Court Upholds Right to Sue MCOs, but Independent Review Process Limited
In Corporate Health Insurance Inc. v. Texas Department of Insurance, a federal district court upheld a patientís right to sue managed care organizations with respect to the quality of medical benefits actually provided, but struck down provisions of a Texas law that allowed "independent review" of decisions denying medically necessary care. Suits may only be brought that challenge the quality of care received, not a benefit determination.
In the suit, Aetna and other plaintiffs argued that Texas Senate Bill 386, the Health Care Liability Act (the "Act") is preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). Group insurance sold to an employer or other group is subject to extensive state regulation, including regulation of the carrier, regulation of the sale and advertising of the insurance, and regulation of the content of the contracts. ERISA comprehensively regulates employee pension and welfare plans. A health insurance plan provided by an employer is an ERISA "welfare benefit plan" whether the benefits are provided through the purchase of insurance or otherwise. Plans may self-insure ("self-insured plans") or they may purchase insurance for their participants ("insured plans"). Insured plans are directly affected by state laws that regulate the insurance industry. Self-insured plans are not subject to such state regulation due to the ERISA preemption, and are essentially unregulated because ERISA contains almost no federal regulation of the terms of benefit plans.
The court cited cases where claims of negligence and breach of contract arising out of the alleged failure of an MCO to approve medically necessary treatment have been held preempted by ERISA. The preemption provisions of ERISA were included by Congress to avoid a patchwork of regulation among the states, so that employers do not have to deal with conflicting state regulations. For state common law claims, causes of action that "relate to" employee benefit plans are expressly preempted by ERISA, and a lawsuit may "relate to" an ERISA plan if the claims grow out of the administration of an ERISA plan. It has been held that decisions on whether to approve or deny treatment under a health care plan relate to the administration of an ERISA governed plan, and therefore, any claims arising from such decisions are preempted by ERISA. Based on such cases, the court here struck down provisions of the Act that allowed "independent review" of decisions denying medically necessary care. The Act allowed patients to appeal their health plansí determination that proposed treatment is not "medically necessary," with appeals decided by Independent Review Organizations (IROs). An IRO is a state-licensed organization that conducts an independent, unbiased review of a health care planís decision to deny care where a patient (or the patientís physician) believes such care is medically necessary.
However, the court upheld a patientís right to sue managed care organizations with respect to the quality of medical benefits actually provided. The Act provides that health insurance carriers, HMOs, and other MCOs have a duty to exercise "ordinary care" when making health care treatment decisions. The court found that none of these entities constitute ERISA plans since they are not established or maintained by an employer for the purpose of providing health care benefits for employees. Further, an ERISA plan is not essential to the operation of the Act, i.e., the Act does not work exclusively upon ERISA plans. The court distinguished a Fifth Circuit decision (regarding a medical decision made in relation to the denial of plan benefits), and held that ERISA does not preempt provisions of the Act allowing suit against MCOs with respect to medical services actually provided by the plan, noting that quality control of benefits (such as health care benefits) "is a field traditionally occupied by state regulation." The court found that the Act addresses the quality of benefits actually provided and that ERISA simply says nothing about the quality of benefits received. Therefore, the court held that the Act does not constitute an improper imposition of state law liability on MCOs.
There is a certain irony in striking down the provisions for independent review while upholding a patientís right to sue MCOs. When the Act was debated during the last session of the Texas Legislature, MCOs were believed to be supportive of the independent review process as a compromise alternative to imposition of tort liability. The IRO process is intended to give patients a quick and easy way to resolve denial of care disputes without the expense of going to court or dealing with corporate bureaucracy, and the number of cases submitted for review is a small fraction of original estimates, so the process appears to have been working well.
This case was closely followed in Texas and nationally, since the extent of ERISA preemption is a hotly debated issue in managed care. Democratic-sponsored legislation pending in Congress would clarify that people who receive health care through employer-sponsored MCOs retain a right to sue their MCOs if such a suit is allowed under a stateís laws. The Republicans contend that making MCOs liable would increase the cost of health care, resulting in a decrease in coverage. The court here criticized the Legislature for misunderstanding the role of the judiciary in interpreting the scope of ERISA preemption, saying: "The courts can neither narrow nor broaden the scope of ERISA preemption in a vacuum. Rather, the courts can only attempt to interpret the scope of the ERISA preemption clause, as enacted by Congress some 24 years agoÖIf Congress wants the American citizens to have access to adequate health care, then Congress must accept its responsibility to define the scope of ERISA preemption and to enact legislation that will ensure every patient has access to that care."