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A controversial bill expected to pass the Texas legislature at press time holds insurers, HMO's, and managed care companies liable for their share of patient damages in medical malpractice lawsuits.
If Governor George Bush signs the bill into law, Texas would become the first state to legislate that managed care companies and their agents are liable for decisions affecting the quality of diagnosis, care, or treatment of plan enrollees.
Health care decisions include denials, delays, and substitution for treatment a physician believes is medically necessary. The bill applies only to covered services.
Kim Ross, director of public affairs for the Texas Medical Association (TMA) in Austin, told Psychiatric News that if the bill becomes law, "physicians would not be left standing alone for a cause of harm or injury to a patient."
The bill is supported by a coalition of health care providers including TMA and the Texas Society of Psychiatric Physicians (an APA district branch), advocacy groups, and consumers. Major health care purchasers including large employers also support the bill. Ross noted that the trial lawyers association has remained neutral.
Opponents include insurers, the managed care industry, and the Texas Association of Business and Chambers of Commerce.
"They argue that this bill would dramatically increase the number of lawsuits," said Ross. "However, the measure requires that insurers and managed care companies be named as defendants within an existing lawsuit."
This means that plaintiffs would have to sue a clinician for malpractice to name a managed care company as a defendant.
Ross explained that the bill is an attempt to codify the Texas common law doctrine of vicarious liability.
The doctrine asserts that organizations have a responsibility to exercise control over their employees, representatives, agents, and "ostensible agents" and can be held liable for their actions, said Ross.
"Ostensible agents" means that a reasonable person would assume that, for example, a provider is an agent of a particular organization or facility.
Ross commented, "We believe this is the most promising legal theory and rationale. We are telling the managed care industry that the courts are moving in the direction of a broad malpractice liability. The bill offers them the chance to define and limit their liability."
Ross referred to federal court rulings in 1995 in three malpractice cases based on the vicarious liability doctrine. The cases were exempted from the federal Employee Retirement Income Security Act (ERISA) and remanded back to the states.
Because ERISA preempts state laws regulating employee benefit plans and doesn't allow the recovery of damages, insurers and managed care companies have been shielded until recently from medical malpractice damages.
Steven K. Hoge, M.D., chair of APA's Council on Psychiatry and Law, commented, "ERISA was never intended to immunize health plans or HMO's and managed care companies acting as their agents from their responsibility to select appropriate physicians and monitor the quality of health care.
"Most significant, however, is that legislators and judges are recognizing that physicians are not the ones denying care. It doesn't make sense that the insurance company can make such important decisions without any liability."
Moreover, "removing barriers to ERISA preemption provides a legal incentive for managed care companies to ensure that standards of care are met," said Hoge.
The Texas bill requires managed care organizations to exercise "ordinary care" in making medical-necessity determinations. "This is the same standard required of the physician, hospital, and all other health care providers," said Ross. He added that the courts would determine that standard on a case-by-case basis.
The bill also requires enrollees to exhaust the internal appeals process prior to bringing a lawsuit. The process includes an independent review of a denial of medically necessary treatment requested by a physician. The managed care organization must provide the treatment recommended by the independent review.
Although similar bills are pending in the New York and Missouri legislatures, states may not need such legislation in the future. A bill introduced in Congress last month by Representative Charles Norwood (R-Ga.) clarifies that ERISA does not preempt state law in malpractice suits against "medical decision makers" including managed care companies. His bill does not address the question of whether lawsuits can be brought against only managed care companies and limits the liability of employers.
(Psychiatric News, May 16, 1997)