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Health Program
Managed Care Insurer Liability: The Texas Law Test Case - Struck Down in 2004
Updated: June 2004
In 1997 Texas became the first state in the nation to enact a law explicitly giving managed care enrollees the right to sue their HMO. In 1999-2000 thirty-plus states considered similar legislation, with laws enacted in six additional states. NCSL's Health Policy Tracking Service reports that 37 states have identified health plan liability as a priority in 2001, and 24 states repeated that report for 2002. [1]
U.S. Supreme Court Strikes Down State HMO Liability Laws.
On June 21, 2004 the Supreme Court ruled unanimously that patients cannot sue their HMO under state laws for failing to pay for doctor recommended care. Experts summarize the decision as ruling that federal ERISA law "completely pre-empted such lawsuits brought in state court."
This ruling against the states had a direct adverse legal impact on the enacted laws in the ten states listed below, plus two additional states, although the number of active cases brought under these state laws evidently is not large. Also, note that some of the "right to sue" provisions are part of broader laws, affecting rights to independent appeals and other managed care procedures.
- Summary and Full Text of Court Opinion - Aetna Health v. Davila (02-1845) and Cigna v. Calad et al. (03-83)-23 pages
- ERISA Update: The Supreme Court Texas Decision and Other Recent Cases Policy on the state health policy implications of ERISA’s preemption. clause. (Brief 8/04, 7 pages)
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On June 20, 2000 the U.S. 5th Circuit Court upheld key parts of the Texas law in the so-called "Aetna"/"Corporate Health" case. The Dallas Morning News reported it as follows: "In a decision handed down late Tuesday (June 20) the 5th Circuit U.S. Court of Appeals in New Orleans agreed that ERISA does not permit patients to file lawsuits if a health maintenance organization determines that requested treatment was not medically necessary or was not covered by the patient's insurance contract. But in upholding the 1997 Texas law, the court gave other avenues to challenge HMOs. For example, the ruling allows patients to file suit if they believe they received poor care at the hands of their HMO. And patients could sue if they believe that the HMO did a poor job of screening or supervising physicians in its network." The ruling upholds the core of Texas bill S.386 of 1997. Legally, the decision applies to the states in the 5th Circuit, which includes Louisiana, Mississippi and Texas. See the full decision and news stories at the web links below.
In the same ruling, the court confirmed the 1998 ruling that the Independent Review boards established by Texas S386 could not be enforced by state law. 39 other states now have laws establishing an external review process,
including 21 passed in the 1999-2000 legislative sessions. Many of the recent state laws establishing external appeals were drafted in ways to avoid the problem discovered in the 1997 Texas law.
In another jurisdiction, in fall 2000, the 7th U.S. Circuit Court of Appeals upheld Illinois' independent review law, stating the law does not conflict with ERISA.[2] The case does not directly address the "right to sue", but is seen as a disagreement with the 5th Circuit, above. In 2001 the U.S. Supreme Court is considering review of these cases.
On April 9, 1999 the U.S. Court of Appeals affirmed the ruling of the U.S. District Court in Texas in the highly publicized "Giles" case. Because of intense interest in this topic NCSL has established this web page, with links to some of the useful resources and opinions about the Texas law and the resulting court actions.
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Overview:
"Texas Trial: HMO Liability Law" - news analysis with new statistics by American Medical News, May 28, 2001
"Texas Court Affects Liability and External Appeals"- NCSL Health Chairs Bulletin, spring, 1999. A review of the Texas law, featuring an interview with Senator David Sibley, Chairman of the Economic Development Committee and chief sponsor of S.386.
U.S. Court of Appeals Ruling upholding S.386, June 2000
Court Ruling, "Giles v. NYLCare" case - April 9, 1999:
Court decision: U.S. Court of Appeals for the 5th Circuit - full text - 4/9/99 [9 pp.]
Court says patients can sue HMOs; Circuit ruling expected to affect law in Texas - 4/10/99 Dallas Morning News feature.
"Health-care insurers fear green light for lawsuits" - 4/11/99 Dallas Morning News
"Friend or Foe? - Forth Worth lawyer" - 4/11/99 Dallas Morning News
"Needed Care was denied, says family..." - 4/11/99 Dallas Morning News
Earlier Legislative and Court Actions:
Texas HMO Liability Act, Review of Court Activity - 9/99 Analysis by NCSL's AFI Health Committee [13 pp.]
