the
President's Principles seek to preserve state authority beyond the
federal floor. The concepts of ``state certification'' and
``substantial equivalence'' will give greater deference to the states
and preserve more of their laws.
Using these concepts, the states would certify that their statutory
and regulatory patient protections taken as a whole are ``substantially
equivalent'' or are comparable to the federal standards and that the
state laws should remain in force. This approach would prevent the
debate from getting bogged down in whether the state language is
exactly the same as the federal bill, especially if the intent and the
outcome are similar. This flexible approach would allow as many state
laws as possible to remain in place, and it would allow states room to
apply the protections in a manner appropriate for their health
insurance markets.
While ``substantially equivalent'' and ``taken as a whole'' were
the prevalent approaches that had been introduced at the time of the
hearing, other approaches are being developed that also would preserve
and give deference to state laws. Approaches such as ``consistent with
the intent of the legislation'' and ``comparable to the federal
legislation'' are being discussed. We welcome any approach that allows
states to continue to enact reforms based on their state markets and
gives states maximum flexibility in how they meet the federal
requirements, while ensuring that all individuals have a basic level of
protection.
Question 3. If a State passed a law which found that a set of State
patient protections meets the relevant federal standards for
acceptability, should we recognize that finding as final? In other
words, the national objectives are the full patient protections but the
State makes a finding and not Federal bureaucrats. Would you support
that concept?
Yes, to both parts of the question. States already will be
analyzing their laws to see if they comply with the federal law and
will identify any areas of state law that need to be amended. States
know the full scope of their laws and where the protections are located
within the statutes and regulations. State laws are already
operational, and states are enforcing these laws. States will be in the
best position to evaluate whether the state laws measure up to the
federal law not only as the laws are written but also as they function
and operate in a real world situation.
Question 4. Should Congress look at some of the existing patient
protection laws in the states and simply grandfather them in. In other
words, should Congress make findings that certain state provisions are
good patient protections and there is no need for further disruption or
uncertainty?
While our membership has not discussed this approach, we do welcome
approaches that would preserve state laws through a grandfathering
process. Issues that would need to be considered under this approach
would be how the determination is made regarding which state laws to
grandfather, and whether states would have the flexibility to amend
these protections in the future in response to changes in the market.
States are more able to respond quickly to the needs of industry and
consumers, and we would not like to see a static approach implemented
that would lock the states into outdated or antiquated laws.
Question 5. Do you agree that two laws on the same issue should not
apply at the same time? If they both applied would it not just create
unnecessary conflict and confusion?
Yes, it is important that two laws not apply at the same time.
These questions highlight why it is so important that deference be
given to state laws and states be given maximum flexibility to preserve
as many state laws as possible. If the state law remains in place,
there is no need for both state and federal laws to apply at the same
time to the same entity. The state laws would apply to individual and
group fully insured plans as they do now and the federal law would
apply to self-funded plans. This would avoid unnecessary conflict and
confusion.
Question 6. If a State chooses not to meet the Federal standard but
simply continue with its own laws wouldn't that mean that there would
be dual regulations, which could be inconsistent and which there might
be conflicts in enforcement?
This would result in dual regulation, with the state enforcing
state law over insurance coverage and the federal government enforcing
the federal protections for all group plans, either insured or self-
insured. Consumers could be confused by these distinctions.
In terms of enforcement, the states have an effective
infrastructure in place to enforce these laws (see Question #14), but
there is still the question of how the new federal standards will be
enforced. There is no federal infrastructure in place such as there is
in the states to enforce patient protections, and none of the current
proposals appropriate money to the federal agencies to develop an
infrastructure. As such, we suggest that Congress give the Department
of Labor (DOL) the authority to contract with those states that want to
enforce the federal patient protection standards for all group plans,
including self-funded ERISA plans. This contract arrangement would be
voluntary on the part of those states that want this enforcement
authority and would be done on a state-by-state basis. The DOL-state
contract structure would function like other federal arrangements that
give federal grants to the states to implement and enforce federal
programs.
