THE FIGHT OVER THE PATIENTS' BILL OF RIGHTS: Why Hatred Of Trial Lawyers Plays A Large Role
By ANTHONY J. SEBOK
Monday, Aug. 13, 2001
On August 2, President George Bush scored a legislative victory when the House of Representatives passed a version of a "Patients' Bill of Rights" that reflected the Republican Party's core views about HMOs, patients' rights, and lawyers.
This bill differs significantly from the Democrat-backed bill passed by the Senate in June. This fall, America will be treated to a bruising fight between supporters of the two versions. What are the parties fighting about?
From one point of view, not very much. From another point of view, the fight over the Patients' Bill of Rights is less about health care and more about trial lawyersor, more specifically, about how much the Republican Party dislikes them.
A Right to Receive What HMOs Already Give
The Patients' Bill of Rights is, in part, a regulatory scheme designed to enforce a certain national minimum standard of coverage on all HMOs. The truth is, both the Republicans and Democrats have long agreed on what those minimum standards should be. Why? Because many of the rights guaranteed in both sides' versions of the bill are already offered by the vast majority of HMOs, even without federal regulation.
For example, both bills call for women to have a right to see their gynecologists without first obtaining approval from their primary care physician. Both also call for HMOs to allow patients to visit the emergency room closest to them.
Sound familiar? That's because most plain vanilla HMO plans currently offer both of these options. It is easy to agree to grant patients the right to get something they already receive, and that is exactly what, for the most part, both versions of the bill have done.
The Real Fight: How HMOs Will Get Sued
The real fight over the Patients' Bill of Rights has to do with a very small but significant gap between the two versions. It has to do with how HMOs will be sued in America in tort.
The Democrats have generally resisted federal legislation about tort law because the current perception among the trial bar (a large source of Democratic contributions) is that state law is more pro-plaintiff than federal law is. And while Republicans toy with federal tort reform, like the Supreme Court, they generally feel bound by their commitment to federalism to leave the states alone.
That leaves both parties with a hands-off attitude to most tort questions. But the HMO tort liability issue is an exception. Congress cannot avoid touching on this question now because it already made a mess of it in 1974 when it passed the Employee Retirement Income Security Act (ERISA).
ERISA, the Clinton Health Care Plan, and the HMO Controversy
No one anticipated it back then, but the effect of ERISA has been to cut off the right of employees who receive health insurance through their employers to sue their HMOs in tort. (Perhaps 60% of non-elderly Americans are affected.)
That is because ERISA, as a wide-ranging federal law, has been interpreted by courts to preempt (that is, extinguish) many state law tort causes of action. Accordingly, a plaintiff covered by ERISA who wants to sue her HMO can only bring a contract action. And if she wins, she will get only the value of the benefit denied not the consequential damages for personal injuries, pain and suffering damages, and punitive damages she might receive in tort.
This consequence was not highly publicized until sometime around 1993, when the ill-fated Clinton Health Care plan was being debated. The Clinton plan not only envisioned that all Americans would choose to enroll in HMO-like "health plans," it also envisioned that if the health plans or their physicians made errors, they could (despite ERISA) be held liable in tort.
The Clinton health care plan, of course, went into the dustbin of history, but many of its lessons remained. One was that, like it or not, HMOs were becoming more and more involved in the practice of medicine. ERISA had been written at a time when a health insurer was something like an auto insurer: While the insurers' unscrupulous practices might hurt consumers, the issue seemed to be essentially a fight about money who was obliged to pay under the contract and contract law thus seemed to be the right approach.
But by 1993, as the Clinton White House recognized, unlike with auto insurers, HMOs' "insurance" decisions often looked a lot like treatment decisions. If HMOs refused to reimburse a certain form of costly cancer treatment, it did not mean that a customer had the treatment and went unreimbursed (and sued in contract later). It meant that the customer did not receive the treatment and then, perhaps, worsened or died, and never had a chance to sue.
Furthermore, there was a growing suspicion that the financial pressures HMOs were placing on physicians were increasing the risk of simple malpractice, especially with regard to diagnosis and selection of treatment.
Since 1993, then, patients' advocates and trial lawyers alike have begun to argue that HMOs are not merely insurers. Rather, they should in fact be vicariously liable for the malpractice of the physicians they use (after all, they have chosen to include them), and they should be directly liable for the results of their administrative decisions with bad coverage decisions amounting to something like professional malpractice.
For anyone whose state tort claims had survived ERISA, these arguments simply raised novel questions in state tort law for the courts to resolve. Some state legislatures decided to resolve these questions themselves, by passing laws that explicitly provided that HMOs plans not covered by ERISA could be sued in tort. Texas was the first to pass such a law (over then-Governor George W. Bush's opposition). Now 10 states have such laws.
