October 1997 Bulletin

States focus on insurers' liability

Legislatures ban "hold harmless" clauses

During the past two years, the media, the public and state legislators have become increasingly educated about health care delivery systems, particularly managed care. One issue that received special attention in state legislatures this year is insurer liability.

This issue has come to the forefront as patients discovered they have no recourse to sue the managed care plan for denials or delays of covered treatments, and as physicians found they were required to sign contracts that hold the managed care plan harmless for their actions on treatment decisions. With the increasing emphasis of responsibility being placed on the physician, regardless of who has made the decisions, both patients and physicians are calling for a change in the way liability and responsibility are determined in health care plans.

State legislatures have joined the debate on who should assume responsibility for the unintended consequences of cutting costs in a managed care system. Legislatures have addressed this problem in two ways: through a prohibition on "hold harmless" clauses and by requiring insurers to assume liability for their actions.

'Hold harmless'

A "hold harmless" clause allows an insurer to release itself from responsibility for actions made by the plan and the physician and places that responsibility solely on the physician. The plan could not be held responsible for its decisions regarding care for its patients even if the decisions were contrary to the recommendation of the physician and even if the denial of care proved to be fatal. These clauses are standard in many health care contracts. Physicians often are required to accept these clauses as a condition of participation in the plan.

In 1996, Maryland and Rhode Island passed bills that prohibited "hold harmless" clauses in contracts with providers. The Maryland law prohibits health plans from indemnifying the plan or holding the plan harmless from a coverage decision or negligent act by the health plan. The law in Rhode Island is similar, but does not allow plans to protect themselves from expenses and liabilities related to management decisions or utilization review provisions.

States ban clauses

In 1997, Arkansas, Alabama, Hawaii, Illinois, Louisiana, Massachusetts, Ohio, Pennsylvania, Washington and West Virginia introduced bills to prohibit "hold harmless" clauses or indemnity clauses. Idaho, Missouri, New Hampshire, Tennessee and Texas were successful in getting this legislation passed during this legislative session, bringing the total number of states that have enacted laws to prohibit "hold harmless" clauses to seven.

The issue of requiring insurers to be liable for their actions exposed a little-known loophole in state laws regarding insurers. In most states managed care organizations and often other insurers are protected under corporate practice of medicine laws, and thus do not fall under the jurisdiction of state medical malpractice laws. Thus, in most states, an insurer cannot be sued for malpractice, but only corporate negligence, even if the insurer is making treatment decisions and issuing denials of care.

Last year, the Florida state legislature passed a bill to correct this problem. However, Gov. Lawton Chiles vetoed the measure that would have allowed patients to sue managed care plans. This year, the insurer liability issue has seen considerably more action in the state legislatures. Alabama, California, Connecticut, Florida, Georgia, Hawaii, Maryland, Missouri, New Hampshire, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Texas, Washington and West Virginia all introduced bills that would allow an enrollee to sue a health plan for medical malpractice. Texas, Missouri and New Hampshire were successful in passing bills that would ensure patients have the right to sue their health plans.

The bill in Texas was passed with very strong support from leaders in the Texas House and Senate, as well as a coalition headed by the Texas Medical Association. This coalition assisted in a public relations campaign and also enlisted the assistance of other medical specialties, including the Texas Orthopaedic Association, which played a strong role in mobilizing their members' support of this bill.

Share responsibility

"Texas doctors wanted the managed care entities to accept the same responsibility and actions that physicians and surgeons gladly accept when they step in an operating or examining room," said Philip Berry, MD, an orthopaedic surgeon who was recently installed as president of the Texas Medical Association.

Sen. David Sibley led the charge in the Texas Senate after having served as chairman of a committee that investigated managed care abuses.

Within days after Texas Gov. George Bush, Jr. allowed the bill to become law without his signature, Aetna, a major insurance company, filed suit against the state of Texas to test the constitutionality of the law. Court action is expected to last months and maybe years.

The law in New Hampshire prevents plans from writing contracts that would restrict the liability of the health care carrier for actions of the provider they would otherwise be liable for. The law in Missouri repeals the corporate practice of medicine prohibition from the state's medical practice act which managed care plans have used to escape liability.

State legislatures that have unsuccessfully addressed this issue have outlined two major reasons why bills have not passed. The first is that this type of legislation may open the door for more lawsuits. Many state legislatures that have eagerly embraced tort reform in the past few years have shown reluctance to passing a law that could increase the caseload.

The second criticism of this legislation is the federal prohibition against regulation of Employment Retirement Income Security Act (ERISA) plans. ERISA is a federal law that allows self-insured companies to offer health insurance to their employees. ERISA plans cover approximately 40 percent of the population. This law often has been an obstacle to state lawmakers because ERISA negates all state laws that affect self-insured health insurance plans. Many state lawmakers have been frustrated to discover that, as a result of the number of ERISA plans in each state, the laws that have passed may not apply to a majority of their constituents.

As a result, state lawmakers have begun to put pressure on Congress. However, Congress has been very reluctant to pass legislation that would allow some regulation of ERISA plans. Sen. Dick Durbin (D-Ill.) has introduced his own bill that would require health plans under ERISA to be held liable and would allow enrollees to sue.

Additionally, measures have been introduced in other federal legislation that would require these provisions to be applied to Medicare plans only.

by Amy Winn, legislative and state liaison, Academy's department of state society relations

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