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Letters to the 107th Congress

June 15, 2001

Dear Senator:

We understand that next week, the Senate will begin debate on legislation aimed at creating a "Patients' Bill of Rights," including S. 872 (sponsored by Sens. McCain, Edwards, and Kennedy) and S. 889 (sponsored by Sens. Frist, Breaux, and Jeffords). The ABA believes it is imperative that the legislation provide adequate remedies for patients in employer-sponsored health care plans. Without inclusion of such remedies in the legislation, many patients often will have no effective means of redress when their plans improperly refuse to provide appropriate medical services.

As the national voice of the legal profession in the United States with over 400,000 members, the American Bar Association has a strong interest in working with Congress and the Administration in order to ensure that our nation's health care laws protect the legal rights of all patients.

The ABA believes that in order to adequately protect patients' rights, any "Patients' Bill of Rights" legislation should contain provisions that would: (1) create a rigorous system of internal review and an independent system of external review of benefit payment requests, adverse coverage determinations and medical necessity determinations, consistent with certain due process principles, and (2) remove the ERISA shield to allow the states to hold employer-sponsored plans accountable under the health care liability laws in state courts in the same way as other health care plans are held accountable. Accordingly, we urge you to support legislation that would achieve both of these important objectives.

Internal and External Review

The ABA supports the right of all consumers to a fair and efficient process for resolving differences with managed health care plans, health care providers, and the institutions that serve such plans and providers, including: (1) timely written notification and explanation of a decision to deny, reduce or terminate services or deny payment for services; (2) a rigorous system of internal review; and (3) an independent system of external review. The ABA also supports enactment of legislation establishing alternative dispute resolution procedures-including the use of external review-as one remedy for resolving these disputes between patients and their managed health care plans.

Both S. 872 and S. 889 contain provisions that would give HMO patients the right to have adverse coverage decisions by HMOs reconsidered-and in some cases reversed-through a system of internal and external review. While both bills generally provide effective internal and external review procedures, we believe that certain key external review provisions contained in S. 872 will better protect patients' rights by granting patients greater access to the external review process.

S. 872 contains numerous safeguards designed to guarantee patients' access to the external review process when a medical benefit has been improperly denied. In particular, the bill provides that when a patient's internal review claim has been denied, the patient will have a full 180 days in which to seek external review. By contrast, S. 889 grants the patient just 60 days to file for external review. In addition to providing longer deadlines for seeking external review, S. 872 also encourages the greater use of external review by not setting any minimum threshold for the size of disputes that are subject to review. S. 889, on the other hand, would only allow patients to seek external review if their claims exceed $100.00 or if a physician has certified in writing that the continued denial of care poses a significant risk to the life, health, or development of the patient. Furthermore, S. 872 will encourage more patients to utilize the external review process by limiting the patient's filing fee to no more than $25.00 per claim. S. 889, on the other hand, would permit HMOs to charge most patients as much as $50.00 per claim, and that amount would increase annually at the rate of inflation starting in 2003.

By creating an effective system of internal and external review, Congress can help patients to receive the care to which they are entitled under the HMO policy. While both Senate bills would establish internal and external review procedures as a means of resolving coverage disputes, S. 872 would make it easier for patients to seek external review, without the unnecessary procedural burdens created by S. 889. Therefore, we urge you to support the external review provisions contained in S. 872.

Removing the ERISA Shield

The ABA supports amending the Employee Retirement Income Security Act of 1974 (ERISA) to allow causes of action to be brought in the state and territorial courts against employer-sponsored health care plans under state and territorial health care liability laws. It is crucial for legislation to be enacted to address the inequities under current law by amending ERISA in this manner. The ABA supports and encourages utilization of alternative dispute resolution mechanisms prior to the filing of such causes of action. However, legislation providing for internal and external review of health care disputes, though useful, is not adequate if conducted in the absence of any ultimate consequence for denial or delay in providing necessary care. By removing the ERISA shield, there will be consequences for those plans that do not act appropriately.

Under ERISA, companies that contract with ERISA employers to provide health care coverage have largely been able to shield themselves from liability for health care treatment decisions that cause harm to patient-enrollees. HMOs and other kinds of employer-sponsored managed care companies should be held responsible if a decision they made to deny or delay medically necessary care that is covered under the insurance policy results in harm to a patient. These entities should be held to the same standards of accountability we expect of doctors, nurses, hospitals, and other health care providers. Enrollees in such plans should be able to bring a state cause of action against their plans under state liability laws in the state courts-just as enrollees do now who either buy insurance directly (rather than through an employer) or are covered as employees of a state or local government.