Question 7. What should we do about a State that has very little
managed care penetration? Should States with little managed care in the
state be subject to the same approach as states with significant
managed care?
Our members believe all consumers deserve a basic level of patient
protections. Having said that, we ask Congress to recognize that states
have tailored their patient protections to their markets and to give
deference to and preserve those state laws to the greatest extent
possible. The states have adopted protections based on size,
population, structure and need of their markets. As this question
implies, one size regulation does not fit all. To require all states to
adopt the same blanket regulation for all situations could result in
over-regulation of and unneeded expense to the marketplace. State
legislatures are sensitive to their marketplaces and consumer concerns,
and when needed, they have been proactive in establishing consumer
protections that are tailored to the needs of their individual states'
health care markets.
Question 8. If there is a dispute between the State position that
its laws are sufficient and a Federal bureaucrat, should it be
reviewable in court and who should get any deference on that issue?
Because of the extensive nature and complexity of the patient
protections, reasonable people are likely to disagree on whether a
state law offers sufficient protections to consumers. The focus should
be on whether the intent and the outcome of the laws are similar, not
whether every single word of every provision is exactly the same. If we
lose sight of the big picture and the protections offered as a whole,
every little detail of every law will be litigated. We would prefer not
to have these types of disputes settled in courts while consumers wait
to have the state patient protection laws enforced.
In these types of disputes, if a state can reasonably assert that
the state law offers sufficient protections, we believe the state
should be given deference. Unless a state's assertion has no reasonable
basis or evidence, there should be a presumption that the states are in
the best position to evaluate whether the state laws measure up to the
federal law not only as the laws are written but also as they function
and operate in a real world situation. The states will also know how
and why a state law has been tailored to its particular market and can
explain how the tailored state law offers sufficient patient
protections.
Question 9. In your testimony you mention the need for an
appropriate transition period. How is the State legislature going to
know what passes a given standard without some information from
whomever decides on the test?
To date, the proposed standards in the various bills seem broad
enough to allow the states to make the determination regarding whether
their laws meet the overall goals and intent of the legislation;
however, this question implies that the states need to wait for federal
regulations setting forth criteria and examples of how to meet the
standards. Either way, states will need time to review their laws,
compare them to the federal law, and determine what changes, if any,
need to be made. In addition, states will need time to enact the
changes in their legislatures. Not all state legislatures meet every
year, and even some that do may consider only non-budgetary or fiscal
issues every other year. Several years will need to be afforded for the
states to complete the process.
Question 10. Can you describe some of the problems the states had
in enacting the Health Insurance Portability and Accountability Act
(HIPAA) provisions?
The process of reviewing state laws and making them HIPAA-compliant
was very labor-intensive. HIPAA had a much narrower focus regarding
insurance laws than the patients' bill of rights provisions. HIPAA
essentially addressed three issues: (1) guaranteed issue in the small
group market and for a small class of individuals; (2) guaranteed
renewability of all health insurance policies; and (3) portability
(creditable coverage so people do not have successive preexisting
condition exclusions when they change jobs and plans). The patients'
bill of rights covers a much greater number of provisions, and these
provisions are much more complex. Therefore, it is essential that the
states have as much flexibility as possible to not have to rewrite
their laws if they accomplish the same objective. That is why a
deferential standard of review is appropriate.
Question 11. How have the states and Health Care Finance
Administration and the Department of Labor been working together since
the enactment of HIPAA?
Generally the relationships have been good. HCFA and DOL staffs
attend NAIC meetings regularly, and work with individual states on a
case-by-case basis. However, it is not the best model to have more than
one regulator for insured plans. We understand the plans' concerns
about having to deal with both state and federal regulators on
insurance products. It is confusing, time-consuming, and not a logical
allocation of resources. Again, HIPAA's breadth was relatively small
compared to the patients' bill of rights, and neither federal agency
has the resources or infrastructure to be an effective insurance
regulator and ensure that the rights conferred to patients are actually
enforced.
