American College of Physicians: Internal Medicine — Doctors for Adults ®


Is a shift coming?

The struggle to hold HMOs liable

From the June 1997 ACP Observer, copyright 1997 by the American College of Physicians.

By Deborah Gesensway

Remember the Pinto? Throughout the '70s, Ford sold a car it knew had a design flaw, one that it could have fixed for $11. But after weighing the costs of modifying the car against the costs of compensating the few people who would be killed when the car's gas tanks exploded during accidents, the company concluded that it was more profitable not to tinker with its best-seller.

illustration: Ralph Butler

Only when a California jury shocked the automobile giant—and the nation—by awarding a record-breaking $128 million over a Pinto accident did Ford recall the car and change its way of doing business. Americans, meanwhile, clamored for more automobile safety regulations.

Today, managed care's approach to the business of health care is drawing similar comparisons. A growing number of doctors, patients and their lawyers are battling managed care organizations, claiming that denials or delays in treatment have hurt and even killed patients. To them, the analogy of a business cutting corners until it is punished by juries or regulators is a good one.

To date, however, it has been almost impossible to sue a managed care organization. While some courts have found HMOs to be liable for patient injury, most plans that provide employer-based benefits have shirked nearly all responsibility for patient care decisions by citing a complex federal law known as ERISA—the Employee Retirement Income Security Act of 1974. They have argued that under ERISA, they are merely administrators and have no real role in medical decision-making. It is doctors, they contend, who make the decisions, and it is doctors who should shoulder the legal liability.

For years, the courts have agreed. But now, in cases being argued around the country, physicians, consumer advocates and government regulators have all begun arguing that managed care plans that do more than pay claims—in other words, make medical decisions—should be held responsible. And by lobbying for legislative change and getting involved in court cases around the country, they are starting to make some progress.

ERISA was originally adopted in 1974 to change how voluntary pension plans were managed. Later, it was expanded to cover all types of employee-benefit plans, including heath care provided by employers. While ERISA was created to "free employers from inconsistent state regulation of benefit plans," courts throughout the country have ruled that the law means that employer-based benefit plans do not have to comply with any state laws, including the tort laws that guide medical malpractice lawsuits. ERISA applies only to people who get health insurance through their employer—patients covered by Medicare, Medicaid or insurance they buy independently are excluded.

Until now, the courts have upheld a broad interpretation of ERISA, siding with HMOs and insurance companies that insist they only administer benefits with doctors and other providers to deliver the care. Consequently, they say that only doctors, hospitals and other "providers" are capable of delivering care in a negligent way—and committing malpractice. As a result, for many patients alleging medical malpractice, ERISA has meant that they can only sue their doctors, even if they think the doctors weren't negligent and were only following the rules set down by the insurance company.

"This is patently unfair," said Michael J. Werner, JD, ACP's Senior Associate for Government Relations. "Health plans are often dictating medical practice to physicians and then being let off the hook."

A College position paper on liability reform published in the March 15, 1995 Annals of Internal Medicine highlighted this issue and called for legislation to amend ERISA to hold health plans liable as part of an overall liability reform package.

A break in the shield?

While Congress considers such a proposal, however, court opinions are beginning to shift. Recently, several important court decisions have begun to poke holes in the so-called ERISA shield.

A case that is currently getting attention from a number of organizations—including ACP—is Pappas vs. Asbel vs. U.S. Healthcare, which was argued before the Pennsylvania Supreme Court in late April. The case, in brief, goes like this: At 11 a.m. one day in 1990, Basile Pappas went to the emergency room of Haverford Community Hospital in suburban Philadelphia. The day before, his primary care physician had given him a steroid injection for shoulder and neck pain. When he arrived at the hospital, three emergency room doctors diagnosed Mr. Pappas as suffering from a cervical epidermal abscess compressing his spinal cord and arranged to transfer him to Thomas Jefferson University Hospital's spinal cord trauma unit, about 10 miles away.

But U.S. Healthcare, Mr. Basile's insurer, told the Haverford physicians that because Jefferson was not a participating U.S. Healthcare hospital, they would have to send him elsewhere. It was 3:30 p.m. before Mr. Pappas was finally transported to the Medical College of Pennsylvania. Today, he suffers from permanent quadriplegia resulting from compression of his spine by the abscess.

Mr. Pappas, who had worked as a waiter, sued his physicians and the hospital for malpractice, alleging that the three-hour delay in transferring him to a hospital with proper facilities resulted in his injury. The hospital then sued U.S. Healthcare, which denied all liability, citing the ERISA shield.

A trial court backed U.S. Healthcare, but an appellate court later overturned the decision, noting that U.S. Healthcare had acted not to protect the worker's rights—the original focus of ERISA—but to save money. The question of whether the federal law can excuse the HMO from a negligence claim is now in the hands of the state's Supreme Court, and further appeal to the U.S. Supreme Court is possible.

Doctors' organizations see the case as evidence of a new trend in legal thinking. "The situation for doctors has dramatically improved recently," said Katherine Benesch, JD, MPH, an expert on managed care liability from Lawrenceville, N.J. "The courts are no longer so naive that they accept the fact that the payment decision and the treatment decision are completely separate."

