Two Important Physician-Protection Provisions Struck Down by Court

By Ronald L. Scott

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. See Court Upholds Right to Sue MCOs, but Independent Review Process Limited.

Now Aetna Life & Casualty Co. is reportedly seeking to salvage the review process it had successfully challenged in court. Aetna is working with the state attorney generalís office, seeking to delay implementation of the courtís order and trying to devise a review mechanism that would not be preempted by the Employee Retirement Income Security Act ("ERISA").

Texas Senate Bill 386, the Health Care Liability Act (the "Act") creates a process that refers adverse benefit determinations by a managed care organization to an independent review organization ("IRO") for decision. However, the court ruled that the IRO provisions concern the "review of an adverse benefit determination and are therefore, an improper mandate of benefit administration." Even if the court were to approve a revised version of the IRO process that would survive ERISA preemption, two other rulings of the court may seriously damage the IRO process.

The court held that two provisions of the Act intended to protect physicians impermissibly bind employers or plan administrators. First, the Act provides that a health insurance carrier, health maintenance organization, or managed care entity may not remove a physician or health care provider from its plan or refuse to renew the physician or health care provider with its plan for advocating on behalf of any enrollee for appropriate and medically necessary health care for the enrollee. The Act further provides that such plans may not enter into a contract with a physician, hospital, or other health care provider which includes an indemnification or "hold harmless" clause for the acts or conduct of the health plan. Under such hold harmless clauses, health plans sign contracts with providers wherein the provider agrees to indemnify the plan against any medical malpractice type of liability resulting from provision of services to the patient, even if such liability resulted from the planís negligence. For example, if a patient sued his or her physician and the health plan, alleging damages because the physician or plan failed to provide medically necessary care, the physician would assume any liability assessed by a court against the health plan. The Act prohibited such "hold harmless" provisions in future contracts and provided that any such indemnification or hold harmless clauses in an existing contract are void as a matter of law.

The court struck down both of the physician-protection provisions because they require ERISA plans to purchase benefits of a particular structure, i.e., the Act prohibits ERISA plans from using a managed care entity that does not remove a physician from its plan for advocating on behalf of a patient for appropriate and medically necessary health care and a structure that does not include a prohibited indemnification clause.

Without these two important protections, physicians may not be willing to advocate on behalf of patients in the IRO process. Without the assistance of their physicians, patients may be less likely to appeal decisions to IROs and will almost certainly be less able to win those cases that are appealed.