Question 12. Do you have any comments on HCFA or DOL enforcing the
law? What problems arise when the federal government enforces part of
the insurance laws in a state and the state enforces other parts?
These agencies do not have the resources (money or staff) or the
infrastructure established to make sure these protections are enforced.
The patients' bill of rights does not appropriate any funds to create
this infrastructure, which by the way, would duplicate the state
infrastructure.
As we stated in Question #11, it is not the best model to have more
than one regulator for insured plans. We understand the plans' concerns
about having to deal with both state and federal regulators on
insurance products. Also, it is not helpful for consumers to have two
regulators for insurance laws. They will not know which regulator to
call if regulation and enforcement is on a provision-by-provision
basis. It is confusing, time-consuming, and not a logical allocation of
resources. The states regulate insurance and enforce these laws, and
the federal government should let the states continue to do so.
As we stated in Question #6, Congress could give the Department of
Labor (DOL) the authority to contract with those states that want to
enforce the federal patient protection standards for all group plans,
including self-funded ERISA plans. This contractual arrangement would
be voluntary on the part of those states that want this enforcement
authority and would be done on a state-by-state basis. The DOL-state
contract structure would function like other federal arrangements that
give federal grants to the states to implement and enforce federal
programs.
Question 13. Why is it so important for the states to enforce the
patient protections?
While we are sometimes accused of engaging in a ``turf war,'' we
believe for several reasons that it is best for the consumers if the
states not only keep their state laws, but also enforce the patient
protections.
First, state regulators are presently enforcing many of the patient
protection provisions that are being considered by the Congress and
that are included in the President's Principles. The most important way
states enforce these laws, and thus ensure that consumers get the
benefits to which they are entitled, is through state internal and
external review processes. Internal and external review standards are
the heart of the patient protections. Enforcement of the other patient
protections, through these review processes, is what makes the other
protections real, rather than illusory. Congress should not disrupt
these state processes.
We should note here that if Congress preempts internal and external
review processes, Congress would be threatening the ability of state
insurance departments to handle any type of consumer question,
complaint or grievance. Consumers' complaints often initiate these
review processes.
Second, as we discuss in Questions #14, infrastructure is critical
for enforcing any new patient protections and the states have an
extensive infrastructure in place to protect consumers. The federal
government does not. State insurance departments have established their
regulatory infrastructures based on their markets and have allocated
significant resources to assist consumers. Consumers are able to call
their state insurance departments and the departments can quickly and
efficiently respond. Consumers are not forced to call an agency in
Washington, DC and be routed around looking for the right contact
person. State systems that are working and that are user-friendly for
consumers should not be preempted by Congressional action that cannot
guarantee the enforcement of these protections.
Question 14. Explain the infrastructure that the states have in
place already to enforce patient protections.
Infrastructure is critical for enforcing any new patient
protections. Not only have states established a statutory framework of
patient protections, but also states have a regulatory structure in
place that is able to handle and quickly respond to consumers'
complaints and grievances. This regulatory structure includes: consumer
representatives and market conduct reviewers who respond, investigate
and enforce the patient protection standards; toll-free consumer
telephone lines and Internet access; and on-site representatives to
respond to complaints.
Just to quantify the level of state resources (time, money and
people-power) that is necessary to regulate the business of insurance
and to successfully handle consumer concerns, in 1999 state insurance
departments responded to more than 3.3 million consumer inquiries and
followed-up on more than 448,000 consumer complaints or grievances.
State Departments of Insurance employed 1,045 financial examiners, 345
market conduct examiners, 384 financial analysts, 786 complaint
analysts, and 75 consumer advocates. The examiners conducted 1,562
financial exams, 1,122 market conduct exams, and 554 combined financial
and market conduct exams.
State insurance departments have established their regulatory
infrastructures based on their markets and have allocated significant
resources to respond to consumers. Consumers throughout the country
have easy access to a network of assistance. State systems that are
working should not be preempted by Congressional action that cannot
guarantee the enforcement of these protections.
