Federal Patients' Rights Legislation

By Julia Hernandez, J.D. candidate 2003

Patients’ rights have become a national concern with the growing prevalence of managed care organizations.  Stories of care or coverage denied with disastrous and sometimes fatal results have prompted many states to pass legislation in an effort to protect patients from hasty financially driven medical decisions to deny coverage.  The federal government has taken a legislative interest in the matter as well.  Democrats and Republicans have proposed patient protection bills and struggled to reach a compromise.  This article discusses Senate Bill 283 which recently passed the U.S. Senate, President George W. Bush’s concerns about the bill, and what the bill might mean for similar state laws, in particular Texas law.

Senate Bill 283, sponsored by Senators John McCain, Edward M. Kennedy, John Edwards and Representatives Greg Ganske and John Dingell, recently passed the Senate.  The Bipartisan Patient Protection Act of 2001 allows patients to sue in state court if their claim involves a medical decision or in federal court if the claim involves an administrative decision.  If patients sue in federal court, a favorable judgment could mean a punitive damage award as high as $5 million.  Economic and non-economic damages would have no cap at all in new federal lawsuits.  If patients choose to sue in their individual states, their awards would be subject to state mandated limits on recovery.

Democrats in the Senate staunchly defended their bill even in the face of President Bush’s threat to veto the bill should it reach his desk.  Bush argues for "reasonable limits" on damage awards.  Bennett Roth, Bush: Put Cap on Court Awards (03/21/2001), available at http://www.HoustonChronicle.com.  He says that limits such as those proposed in the McCain bill would serve to drive up the number of frivolous and lengthy lawsuits forcing managed care organizations to increase health coverage costs to offset large judgments and defense expenses.  Many people could lose their coverage if they cannot afford the increased cost of coverage.  The McCain bill, on the other hand, advocates using high caps on damages as a deterrent for insurers against neglecting patients’ rights.  Supporters of the Bipartisan Patient Protection Act of 2001 pushed their legislation without making substantial concessions to President Bush with the hope that Bush will not veto and risk a dramatic drop in public approval.  Robert Pear and Robin Toner, Bush Demands Senate Changes on Patient Bill (06/22/2001), available at http://www.nytimes.com/2001/06/22.

If the legislation passes without a veto from President George W. Bush, many state patient protection laws will be subject to revision because the Senate approved a provision that state laws must “substantially comply” with the federal standards.  Robert Pear, Bush Faces Defeat on Patients’ Rights (June 29, 2001), available at http://www.nytimes.com/2001/06/29.  Some of the major provisions that states may have to add include guaranteed access to emergency care, medical specialists, clinical trials of new drugs, and access to an independent review board when appealing unfavorable coverage decisions.  Also, the Bipartisan Patient Protection Act of 2001 imposes liability on employers if they directly participate in coverage decisions that result in injury or death.  Employers may name an outside entity to assume liability for them, however.

Texas’s patient protection law, the Texas Health Care Liability Act (Texas Act), enacted in 1997, will probably remain substantially the same.  The Texas law imposes a duty of ordinary care on managed care organizations such that when they fail to meet this standard, patients can rightfully sue.  The Texas Act requires health plans to provide 42 different benefits, including child immunizations.  Scott Thornton, Comment, The Texas Health Care Liability Act: Managed Care Organizations Can Say Goodbye to their Extensive Immunity from Lawsuits – Or at Least That Was How It was Supposed to Work, 30 TEX. TECH L. REV. 1227, 1274 (1999).  The Texas Act provides for independent review boards certified by the Texas Department of Insurance.  The patient who has been denied coverage or care appeals to the independent review board if the managed care organization asks the patient to do so before bringing a suit.  Id. at 1245.  Damages in suits against managed care organizations are described in the Texas Medical Liability and Insurance Improvement Act.  Punitive damages may not exceed $500,000.  Economic damages have no cap, while noneconomic damages such as mental suffering are limited to $150,000.  Under the pending federal legislation, those patients who sue in Texas state courts will be limited to these damages.

In 1998, the Southern District of Texas severed the independent review portion of the Texas Health Care Liability act under the Employee Retirement Income Security Act (ERISA) provision that preempts state laws that interfere with benefit determination decisions.   Corporate Health Ins. Inc. v. Texas Dep't of Ins., 12 F. Supp. 2d 597, 602 (S.D. Tex. 1998).  This case is awaiting review before the United States Supreme Court.  The Texas independent review system remains in place with the state and the managed care industry working together to find an alternative to independent review boards.  Most managed care organizations in Texas agreed to voluntarily participate in the independent review program while the decision that severed independent review is appealed.  Thornton, 30 TEX. TECH L. REV. at 1271.  However, if the Bipartisan Patient Protection Act of 2001, which like Texas provides for independent review boards, becomes law, cases like Corporate Health will probably become moot if their independent review provisions are substantially equivalent to those provided in Senate Bill 283.

For states with laws that may not be substantially equivalent to the Bipartisan Patient Protection Act, the act will only supersede state laws that relate solely to health insurance issuers to the extent that “such standard or requirement prevents the application of a requirement of this title.”  Bipartisan Patient Protection Act of 2001, S. 283, 106th Cong. § 152 (a)(1) (2001).   For state laws that are substantially equivalent to the Bipartisan Patient Protection Act, the state laws will be applied except in cases in which a group health plan is covered under title I of ERISA, in which case, Senate Bill 386 applies “only to the health insurance coverage (if any) offered in connection with the plan.” Bipartisan Patient Protection Act of 2001, S. 283, 106th Cong. § 152 (b)(2) (2001).  Where ERISA is concerned, Senate Bill 386 does not preempt, affect, or change section 514 of ERISA which concerns group health plans.  Bipartisan Patient Protection Act of 2001, S. 283, 106th Cong. § 152 (a)(2) (2001).

The passage of a federal patient bill of rights into law will mark a dramatic turn in favor of patient protection and a trend toward patient protection law reform among the several states to coincide with the federal legislative initiative.  However, if President Bush decides to veto this pending legislation because of his concerns of rising health coverage costs, states will be left with the problem of ERISA preemption of integral parts of their patient protection laws, and courts will have the burden of reconciling ERISA and state laws.  States will have to find creative ways around ERISA until a legislative compromise that the President will sign can be found.