An "Eye On America"
segment that aired recently on CBS explored a disturbing trend
which the program identified as becoming more prominent among
HMOs.
The segment, titled
"The Bait and Switch," charged that some HMOs are promising
their customers more than they can afford to deliver - and then
eliminating benefits, revoking certain hospitals and providers,
and raising premiums as soon as the enrollment period closes.
It seemed to reflect the negative public sentiment against managed
care organizations (MCOs) that is growing stronger every day.
And while this sentiment
is already prompting increased litigation against MCOs, experts
warn it is the employer, who for the most part has remained a
distant and removed party, that will likely be drawn into the
fray.
"Liability in
health care is becoming very broad," observes Peter Van
Loon, a principal at Pandion Risk Management, the Simsbury, Conn.-based
health -care risk management consultants. While the provider
may be the initial target the lawyer sets in his sights, that
target is rapidly expanding, he says.
"Whoever has
the biggest set of pockets - whoever has the most money - is
the one who will get sued," Van Loon predicts. "Litigation
increasingly involves a multidirectional buckshot approach. Anyone
remotely related to the underlying cause could be brought in
[to the litigation]," he adds.
A recently released
study by CNA Health Pro in Chicago, which provides insurance
for managed care companies, supports Van Loon's point. Although
the study, titled "Understanding the Impact of Managed Care
Liability (Phase II)," focused exclusively on the liability
issues facing MCOs, a telling result does not bode well for employers.
It indicated that MCOs are becoming increasingly vulnerable to
litigation arising out of the actions of parties with whom they
have contractual relationships.
In fact, vicarious
liability, which can be alleged against an MCO as a result of
negligence on the part of an employed or contracted provider,
was among the four allegations representing the largest liability
expenses facing MCOs today, according to the study. Wrongful
denial of benefits/utilization reviews, credentialing and bad
faith/breach of contract were also mentioned, but vicarious liability
topped the list when measured for severity.
Managed care experts
also observe that health-care litigation scenarios are broadening
to involve not only the provider, but other related parties such
as the hospital, pharmacists, plan administrators, and increasingly,
the MCO. In response, many MCOs are attempting to shore up their
liability defenses.
Bruce Dmytrow, senior
vice president of risk management services at Praeventus, a business
unit of CNA Health Pro, says his company helps its MCO clients
to achieve this goal through a variety of strategies.
They include purchasing
insurance products that target specific MCO exposures; establishing
tighter contracts with providers that clearly define the responsibilities
each party assumes; and fostering improved communication between
the utilization and quality management areas of the organization.
But this question
remains: If the tentacles of health-care litigation are pulling
in growing numbers of MCOs under an expanding array of legal
theories, what's to stop them from moving on to the employer?
Nothing, say legal experts.
In fact, legislative
trends and legal decisions are pointing to employers' eventual
liability for poor medical outcomes.
Sheryl Willert, managing
director at the Seattle-based law firm of Williams, Kastner &
Gibbs, says the last few years have seen the emergence of numerous
proposed managed care bills which address a variety of issues
under the broader umbrella of consumer protections or consumer
bill of rights.
"There is clearly
a political movement underway to hold managed care entities more
accountable," agrees Curtis A. Cole, a partner at the Los
Angeles office of Thelen, Marrin, Johnson & Bridges. Likewise,
he points to "an increased movement in consumerism"
aimed directly at managed care.
The need for consumer
protections in a managed care environment was even stressed by
President Clinton in remarks delivered last January before a
Democratic Unity - Health Care Bill of Rights event
While Clinton applauded
managed care for "helping to tame the inflation beast in
health care," he nevertheless warned that putting people
at risk because they don't have consumer protections was unjustified.
"You cannot justify
putting people who pay their insurance premiums, and who are
working hard...at the kind of risk that so many Americans are
at today," Clinton said, adding protections should be elemental
in today's American society.
GREATER EXPOSURE
Although the specifics
of proposed bills may differ, common to most of them is language
that exempts the MCO from the Employee Retirement Income Security
Act (ERISA) preemption of state law. In doing so, the proposed
legislation essentially removes the MCOs' ERISA protection from
state-law claims.
"The concerns
that employers have with regard to the legislation being considered
is that the logical extension will expose employers to a greater
risk of liability. If these [ERISA] statutes are changed, employers
will potentially be on the hook," says Willert.
A further erosion
of protections enjoyed by HMOs occurred last year with passage
of legislation in Texas that has pierced the ERISA shield by
allowing HMOs to be sued in state court. If HMO decisions promote
negative outcomes for subscribers, the law allows them to sue.
And similar legislation is being considered by more than 30 other
state legislatures.
"The amount of
litigation lodged directly against managed care [entities] is
increasing," observes
Cole. "I believe
it's just a matter of time before the ERISA preemption is weakened
or taken away."
But if ERISA preemption
is taken away as some suggest, then what happens to employers?
The question weighs heavily on Robert Trinka's mind.
"If ERISA doesn't
protect HMOs from certain types of legal actions, is the employer
[still] protected? asks Trinka, vice president and head of southeast
operations for McKenna & Associates Managed Care Insurance
Services Inc. Trinka, based in Miami, predicts "the plaintiffs'
Bar will test it as soon as they can."