We are concerned by the potential impact of any federal patient
protection legislation on consumers. If the federal legislation
preempts state laws and state infrastructure, the federal government
does not have the resources (money and staff) or the infrastructure to
enforce these new protections. With all due respect, we do not think
consumers benefit from the preemption of state law or state
infrastructure. As such, we ask Congress to recognize the effective
state infrastructure already in place and to preserve it so consumers
in insured plans may continue to enjoy the benefits of state oversight.
______
National Conference of State Legislators
April 11, 2001
The Honorable Michael Bilirakis
Chairman, Subcommittee on Health
Committee on Energy and Commerce
U.S. House of Representatives
2125 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Bilirakis: Thank you for giving me the opportunity to
testify before your subcommittee at the hearing on ``A Smarter Health
Care Partnership for American Families: Making Federal and State Roles
in Managed Care Regulation and Liability Work for Accountable and
Affordable Health Care Coverage.'' Attached is my response to the six
follow-up questions you posed. I have also attached a copy of NCSL's
policy on managed care reform.
On behalf of the National Conference of State Legislatures, I want
to express our continued support for the establishment of patient and
provider protections for individuals who receive health care services
from managed care entities. We look forward to working with you and
your colleagues, both in the House and the Senate, to achieve this
goal. Please call Joy Johnson Wilson in the NCSL Washington Office or
me if we can be of additional assistance to you or your staff as you
proceed on this important issue.
Sincerely,
Angela Monson
Oklahoma State Senate, President-Elect, NCSL
Attachment
Enclosure
Responses for the Record of Senator Angela Monson
Question 1. If a state passed a law that found that a set of state
patient protections meets the relevant federal standards for
acceptability, should that finding be recognized as final at the
federal level? In other words, the national objective is the full
patient protections but the state makes a finding, not the federal
government? Would you support that concept?
Yes, we would support this concept. NCSL has long-standing health
insurance policy that states, ``Where states already have similar
legislation in place, a process for declaring `substantial compliance'
should be developed.'' We believe this could apply to a single state
law or a set of state laws that, when viewed in their totality, provide
similar protections and as such, meet or exceed the national patient or
provider protection objectives.
Question 2. Should Congress look at some of the existing patient
protection laws in the states and simply ``grandfather'' them in? In
other words, should Congress make findings that certain state
provisions are good patient protections and there is no need for
further disruption or uncertainty?
NCSL would support ``grandfathering-in'' existing state laws. It
would be particularly useful for patient or provider protections that
have already been enacted by a majority of the states and that are
similar across the states. A good example would be a ban on ``gag
clauses.'' It would be relatively easy for the federal legislation to
include a ``gag clause'' protection that would not be imposed in a
state that has a ``gag clause'' ban in effect in state law when the
federal law is enacted.
Question 3. Do you agree that two laws on the same issue should not
apply at the same time? If they both applied would it create
unnecessary conflict and confusion?
I am not sure that I agree. I do not think it is unusual to have
more than one law address an issue or different parts of an issue. This
situation certainly exists in the health insurance area, where state
laws regulating health insurers do not apply to individuals who receive
their health care coverage through federally regulated, self-insured
entities. This situation causes confusion among consumers and could
easily be rectified by amending the Employee Retirement Income Security
Act (ERISA) to permit states to regulate self-insured entities.
However, there are no active proposals to do so. We would be pleased to
work with you on crafting legislation that would accomplish this. The
enactment of federal legislation that would provide protections to
individuals in federally-regulated plans similar to those already in
effect for individuals in state-regulated plans would go a long way
towards alleviating confusion and inequities among similarly situated
individuals with respect to their health care coverage and related
protections.
Question 4. What should we do about a state that has very little
managed care penetration? Should states with little managed care be
subject to the same approach as states with significant managed care
penetration?
