THE WAKE UP TIME BOMB.
HUMAN RESOURCE EXECUTIVE
SPECIAL REPORT: HEALTH & INSURANCE
THE WAKE-UP BOMB
loceycahill.com
Emerging liabilities in managed care could prove
explosive for employers with the onset of legal and
legislative trends.
BY BARBARA A. MORRIS
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
(( read: bad doctor hospital chosen by el cheapo HMO to make profits
as opposed to chosing good ( thus more expensive providers like HRC and it's docs )
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.
----------------
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.
-----------------
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:
- Can the plan achieve its cost-control
objectives without jeopardizing quality of
care?
This question would prompt a
review of such issues as
-provider selection,
-the form of discipline applied
when standards of performance are not
met
-and the financial incentives given to
providers to control costs.
What utilization review techniques does
the plan use?
- Is the plan accredited?
- Does the plan assume fiduciary liability
for those things over which the employer
has no control, such as provider
credentialing, claims determinations and
utilization review?
- If terms such as "medically necessary,"
"experimental" and "reasonable and
customary" are used in the managed care
plan's group master contract, is it clear as
to how the plan interprets these terms?
Are the definitions consistent with the
employer's own plan document and
summary plan description?
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. |