In fact, three of the nation's 12 federal appellate courts now have rulings on the books against the ERISA preemption in medical malpractice cases; a few years ago there were none. And in nearly a dozen state legislatures this year, bills are being considered that would specifically allow patients to sue their HMOs in malpractice cases.

In Texas, for instance, a bill that would define exactly what health plans are liable for passed both houses of the legislature and was headed toward the governor's desk. (At press time, the governor had not decided whether he was going to sign the bill.) While the bill does not nullify ERISA restrictions—patients would still have a hard time suing an HMO that provided employer-based benefits—it would define exactly what health plans are liable for in making health care decisions. If passed, the bill would immediately define the liability of health plans like Medicare and Medicaid. If ERISA is ever changed and patients are allowed to sue employer-based health plans, the bill would also define HMOs liability.

ERISA may still be safe in Texas, but the bill is enough to make health plans in the state—and around the country—nervous. HMOs and other insurers are fighting the bill passionately, protesting that they are nothing more than pencil pushers who pay the bills. As Mona Taylor, public affairs director for the Texas HMO Association explained, "Utilization review is not the practice of medicine."

On the front lines

For many physicians, however, it's a defense that doesn't ring true. Daniel Boyle, MD, a physician in San Antonio, Texas, views his own experience with HMOs as proof that health plans do more than pay the bills. He claims that the actions by health plans have injured patients and then left him and his colleagues holding the bag when patients sue. Things got so bad that he quit practicing emergency medicine—a specialty that has been hard hit by lawsuits inspired by managed care rules—and found himself testifying last year before the Texas legislature.

Dr. Boyle's nightmare began eight years ago when he wanted to admit a patient who had come into his emergency room complaining of headaches and very high blood pressure. Dr. Boyle called the man's insurer, Humana, and talked to the physician in charge of utilization review. He was told the patient should not be admitted. The patient decided that he didn't want to risk having to pay for the admission himself and went home, where he suffered a stroke that left him paralyzed on one side. He sued Dr. Boyle and the Humana physician and eventually settled out of court.

"They insist that when they are telling you you can't admit somebody, it's not a medical decision, it's an administrative decision based on their contract with the patient," Dr. Boyle said. "OK. But what we want to say is that in this state, is if there is a bad outcome because of an administrative policy or because of a decision you've made, then you're going to be held to the same standards that the physician was when he took care of the patient."

And it's not just ER doctors who feel the pinch, Dr. Boyle said. Now that he has gone into outpatient practice, he realizes the liability that the gatekeeper primary care physicians face when they are on the other end of the telephone call from the ER. "They need to understand that they are at risk as well for malpractice based on decisions that they make for the insurance company," he said.

"Basically the doctor is getting squeezed from all ends," said Mark Hiepler, JD, of Oxnard, Calif., who has made a name for himself in managed care medical malpractice circles by championing more than 100 denial-of-treatment cases against health plans and managed care physicians. "He has certain duties toward his patients and toward the HMO. HMOs never really worry much if one of their contracted physicians gets sued for medical malpractice. They just stand back and say we had nothing to do with it."

The big picture

While ERISA restrictions that prevent lawsuits against employer-based health care may hurt physicians the most financially, they are also raising a range of larger societal concerns. For one, some critics say, all Americans end up paying for the sins of some health plans.

"We pay for mistakes [made by these health plans], by these patients becoming public charges or the hospitals raising their rates, and in a few cases, someone is dying, as a result," said Sheldon Weinhaus, JD, a St. Louis health care attorney named recently to the Clinton administration's new Advisory Commission on Consumer Protection and Quality in the Health Care Industry. "These cases basically say that the insurance companies have become the legalized Jack Kevorkians of our time. There are a lot of horror stories."

Back in Pennsylvania, Mr. Pappas, for instance, will never work again. "What the HMO did was probably save a couple of dollars by going to the hospital where it had negotiated agreements," explained Kenneth Jones, JD, general counsel for the Pennsylvania Medical Society. "So, they saved a couple of dollars. The cost to health care and the cost to society was this guy's limbs."

Critics hope that if current ERISA restrictions are changed and make health plans more vulnerable to lawsuits, HMOs and other insurers will become more responsive to criticism. "Holding health plans liable for their decisions will give the plans the incentive to listen to physicians' recommendations about proper patient care," explained ACP's Mr. Werner. "It will force health plans to focus on quality, not just costs."

"With immunity from liability and without regulation, there is no incentive for HMOs and managed care plans to become accountable," said Carol O'Brien, JD, counsel for the AMA's Division of Patient Advocacy. "It's a Pinto type of issue. There is no crash test for HMOs."

Tort reform struggle

But herein lies an irony. Many physician organizations, ACP among them, have long argued that the tort system is a haphazard, inefficient and costly way to punish doctors who commit medical malpractice or to compensate patients who are injured in the course of their medical care. Physicians who did nothing wrong are regularly put through the wringer of a lawsuit while at the same time most patients who are injured through medical malpractice never sue at all.