Establishing an approach based on managed care penetration assumes
that there is a significant relationship between managed care
penetration and the existence of state law regulating the managed care
industry. I am not certain that a significant relationship exists. Even
the states with the lowest rate of managed care penetration have
enacted state laws regulating the managed care industry. Some of these
states have done substantial work in this area. Alaska, the state with
the lowest rate of HMO penetration in the United States, has enacted
laws providing for: freedom of choice; a point of service option;
direct access to chiropractic care; inpatient care after childbirth; an
independent appeals process; a ban on gag clauses; and a ban on
financial incentives. Vermont, ranked 48th of the 50 states and the
District of Columbia in HMO penetration has enacted state laws
providing for: direct access to obstetricians and gynecologists;
standing referrals; continuity of care; an emergency care service
mandate; the prudent layperson standard; disclosure of restrictive drug
formularies and procedures for obtaining coverage of nonformulary
drugs; a definition of medical necessity; an independent appeals
process, a ban on gag clauses, a ban on financial incentives; prompt
payments to providers; independent ombudsman programs; and the
licensing of medical directors.
Because a state cannot be compelled to enact federal insurance
legislation, a state could, by failing to enact complying state law,
``opt out'' of all or some of the federal provisions regulating managed
care entities and permit the federal government to do so. This would
not require any special treatment under the federal law because a
federal ``fall back'' provision would have to be part of any federal
insurance legislation. We believe that, if states are given sufficient
time to review their laws and to make revisions and adjustments to
them, most states will want to maintain regulatory authority in this
area regardless of the rate of HMO penetration in the state.
Question 5. If there is a dispute between the state position and a
federal representative over whether its laws are sufficient, should it
be reviewable in court? Who should get deference on that issue?
Deference should be given to states and their assessment of their
laws. NCSL urges the adoption of a process that presumes the state law
is sufficient if the state determines that it is. So once a state has
certified, by a process established in the federal law, that a
particular state law is equally protective, there would be a
presumption that the state has made a correct determination. We would
urge the first level of review to be at the federal department level,
if a party (the appropriate parties to challenge a state determination
should be specifically identified in the federal law) challenges the
state certification. NCSL would certainly not want to preclude any
state from seeking relief through the courts if it feels the federal
review process has not treated it fairly.
Question 6. In your testimony, you mention the need for an
appropriate transition period. How is the state legislature going to
know what passes a given standard without some information from
whomever decides on the test?
We believe the effective date of the federal legislation in each
state should occur after the state legislature has met in a regular
session. After the federal legislation is enacted, states will know
whether and how state laws will be preempted. The transition period is
needed to permit states to assess the status of their laws, to make any
changes that they deem appropriate and to determine any additional
steps (e.g., certify state law as equally protective) the state may
wish to pursue.
If, for example, more protective state laws are ``saved'' from
preemption, a state may want to revise its existing laws to make them
more protective than the federal law to maintain state regulatory
authority. If the federal standard saves ``equally protective or more
protective'' state laws, a state will want to review its laws to make a
state determination regarding the status of the state laws compared to
similar or comparable federal law. Even if the federal law is less
clear and suggests that a state law or some group of state laws that
are equally or more protective than the federal law would be saved from
preemption, the state should have the opportunity to make its
assessment and to determine whether it wants to assert state authority
with respect to a law or group of laws in the state according to the
procedure established in the federal law. For example, a state
legislature may direct the state insurance commissioner or governor to
save state regulatory authority for a certain law or group of laws by
statute, based on their review of those laws. States will need some
time to make an assessment of the affected state laws and to determine
what the appropriate next step should be.
National Conference of State Legislatures
official policy
POLICY: Managed Care Reform
COMMITTEE: Health
NCSL supports both the establishment of needed consumer protections
for individuals receiving care through managed care entities. We also
support the development of public and private purchasing cooperatives
and other innovative ventures that permit individuals and groups to
obtain affordable health coverage. We strongly oppose preemption of
state insurance laws and efforts to expand the ERISA preemption. The
appropriate role of the federal government is to: (1) ensure that
individuals in federally-regulated plans enjoy protections similar to
those already available in most states; (2) establish a floor of
protections that all individuals should enjoy; and (3) to provide
adequate resources for monitoring and enforcing federally-regulated
provisions. The Senate-passed version of the ``Patient Bill of
Rights,'' generally preserves the traditional role of states as
insurance regulators, and focuses most of its attention on the
federally regulated, self-funded ERISA plans. Individuals who receive
their health care through these plans have not benefited from the state
laws enacted to provide needed protections for individuals who receive
care through managed care entities. It is appropriate and necessary for
the Congress to address the needs of these individuals.