Meanwhile, federal courts whittled down the class of state law tort claims extinguished by ERISA. In 1995 in Dukes v. U.S. Healthcare, Inc. the Third Circuit allowed a common law claim against an HMO to go forward even though the plaintiff was receiving health insurance through an employee benefit plan.
The Dukes court distinguished between state law suits over the existence of a benefit conferred by the plan, and state law suits over the quality of the delivery of the benefits conferred by the plan. While the former group of suits was pre-empted, the court held, the latter group could go forward. The Dukes holding was adopted by many courts, including the Fifth Circuit in a 2000 decision addressing an HMO's challenge to Texas's new law.
The Interests Behind a Federal Patients' Bill of Rights
Now, in 2001, the question is who really wants a federal Patients' Bill of Rights?
Where ERISA does not apply, the states have gone ahead and regulated HMOs themselves. Forty-one states, for example, now require that every plan under their jurisdiction allow policyholders to appeal treatment decisions to an external review board. And where ERISA does apply, the best solution might be simply to amend ERISA to allow suits to go forward, and let states regulate in previously ERISA-covered cases, too.
To discern who wants a federal solution, one can simply contrast the two versions of the Patients' Bill of Rights. They agree on what substantive rights a patient should have against her HMO. And they agree ERISA should be amended to allow the 80-odd million Americans covered by ERISA to sue their HMOs under their own state law. What they disagree on is how all America should be able to sue their HMOs.
The disagreement is simple. The Democrats' version of the Patients' Bill of Rights, passed by the Senate, would merely correct the mistake made in 1974: it amends ERISA to allow suits against HMOs under state laws in state courts. The only restriction it places on the states is a limitation on punitive damages, which would be modified, and capped at $5 million.
To the dismay of his allies in the Democratic Party, Norwood agreed to make it harder to sue HMOs, in exchange for Bush's promise not to veto the Patients' Bill of Rights. As a result, the House version allows suits against HMOs to be brought in state courts but only under federal law.
The federal HMO-suit law would include a number of restrictions: Before coming to court, a patient who wants to sue an HMO would have to first present his complaint to an independent review board. Moreover, the independent review board's finding could be rejected by a jury or judge, if there is 'clear and convincing' evidence that the board was in error.
Furthermore, if the patient wins his case, his economic damages would be unlimited, but his noneconomic damages (pain and suffering, etc.) and punitive damages would, respectively, be capped at $1.5 million. And those caps would apply even if the state in whose court the claim was brought applied a higher cap, or no cap at all.
Charlie Norwood seems to be surprised that the Democrats think that the bill he "won" out of Bush is worthless. On one level, Norwood's surprise is justified: His bill fixes two big problems created by ERISA.
First, Norwood's bill creates a national right to external review of denial-of-treatment decisions albeit review initially conducted by a review board, not a court. Since 1993, the main concern with HMOs has been that they were insurers who were making treatment decisions without any medical oversight. External review boards are supposed to prevent mistakes about treatment before they result in permanent injuries.
Second, Norwood's bill creates a right to sue if the external review was ignored by the HMO or was in fact in error. Again, the lack of such a right has been a major complaint against ERISA.
What Norwood does not fully appreciate, however, is that the HMOs love the idea of an external review board. They have never really opposed them. Indeed, even when the Fifth Circuit declared that such boards (mandated by Texas) were preempted by ERISA, they have voluntarily accepted them. Why accept this oversight? Because external review boards are far preferable to HMOs than the alternative: lawsuits.
In the context of the bill supported by Bush, the external review boards are a way to take away advantages that many plaintiffs would have otherwise had under state tort law. Under the House bill, a patient who wants to sue his HMO for the simple negligence of the HMO's physician will (apparently) now have to first submit her suit to an external review board.
Not only that, but her road to a jury will be made much harder if that board finds against herand her damages are capped. This puts her in a worse position than she would be today under the law of at least ten states, including Texas. It also puts the trial lawyer who would represent her for a contingency fee in a worse position, as well.
In sum, the differences between the House and Senate bills are almost laughably minor unless, that is, you are a tort lawyer. The tiny differences between the bills have everything to do with limiting the advantages that plaintiffs have under a growing body of current state tort law.
It is not really patients' rights that are at stake, so much as plaintiffs' and plaintiffs' lawyers' interests. There is almost no evidence that the threat of litigation and the size of damages have much of an effect on the quality of health care and the prevention of medical malpractice. And there is some evidenceboth anecdotal and statisticalthat the most important reform that can be made to HMOs is forcing them to provide access to medical review boards, so that coverage decisions can be revised before the patient receives the wrong treatment. That, of course, is exactly what the House bill does.
Charlie Norwood is betting that full and nationally supervised access to medical review boards is more important that full access to the courts to sue when HMOs (or the boards themselves) make the wrong decision. I think he might be right. This will be the question that the Senate and House will have to decide in conference this fall.