ERISA May Shield HMO Liability: Texas Law Under Fire

For years the medical profession in general, and psychiatrists increasingly more vocally, have called for health care reforms that would shift some of the risk of benefits decisions back to the managed care organizations (MCOs) that make them. Arguing that their determinations do not constitute medical treatment, however, MCOs in large part are shielded from liability when refusals to provide care bring harm to patients.

Last May, however, the Texas legislature became the first state in the nation to enact a law (SB 386) imposing malpractice accountability on providers of health care benefits whose negligent treatment decisions cause injury. One month later, Aetna Health Plans of Texas filed a federal lawsuit in a last-ditch effort to block the measure, which became effective Sept. 1, 1997. The insurer, which runs one of Texas' largest HMOs-serving approximately 1 million people-is asserting that the exemption provision of the Employee Retirement Income Security Act of 1974 (ERISA) makes the new law illegal.

The litigation, now pending in the U.S. District Court in Houston, will most likely chart the course for the rest of the nation as federal and state legislators, and public policymakers consider a host of reforms to regulate what are perceived as wide-ranging health care industry abuses. As this issue of Psychiatric Times went to press, however, the judge had yet to rule. In many instances, efforts by the state to gain greater control over MCOs have been thwarted by ERISA challenges because of the statute's mandate that only Congress pass laws that "relate to" employee benefits plans.

The ERISA shield has become a favorite of employers and benefits providers, because its overwhelming effect is to reduce the situations in which they can be held legally responsible for misdeeds. Even in cases where a violation can be established, the statutory penalties are insufficient to make bringing cases to court worthwhile, or are inadequate to deter future improper conduct. Efforts over the years to enact an amendment to ERISA have failed because of powerful lobbying by business and health care interests.

Since it is unlikely that federal legislation will clear the backlog soon, the courts have increasingly become the only possible venue for relief from the preemption strictures. Thus far, the courts have, for the most part, been reluctant to impose liability on MCOs for treatment provisions, although decisions in the last several years suggest that a trend may be developing in the opposite direction. The outcome in the Texas case, one that will most likely be appealed regardless of who wins, will give a strong indication whether chinks will continue to develop in the ERISA armor.

The Texas Health Care Liability Act states that a health insurance carrier, health maintenance organization or managed care entity for a health care plan has the "duty to exercise ordinary care when making health care treatment and is liable for damages for harm to an insured or enrollee proximately caused by its failure to exercise such ordinary care." Importantly, the statute also provides that "a health insurance carrier, health maintenance organization or other managed care entity may not remove a physician or health care provider from its plan or refuse to renew the physician or health care provider with its plan for advocating on behalf of the enrollee for appropriate and medically necessary health care for the enrollee."

As a means of controlling the amount of litigation that is actually filed, the statute also requires the enrollee to exhaust any appeal remedies provided by the contract before suing and provides a mechanism for mandatory independent review of the claim before litigation begins.

Gov. George W. Bush, at one point, had threatened to veto the legislation but thought better after seeing the wide bipartisan support for the bill. State Senator David Sibley (R-Waco), chief sponsor of the bill, said "I'm proud that Texas will lead the nation in holding HMOs and other managed care organizations responsible for making medical decisions that affect a patient's health," according to an article appearing in the Houston Chronicle. "It's only right that managed care companies be treated like any other profit-making business in the state." Sibley's press secretary noted a few cases have already been presented for independent review required by the new law.

Donald A. Wilcox, general counsel of the Texas Medical Association, said that the law finally imposes on MCOs a level of accountability commensurate with the importance of the benefits decisions they make.

"What it does is bring the insurance company to the table with respect to its decisions on treatment. They have, for the first time in Texas, responsibility for the decisions that they make, and they can be held liable for negligently making those decisions," Wilcox said.

Meanwhile, it is still too early to tell whether the law has made it any easier for the mentally ill to obtain benefits, said Spencer Bayles, M.D., a retired private practice psychiatrist and professor emeritus at Baylor University School of Medicine in Houston. Currently a member of the Texas Society of Psychiatric Physician's Public Mental Health Services Committee, he is a past president of the organization and a past member of the Government Affairs Committee.

Bayles supports the intent of the bill. He said that the legislation will force managed care companies to take responsibility for the consequences of its decisions regarding patient care.