States have taken the lead in providing needed regulation of
managed care entities. The reforms at the state level have enjoyed bi-
partisan support and have been successful. If states had the ability to
provide these protections to people who receive their health care
benefits from self-funded ERISA plans, we would surely have done so. We
have asked for the privilege on many occasions.
Today we see federal legislation that will largely preempt these
important state laws and replace them with federal laws that we submit
the federal government is ill-prepared to monitor and enforce. None of
the would provide additional resources to the U.S. Department of Labor
or to the U.S. Department of Health and Human Services to hire and
train staff to implement the many complex provisions of these bills.
Preemption of State Laws And State Regulation of Managed Care Entities
It is widely believed that the pending legislation creates a
federal floor and would not preempt state laws that are more protective
of consumers. We are not certain that is true. Unless state
legislatures adopt legislation that mirrors the federal legislation,
state insurance commissioners would not be authorized to continue to
regulate managed care entities under any preempted state laws. In some
cases ironically, state insurance commissioners would be unable to
enforce existing state law that would have afforded these same
individuals needed protections. As a result, after passage of the
federal legislation, the regulation of managed care entities could be
largely a federal affair. Again, we believe the current federal
infrastructure for the oversight and enforcement of health insurance
regulations is inadequate. The federal government will not be able to
deliver on the promise and may very well prevent states from delivering
on theirs regarding patients rights.
Access to Health Insurance Proposals
NCSL strongly opposes proposals that exempt association health
plans (AHPs), Health Marts and certain multiple employer welfare
arrangements (MEWAs) from critical state insurance standards. These
proposals would permit more small employers to escape state regulation
and oversight through an expansion of the ERISA preemption. States have
tailored their health care reforms to fit local health insurance
markets and to address the concerns of local consumers.
The impact on federal insurance reforms. The federal
government, through the enactment of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), made an
effort to stabilize and improve consumer protections (through
state regulation) of these markets. Enactment of AHP/MEWA
provisions in any form would undermine these efforts. We are
particularly concerned about: (1) the impact on state small
group and individual insurance markets; and (2) the opportunity
inadequate regulation provides for fraud and abuse. These
concerns are in addition to our larger concerns about the
ability of the federal government to adequately regulate an
expanded health insurance market.
The impact on state insurance markets. Recent state reforms
have guaranteed small employers access to health insurance and
have made coverage more affordable for many small businesses by
creating large insurance rating pools. These large pools assure
that all small firms can obtain coverage at reasonable rates,
regardless of the health of their employees. The success of
these state small group reforms, however, depends on the
creation of a broad base of coverage. By expanding the
exemption provided in ERISA, the House-passed bill would shrink
the state-regulated insurance market and threaten the viability
of the markets and any reforms associated with these markets.
These proposals undermine HIPAA by creating incentives for
healthy groups to leave the state-regulated small group market,
only to return when someone becomes ill. This incentive for
adverse selection would be disastrous, compromising state
reforms and raising health care costs for many small firms and
individuals.
Fraud and abuse. MEWAs have become notorious for their history
of fraudulent activities. The House-passed bill would undermine
federal legislation that specifically gave states the authority
to oversee MEWAs. A policy adopted because federal regulation
had proven ineffective in preventing abuses. Under the proposed
legislation, many MEWAs could become exempt from state
regulation by becoming federally certified as Association
Health Plans (AHPs). The proposal does not provide sufficient
protections for employees and employers against victimization
by unscrupulous plan sponsors.