The result is that physician organizations now advocating that the ERISA preemption should be abolished when it comes to HMOs find themselves in the somewhat awkward position of sitting on the same side of the table as their long-time adversaries—the trial lawyers. Physicians want to limit their legal liability through caps on "pain and suffering" and punitive damages, but at the same time they are calling for increased liability for health plans.

In many ways, the struggle over medical malpractice and defining health plans' liability also relates to the nation's ambivalence about health care and public policy. "We want to save costs as a country, and we applaud that, and even call it quality. We have embraced managed care as the way to do that," said Martin J. Hatlie, the AMA's malpractice expert. "And yet, in retrospect, after an injury, we say they were just trying to save money."

Mr. Hatlie said the AMA would like to see the courts and Congress level the playing field so that health plans, like doctors, could be sued and found liable if they commit malpractice. At the same time, though, the organization would also like to see the tort system reformed so that none of these potential defendants—doctors and HMOs alike—are subject to random, lottery-like, excessive verdicts.

Experts say that there is a real reason to reform malpractice law before, not after, ERISA restrictions are modified, opening the floodgates of lawsuits against HMOs. "When you sue a doctor, you have to prove the doctor made a mistake," explained Jeffrey O'Connell, JD, a professor of law at the University of Virginia School of Law and an expert on tort reform issues relating to medical malpractice. "When you sue a health care organization, all you have to prove is that it adopted some policy that would save money that in this instance turns out maybe shouldn't have been applied. You can say that almost anything you do to save money is arguably on occasion going to cost somebody some service that arguably might have helped him."

Still, some remain optimistic. Robert Berenson, FACP, a Washington, D.C., internist who heads a Robert Wood Johnson Foundation program on malpractice, said that there might be some argument for changing the system to make health plans subject to the tort system and taking physicians out of it altogether. One idea is to subject physicians to some other sort of malpractice system, perhaps a no-fault arrangement where each injured patient who sues is not required to prove physician negligence in court.

"Maybe the tort system would be more efficient against HMOs," Dr. Berenson said, because it would allow doctors and patients to identify particular HMOs and "go after these in court to establish a pattern of cases. And then somebody someday could publish that HMO 'A' has lost 40 malpractice cases last year where HMO 'B' has only lost four."

Meanwhile, it appears some change is afoot. "The trends in liability all point to managed care in one way or another," Mr. Hatlie said. And, he said, the cases are more like the Pinto case than typical malpractice cases. "The typical malpractice decision is about negligence, not about someone intentionally doing something: They goofed, they didn't plan it out. But these benefits decisions [are saying] the managed care plan didn't goof or slip, it made a policy decision."

Six tips to avoid malpractice in managed care

Until the courts or Congress change the laws that protect health plans from most malpractice lawsuits, physicians will continue to find themselves in the frustrating position of being the only deep pockets for injured patients to tap.

There are some things doctors can do, however, to help them weather the malpractice hazards of practicing in a managed care environment:

  • Be realistic. Never forget that even as the courts expand the notion of payers' liability for decisions to control cost that are essentially medical decisions about patient's care, "the liability of the physician is not necessarily lessened as a result," according to health care attorney Katherine Benesch.

    The physician, she said, even if acting as a gatekeeper for the managed care organization, still has the same duty as all physicians "to make medical decisions and render care in accord with a reasonable standard for all patients in similar circumstances."

  • Advocate for your patients and appeal denials ardently. Court decisions have made it crystal clear that the law expects physicians to be advocates for their patients and will find them liable if they are not. Giving physicians incentive to protest what they see as bad decisions on the part of insurers is one way the courts have created a check on plans' cost-cutting decisions, said Martin J. Hatlie, the AMA's malpractice expert.
  • Watch clauses in your managed care contracts. Health care attorney Mark Hiepler said lawyers are now looking closely at "breach of fiduciary duty liability," which means they will be coming after physicians who appear to have put their own financial interests ahead of their patients' interests. Specially targeted will be financial gain from not treating, referring or hospitalizing your patients.
  • Get the right clauses. Try to get termination-without-cause clauses and clauses that have doctors hold the plan harmless in the case of a lawsuit stricken from your managed care contracts. That is often not possible, Mr. Hiepler said, which is why he thinks physicians should be lobbying their legislatures for laws banning such clauses in the name of consumer protection.
  • Practice risk management. Think about the kinds of risk management you might do in your office relating to managed care. According to the AMA's malpractice expert Martin J. Hatlie, part of the reason lawsuits against surgeons have decreased while those against primary care physicians have increased has to do with the risk-management programs many hospitals have had in place for years now. Primary physicians could, for example, devise ways to reduce the number of times they fail to diagnose cancer in a timely manner to reduce the number of lawsuits that make that allegation.
  • Think twice. Before contradicting a treating physician's recommendation, think again. Also, make sure you see the patient yourself, not just contravene a recommendation to hospitalize or refer over the telephone. "The fact is if you stand up in front of a jury and say you made that decision over the phone, there isn't anybody who is going to take your side," said Daniel Boyle, DO, of San Antonio, Texas.

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