Protecting Patients From HMOs

M. Stanton Evans
Article Type: 
March/April 2000
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Though several political hurdles remain, U.S. consumers could soon have new protections against alleged abuses of "managed care" and HMOs (health maintenance organizations).

At the forefront of the new developments are competing bills in Congress, passed by the House and Senate respectively, now scheduled to be reconciled in conference. Simultaneous with these proposals, state legislatures and the courts have also moved to impose new limits on managed care. Obviously, the national backlash against HMOs is having a significant impact.

As these comments suggest the Senate plan, reflecting the views of the Republican leadership there, is more friendly to the HMOs --- though less so than has previously been the case. The House legislation, passed by a coalition of Democrats and dissident Republicans, is much tougher. Patients/consumers will accordingly need to read the fine print of any conference agreement to know what guarantees are actually afforded, and how to use them.

However, by far the most critical difference between the bills --- and arguably the most important for consumers --- is whether someone allegedly injured by an HMO can sue the managed care provider. This has become the principal dividing line in the debates --- and the one on which HMOs have dug in their main defenses. An impasse on this contentious issue could torpedo hopes for an agreement.

That such a question even arises results from a peculiar quirk in federal law, which some HMOs have used to shield them from legal liability for their actions. Under the Employee Retirement Income Security Act (ERISA) of 1974, companies providing pension plans were made exempt from certain state regulations. Various court decisions have interpreted this to mean that HMOs administering the health plans of self-insuring corporations are exempt from state court judgments for harm allegedly caused by care denial.

The House reform would overrule this preemption of the states albeit under certain conditions keyed to the appeals process. The Senate bill would retain it, thus continuing to shield the HMOs from state lawsuits for damages. The battle concerning these provisions could easily dwarf all the rest.

These developments at the congressional level, mirror numerous changes in the states, some three dozen of which have adopted patient-protection laws in recent years. In addition, a number of states have specifically adopted statutes that open HMOs up to some kinds of litigation, though these still have to navigate the complexities of ERISA. The courts, meantime, have shown an increasing willingness in certain cases to breach the HMO exemption. The bottom line appears to be that, one way or another, HMOs will be subject to more lawsuits.

This prospect has alarmed not only HMOs and their congressional defenders, but also many employers, who fear that the House bill would open them up to lawsuits also, as they are making available to their employees the HMO plans in question. Further, opponents of the bill predict a blizzard of litigation, which together with other requirements placed on the HMOs would drive up the cost of health care premiums and increase the number of uninsured.

To counter such objections, authors of the House proposal included a provision that specifically says employers would not be sued, except in the unlikely event they actually intervened somehow to deny a covered medical service to their employees. (Coverage decisions themselves are explicitly ruled out as grounds for action.)

More generally, the proponents say there is no principled reason HMOs should hold a privileged legal perch denied to others. If they make decisions resulting in injury or death, the argument goes, they should be held accountable for the outcomes. HMOs and managed care have been brought in to do the job that would otherwise be done by prices, as occurs elsewhere in our economy.

Thanks to a complex of federal and state legislation over many decades, our health care system today is dominated by "third-party payment" --- in which somebody other than the patient picks up most of the tab for service. With health care perceived as "free," or nearly so, demand is theoretically unlimited. Hence the need for rationing plans --- HMOs --- to put a lid on the expenses, cut back on levels of care provided, and decide who gets how much of what.

A further peculiarity of this debate is that, in basic concept and general method, HMOs closely resemble cost-containment measures employed by collectivist systems overseas. Where health care has been made supposedly free and universal, demand must be controlled somehow, and in these systems the methods used are "global budgets."

This means that a certain fixed sum of money is assigned to health care, and providers are given the unpleasant task of deciding who does and doesn't get treated from this allotment. HMOs, along with other rationing schemes now prevalent in our system, are American adaptations of this concept. It is ironic, to say the least, that when such methods backfire with the public, they are depicted as "free market."(1)

Obviously, in such a situation, the limits now sought on health care denial by HMOs are dealing not with causes, but with symptoms. In an all-too-familiar pattern, an alleged solution for a problem caused by one species of intervention becomes the pretext for another, and so on in endless sequence.

On-going problems in the system will not be cured until the underlying causes are dealt with. Meantime, health care consumers who are at risk in this extremely dangerous setup need to avail themselves of whatever protections the law affords them.


1. Evans MS. HMOs are not free market - here's why. Consumers' Research, December 1997.

Mr. Evans is publisher of Consumers' Research and a frequent contributor to Human Events. Molly Bloom of the National Journalism Center provided research.

Originally published in the Medical Sentinel 2000;5(2):65-66. Copyright©2000 Association of American Physicians and Surgeons (AAPS)

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