Trinka also believes
that HMOs won't fare as well in a courtroom as the providers
who preceded them. "Doctors have generally enjoyed a high
degree of jury sympathy. They are well-respected members of their
community, and they make good witnesses. It has been difficult
for juries to find against doctors."
Can the same be said
for HMOs? Probably not, says Trinka, who observes that HMOs are
generally viewed with suspicion and often thought of as having
deep pockets.
And employers who
are brought into the courtroom directly on the heels of their
HMOs, experts predict, are likely to face the same negativity.
A 1996 Supreme Court
decision handed down in Varity Corp. v. Howe also has raised
the potential to significantly increase the liability exposure
of plan sponsors and MCOs, adds Richard Betterley, managing director
of Betterley Donoghue, Boston-based risk management consultants.
As explained in an
article authored by Alden J. Bianchi Esq., and published in the
bimonthly Betterley Donoghue Report, Varity Corp. transferred
some of its troubled divisions to a new subsidiary, Massey-Ferguson
Combines, apparently knowing that Massey-Ferguson would fail.
Varity told employees that if they accepted employment with the
new subsidiary and gave up certain welfare benefits to which
they were previously entitled, they would be entitled to similar
benefits in the new division's plan.
However, wrote Bianchi,
"by overstating the assets of Massey-Ferguson and understating
its liabilities, Varity was able to mislead the transferring
employees into believing that the benefits which they received
in the exchange would be secure."
Once Massey-Ferguson
failed, the employees sued Varity claiming that they had breached
their fiduciary duties to the employees and that, as a result,
Varity should make good on the promised benefits.
Both the lower courts
and the Supreme Court found that a breach of fiduciary duty had
indeed occurred.
"The problem
with the Varity case is that it opens the door to plaintiffs
and their lawyers to dress up denial of benefit claims as breaches
of fiduciary duties," wrote Bianchi. "Thus, the ruling
can be expected to result in a flood of new benefit-related claims."
David Brantlinger,
vice president of the CIMA Cos., the third-largest broker and
risk management consulting firm based in the Washington area,
points out that the Varity case clearly indicated fiduciaries
cannot fulfill their ERISA obligations merely by reserving the
right in plan documents to change benefits.
"Many observers
are concerned that even where deception is not involved, employers
have a new obligation to signal intended changes in benefit plans
that are subject to ERISA," he says. "Fiduciary liability,
while once a finite area of responsibility with respect to employee
benefit plans, has expanded beyond the familiar bounds and continues
to do so."
Betterley observes
that many employers still labor under the misperception that
they are not potentially liable for their actions with respect
to health plan decisions or changes, nor are they potentially
liable for the actions of the MCOs serving the health-care needs
of their employees. It is this misperception, experts warn, that
will prove costly.
TAKING ACTION
Just as managed care
companies are recognizing - and addressing - their expanding
liability as public and political sentiment rises against them,
employers should likewise take action.
"The employer
really has to do his or her homework," says Brantlinger,
stressing the importance of making the right MCO choice in the
first place. The employer should not hesitate to use the services
of an experienced broker and request a detailed side-by-side
comparison of the services various prospects offer, he says.
Some of the questions
which should be asked and answered to the employer's satisfaction,
as outlined in The CIMA Letter, include:
Brantlinger stresses
the importance of scrutinizing every provision of the contract
and having the plan assume liability wherever possible.
Also critical, he
adds, is paying close attention to the communication materials
that introduce an employer's health-care plan to employees. Those
materials should be clear that it is the treating physician,
not the health-care plan or the employer, who determines the
course of medical treatment, Brantlinger says.
Likewise, it should
be clear that the issue of whether or not the plan will cover
all or part of the treatment cost is secondary to the decision
of what the treatment should be.
"The need for
liability coverage to protect against lawsuits brought by angry
employees against employers offering managed care health benefits
has become more urgent," adds Betterley.
Employee Benefit Administration
Error & Omissions as an optional coverage through the Commercial
General Liability policy; excess umbrella liability policies;
fiduciary liability insurance; and liability policies designed
specifically for employers that use managed care can go a long
way toward protecting the employer's financial position if it
is named in a managed care liability suit, he adds.
All of these precautions,
stress experts, are becoming increasingly important in an environment
in
which potential defendants
are growing and the rules that are creating them are anything
but certain.
While Van Loon is
hopeful that greater clarity may emerge "as we move forward,"
he says at present there is not a well-defined body of case law
as to who is culpable in managed care liability litigation,"
he warns.
Nancy E. Taylor, a
shareholder in the Washington office of Greenberg Traurig, also
believes change is on the horizon. Taylor, who advises clients
on health-care matters, says managed care is experiencing "a
time of great fluctuation." One of the elements likely to
fluctuate, she says, is the path liability will ultimately take.
And whether or not
the employer sits prominently at the end of the path may still
be a point of debate. Experts concede that so far, there has
not been a mad rush of their MCOs' actions.
Cole also says employers
are creating purchasing groups for managed care - a strategy
that may actually insulate individual employers.
Yet experts maintain that emerging
legal and legislative trends undoubtedly foreshadow tougher times
for employers with respect to managed care liability. Employers,
they caution, should consider the issue now - before it's too
late.
