Healthcare Reform

- – - – - – - – - – - – - – - – - – - – -

The HMO industry gained strength through the early part of this decade, credited with decreasing the runaway medical inflation rates that threatened to hamstring the nation’s economy in the 1980s. From a purely economic standpoint, managed-care plans had brought physicians and hospitals in line, reducing the number of expensive, superfluous medical tests and treatments and drastically shortening the length of most hospitalizations.

But as HMO membership roles swelled and the number of employers offering traditional indemnity insurance options dwindled, disturbing reports surfaced about how HMOs did business. Because HMOs accepted full “risk” for their members’ medical expenses in exchange for a flat, per member, per month premium, they had a de facto financial incentive to pay for only those procedures that they deemed medically necessary.

Enter the managed-care “horror story.” Like gory urban myths but with better corroboration, scattered media reports about HMO abuses appealed to the public’s most primal fears. What stories about the injustices of managed-care companies lacked in numbers, they made up for in sheer lurid detail. Tales of patients dying for want of experimental medical treatments, children horribly disfigured through callous administrative oversights and cancer victims fatally misdiagnosed as a result of miserly testing practices became regular staples of magazines and weekly news programs.

Compounding the understandable public outrage over widely reported managed-care abuses was a loophole in federal law that made it exceedingly difficult for patients to sue their HMOs. Protected by the Employee Retirement Income Security Act of 1974 (ERISA), managed-care companies operated with virtual impunity — answering only to their shareholders and to a handful of industry-funded accreditation bodies.

In 1996, feeling mounting pressure from the public and hoping to forestall legislative action, the managed-care industry’s largest trade group, the American Association of Health Plans (AAHP), unveiled a “Code of Conduct” for managed-care plans. While almost entirely unenforceable, the Code of Conduct called for managed-care plans to, among other things, provide patients with full and accurate information about their policies and procedures, offer internal appeals processes for patients who complained about coverage or treatment decisions and remove so-called gag rules barring certain physician-patient communications.

The Code of Conduct did little to ameliorate public concerns, but its proposed consumer protections did serve as a basis for the legislation that eventually came to be known as the Patients’ Bill of Rights.

Last week’s House vote was years in the making. Although the legislation went through many different incarnations and revisions, the bill that passed on Thursday represents, by far, the most sweeping federal action ever taken on the managed-care issue.

If signed into law as is, the House bill would force HMOs to disclose information about their operating policies, provide patients with broad access to medical specialists and remove many restrictions on name-brand prescription drugs and other therapies. But most important, say bill proponents, the House-approved legislation would amend ERISA to allow patients to sue managed-care plans that deny them access to care.

It is that “right-to-sue” provision that gives the 108-page bill its teeth and predictably has caused the most consternation in the managed-care industry and among Republican opponents of the legislation. Before passing the legislation, the House defeated three Republican-sponsored alternatives to the Patients’ Bill of Rights, all of which would have severely limited the rights of patients to sue their HMOs.

By allowing patients virtually free reign to sue their managed-care companies, the House bill will open the door to an economically debilitating legal maelstrom, industry opponents warn, adding that patients will bear the cost for the ensuing legal warfare once the bill is signed into law.

Large employers, who have been more strident than even the managed-care industry in opposing the reform legislation, say that a “right-to-sue” provision could force them to severely scale back their health-insurance offerings, leaving employees to foot the bill for many, if not all, of their own health-care expenses.

Since many of the nation’s largest companies — such as General Motors, IBM and Xerox — are “self-insured,” their legal exposures under the House bill would be easily as great as the exposures of the managed-care industry. A self-insured company may rely on an HMO or some other third party to manage the medical benefits it offers its employees, but the employer itself acts as the insurer, deciding what services to cover and accepting financial risk for its workers’ medical costs. In the case of self-insured companies, it is the employer, not the managed-care firm, that is on the hook for health-care decisions.

And this potential liability, say opponents of reforms, may cause a feeding frenzy. The Wall Street Journal reported recently that some of the nation’s top trial lawyers are turning their attention away from the tobacco industry and toward HMOs. That attention will probably mutate into salivating bloodlust if Congress lifts the ERISA protections that HMOs have relied on for years.

Still, without the right-to-sue provision, any managed-care legislation will have little real impact on patients’ rights. Consumer advocates warn that enforcement of the sundry consumer protections in the House legislation will be dicey, and its liability provisions represent the only real means that consumers have to hold HMOs’ feet to the fire.

Also, the House bill mandates the establishment of an external third-party review process. Under the proposed legislation, a consumer with a denial-of-care complaint would have to present that complaint to an outside review board before taking the matter to court. That provision will significantly reduce the incidence of frivolous and unmerited lawsuits, bill supporters say.

The AAHP supports third-party review, but believes the decisions of review boards should be binding.

- – - – - – - – - – - – - – - – - – - – -

Of all the opponents of the “right-to-sue” provision, the two most important at this stage are Senate Majority Leader Trent Lott, R-Miss., and Assistant Majority Leader Don Nickles, R-Okla. The two senators hold great sway over the conference process — wherein a joint Senate and House bill is drafted and sent to the president — and are dead-set against many of the provisions in the House bill.

The Senate passed its own watered-down managed-care reform legislation earlier this year. That bill is narrower than the House bill in scope, contains fewer binding consumer protections and does not include a right-to-sue provision.

Complicating matters further is the fact that it may not be politically savvy for congressional Democrats to try to speed up the conference process. In lieu of a Bible, many House Dems may be pounding a copy of the still-unsigned Patients’ Bill of Rights when election time rolls around next year. Senate Republican leaders, meantime, will be happy to let the legislation stagnate — putting off a decision on the bill until some of the public furor over the managed-care issue dies down.

While the House bill’s co-sponsors, Reps. Charlie Norwood, R-Ga., and John Dingell, D-Mich., seem genuinely interested in passing the legislation for reasons other than politics, and will no doubt crusade valiantly to win over their colleagues in the Senate, their valor may not be enough to preserve the core protections contained in the House bill.

When members of the two houses are sitting across from one another at the bargaining table, the contentious right-to-sue provision — the proverbial “teeth” of the House bill — may end up being sacrificed on the altar of political expediency.