Both of the proposals that are expected to be given the most attention on the Senate floor-S. 872 (McCain-Edwards-Kennedy) and S. 889 (Frist-Breaux-Jeffords)-include provisions to amend ERISA to allow patient-enrollees in employer-sponsored plans, or their estates, to bring an action against their health plans.

S. 872 contains provisions to amend ERISA and permit injured patients in employer-sponsored plans to bring a cause of action against their health plans. Cases regarding the terms and conditions of plans would be brought in federal court and cases regarding medically reviewable issues, including those based on delay or denial of treatment by a health plan, would be brought in state court under state law. Under S. 889, the federal court is the only forum for an injured patient to bring a cause of action regarding medically reviewable issues based, in whole or in part, on delay or denial of treatment. In addition, S. 889 contains a number of ill-advised limitations on damages for injured patients, including a cap of $500,000 on non-economic damages, the use of collateral sources to offset the awards, and a total prohibition on punitive damages.

The ABA supports allowing a cause of action to be brought by patients against employer-sponsored health plans in state courts under state liability laws. Congress enacted ERISA in 1974 primarily as a means of protecting working Americans from fraud and mismanagement in their pension benefit plans. Less than a decade after passage, however, the interpretation of ERISA by some courts had the unintended consequence of preempting state health care liability laws. The ABA respectfully suggests that Congress not follow S. 889's approach of placing medically reviewable decisions in the federal courts and of putting limits on damages. Instead, we suggest that Congress enact legislation that eliminates federal preemption of state health liability laws and allows patients to bring their actions based on medically reviewable decisions, in whole or in part, in state courts under the carefully developed laws of the states.

The state courts are the right forums to handle these actions. They have been handling health care liability claims for over 200 years. It makes no sense to add an additional burden to the federal courts when the state courts are perfectly capable of handling these cases. As Chief Justice Rehnquist has said in his year-end reports, the federal judiciary is already overburdened.

Legislation allowing patients to bring actions in state court when the dispute involves, in whole or in part, medically reviewable issues promotes judicial economy-and avoids wasteful duplicate proceedings in federal and state court-when there are multiple defendants. Because malpractice suits against doctors and hospitals will continue to be brought in state court, related actions against employer-sponsored health plans should be resolved in the same state court forum. Requiring patients to pursue two separate lawsuits regarding the same dispute is a waste of all parties' time and resources. Also, the Supreme Court, in the recent decision of Pegram et al v. Herdrich, authored by Justice Souter, continues to recognize that the state courts are the appropriate courts to handle medical liability matters. On the other hand, it is appropriate for cases regarding solely the terms and conditions of plans to continue to be brought in federal court.

Opponents of legislation to permit patients to sue their employer-sponsored health plans for damages under state law say that such legislation will result in employers being forced to offer more restrictive or no health care benefits to their employees due to increased litigation costs. This would not be the case. A 1998 study by the Henry J. Kaiser Family Foundation studied the extent of litigation in certain insurance programs where patients have long had the ability to sue health plans. Patients who buy insurance directly, rather than through an employer, and patients who are covered as an employee of a state or local government are not currently subject to ERISA's preemption.

The Kaiser study found very low rates of litigation against the public insurance systems it researched, ranging from 0.3 to 1.4 cases per 100,000 enrollees per year (with estimated monthly costs from $0.03 to $0.13 per enrollee). The Congressional Budget Office has also scored the legal accountability provisions in legislation along the lines of S. 872 as raising premiums by less than 1% if enacted. For plans that currently make an effort to cover the care and treatment required by their policies, the premiums would not be expected to increase much, if at all, under the proposals to remove the ERISA shield.

Thank you for considering the views of the ABA on this important legislation.

Sincerely,

Robert D. Evans
Director, Governmental Affairs Office

107th Congress Letters Home

AMERICAN BAR ASSOCIATION
Governmental Affairs Office
740 Fifteenth Street, NW
Washington, DC 20005
ph: 202-662-1760
fx: 202-662-1762

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