Court in Texas upholds law that lets patients sue over HMO denials This major federal court ruling on September 18, 1998 stimulated further actions on state liability legislation. The decision also invalidated parts of the same law that provided for external appeals by consumers.
Texas District court decision - 9/18/98 - "Corporate Health Insurance" case full text- 30 pages]
Texas law on Medical Malpractice - (S386 of 1997)
"Liability's Jaws Closing on HMOs" - article in Managed Care magazine, 3/99 [10 pp.]
TX: "Court Ruling throws HMO review process into jeopardy - American Medical News, 10/26/98
TX: "HMO's challenge to law questioned" - Dallas Morning News, 4/25/98Court opinion by the U.S. Court of Appeals, 5th Circuit, docket No. 98-20940 (11 pages)
"Court upholds Texans' right to sue HMOs" - Dallas Morning News, 6/22/2000
"State loses right to force HMOs to review decisions" - Dallas Morning News, 6/22/2000
Texas Attorney General John Cornyn's statement on right to sue case - 6/21/2000 |
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Independent Review of HMOs' Treatment Decisions Generally Benefits Texas Residents, Study Indicates
Access this story and related links online:
http://www.kaisernetwork.org/daily_reports/rep_index.cfm?DR_ID=11035
More than half of all Texans who appeal an HMO's decision to deny coverage for a certain health service are at least somewhat successful, but many residents do not use the independent review process, a study released May 7 by Consumers Union of Texas indicates. Under a 1997 state law, individuals who are denied treatment coverage by an HMO may appeal to an independent expert, who decides whether to grant coverage for the original procedure or some other medical procedure, or to upold the HMO's decision. If the reviewer rules in favor of the patient, the ruling cannot be appealed; if the reviewer finds for the HMO, a patient can file a lawsuit against the HMO, state Department of Insurance spokesperson Jim Davis said. The Ft. Worth Star-Telegram reports that researchers evaluated 263 appeals filed with the insurance department between March 22, 2001, and Sept. 26, 2001, covering the state's three independent review organizations and 63 HMOs. Of the appeals evaluated, 55% of appellants received coverage for at least "some additional treatment," and 70% of cases involving denied treatment of mental illnesses resulted in a patient receiving the care they originally requested.
Appeals Process Underutilized, Study Says. The study also found that while HMOs make "thousands of coverage decisions a week," including denials, only 587 appeals were settled in 2001. Lisa McGiffert, a Consumers Union senior policy analyst, said the high success rate for appeals coupled with a low number of appeals "raise[s] a red flag," adding, "It's always ... felt like that is [HMOs'] practice [--] deny the coverage knowing that most people won't come back and appeal the ruling." But Leah Rummel, a Texas Association of Health Plans spokesperson, said the low number of reviews indicates that Texans are satisfied with their coverage. She added, "We think the fact that there are so few people going through the [independent review] process [means] that the system is working very well in Texas. We don't think that it shows that people get frustrated and give up" (Moritz, Ft. Worth Star-Telegram, 5/8). The study recommends that the insurance department send notices to residents denied coverage to inform them about their appeal rights and conduct regular reviews of the system (AP/Houston Chronicle, 5/7). The study is available online.
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Outcomes related to the Texas Independent Review law
Since September 1997, Texas patients have had the right to appeal health plan decisions to an independent review organization. Only two appeals were filed in 1997, and the plans' decisions were upheld in both. Here is the breakdown for subsequent years
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1998 IRO decisions
49% Upheld
45% Overturned
6% Mixed decisions
373
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1999
402
IRO decisions
44% Upheld
49% Overturned
7% Mixed decisions |
2000
404
IRO decisions
33% Upheld
57% Overturned
10% Mixed decisions |
5/2001 Source: Texas Dept. of Insurance
Footnotes:
[1] "2001 State Health Priorities Survey", NCSL/HPTS, December 11, 2000; "Insurer Liability", 4/8/02
[2] - Debra C. Moran and the State of Illinois v. Rush Prudential HMO, Inc., 7th U.S. Circuit
Note: this memo provides general information only and is not intended as an independent legal analysis of state laws.
~ RC
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