Issue Brief

May 2001

A Patient's Bill of Rights  

I.  Introduction
For the past eight years Congress has been examining and debating managed care reform and patient protection legislation.

So why haven't they passed anything yet?  The answer lies in one simple word - LIABILITY. 

So why don't they stop trying?  The answer lies in another simple word - POLITICS.

All recent polling data -- before, during, and after the last campaign -- show that the public feels very strongly about this particular issue. In fact, a post-election survey conducted by the Kaiser Family Foundation and Harvard School of Public Health last January shows that 76 percent of the voting population favors some form of Patients' Rights Legislation.  And, unlike many other health care issues, this one garners strong support from voters of all political persuasions with 71 percent of Republicans, 81 percent of Democrats and 76 percent of Independents supporting the idea of a patients' bill of rights.

So what are the issues?  What problems have been solved?  And, more importantly, what problems remain?

II.  The Issues in Agreement
Much work has been done on the subject of patient protections and at this time there is widespread agreement on several issues.  The first principle is that basic consumer protections should apply to all.  Any set of protections enacted at the federal level will be a minimal standard that should apply to all health care consumers.  Following that principle, differences in the following areas seem to have been worked out. 

A.  Information Disclosure
There appears to be strong bipartisan agreement that all health plans, providers and facilities should provide patients with accurate, easily understood information about their health care plans.  Our health care system is essentially market-based and it is not possible for people to make rational decisions in market-based systems unless they have accurate and easily understood information on their choices.

B.  Access to Specialists
There also appears to be strong agreement on the principle that patients should have access to specialists.  One of the major complaints people have had about managed care plans has involved restrictions on their access to specialists.  And, in fact, some of the worst horror stories about managed care have come from people who were denied access to needed specialty care and ended up experiencing severe damage.  The major proposals, including President Bush's latest offer, also allow patients to visit their obstetrician-gynecologists and pediatricians without prior permission from their HMO. 

C.  Access to Emergency Services
Another source of difficulty for managed care patients in the past has been emergency care.  There has developed strong bipartisan agreement that any federal bill would require that emergency services be covered by the plan under a "prudent layperson" standard.  This care would be covered even if the emergency room treatment occurs at a hospital unaffiliated with the patient's health plan.

D.  Prohibition of Gag Rules
Due to concern that the doctor-patient relationship was being eroded, most proposals have included provisions that prohibit so-called "gag clauses" in health plan contracts.  (While it is not clear if doctors in HMO's or other ERISA-governed plans were regularly told to withhold information from their patients, there has been a perception that this happened so the "gag clause" prohibitions have been included in the major proposals.)  All the evidence shows that participation in health care decisions by informed consumers improves the quality of health care.  When a doctor cannot discuss treatment options and alternatives fully with patients, all parties suffer and a federal minimum standard rule would eliminate that problem.

E.  Grievance Appeals Process
Including a fair and efficient grievance appeals process in any federal minimum standard bill would go a long way toward improving the public's feeling about many health plans.  Although the details may differ, there is general agreement on providing every consumer with an internal appeal process and, when that is exhausted, an independent external appeal process.

While there are still many possible areas of disagreement within these issues, committees in both houses of Congress and members in both parties have come a long way to resolving most of the issues and could very likely pass a bill on these issues. 

III.  Major Unresolved Areas of Disagreement
So why, after eight years of talking and negotiating, do we still not have legislation?  As I noted earlier, the biggest sticking point in this whole arena is liability.  Who has it?  Who governs it?  How do we deal with it?  A brief outline of the problem follows.

A.  ERISA
The problem is very technical and complex but it all dates back to one law, the Employee Retirement Income Security Act of 1974 (ERISA).  Congress passed this law in response to widespread allegations of pension fund mismanagement and fraud.  Minnesotans may remember the Studebaker and Minneapolis Moline bankruptcies that left their employees with unfunded pensions.

The act established an elaborate regulatory system to ensure that employees receive the benefits their employers promise them.  It tried to create a uniform set of requirements that would govern the administration of pension and benefit plans.  The intention of the act's sponsors was twofold:  first to prevent the type of fraud and mismanagement that had occurred in the past, and second, to allow employers doing business in more than one state to design benefit plans that could operate nationwide and would not face conflicting state requirements.  In order to accomplish the second goal, Congress incorporated broad language in ERISA that preempted state laws regulating benefit plans.

The sponsors of ERISA were responding to pension benefit abuses and could not have foreseen the effect its preemptions of state law would have on the future delivery of health care.  They intended their legislation to protect plan assets and ensure fiduciary propriety and prudence.  Remedies included under the law were geared toward accomplishing that goal not designed to protect beneficiaries needing services such as medical care.

When ERISA passed, the health care delivery system was quite different from what it is today.  In 1974, almost all employer-sponsored health plans were traditionally insured, fee-for-service plans. In those systems, if an individual believed his or her doctor had injured or harmed him, he could pursue legal remedies under state medical malpractice laws.  This is still true for individuals who receive their medical care under non-ERISA health plans. 

Under ERISA governed health insurance plans or HMO's, individuals who are denied treatment or otherwise injured must pursue the plan for remedy.  Because of ERISA preemptions, these patients are often denied the "right to sue" under state medical malpractice laws. (The federal court system has neither the remedies nor the established infrastructure to provide justice to them.) 

Medical malpractice cases have traditionally been the purview of the states.  When ERISA passed, no one anticipated it being used to protect health care providers from legitimate claims in the event of injury or death due to medical malpractice.  But that is what has happened in many instances when employer-sponsored managed care entities have successfully argued that their decisions were fiduciary decisions and, therefore, were protected from state purview under ERISA's preemption provisions.

There is no evidence that Congress intended ERISA to regulate the clinical quality of medical care or medical malpractice and the courts have been wrestling with this problem for several years.  Case law has evolved and last year the United States Supreme Court reaffirmed the primacy of state law in the case of Pegrim v Herdrich.  In this case the Court distinguished between medical decisions and fiduciary decisions.  Here the court noted that decisions often claimed to be fiduciary are actually mixed eligibility and treatment decisions.  It stated that Congress did not intend "...to federalize malpractice litigation in the name of fiduciary duty ...." 

Because of the many difficulties involved in sorting out these cases, several judges have asked Congress to pass legislation clarifying the situation.  And, that is where today's conflict lies. 

IV.   Proposals for Reform
There are powerful interests who have very different positions on these matters.  On one side of the issue, employers and insurance companies argue that if they are not protected from tort liability in this arena, health care costs will increase dramatically and many employers will simply stop offering the benefit.  They maintain that this will significantly increase the number of uninsured in America and further exacerbate already serious problems in our health care system.

On another side of the issue, doctors, trial lawyers, and patient advocates argue that amending ERISA to include a "right to sue" for injured plan participants need not increase costs significantly if it is done properly.  Further they argue that this is a fundamental right people should have and all other protections provided by a patients' bill of rights become meaningless if they are not backed up by the ultimate remedy of a "right to sue".  After all, what good does it do people to have a bunch of contractual rights if they cannot be enforced in court?

These conflicts are further illuminated when compromise solutions are offered.  For instance, the employers are most adamantly opposed to exposing health plans to both federal and state tort liability as some of the bills propose.  Employers argue that the medical tort liability system is broken and subjecting group health plans to a broken tort system will only hurt plan participants and their dependents as more and more employers opt out of the system all together.

They instead favor a more limited approach that would rely on binding independent external review to resolve disputes over benefit determinations. And if they have to live with any liability exposure they want it to be very limited, in federal court, and subject to caps.  (Currently, federal remedies only allow a patient to recover the value of treatment that was denied.  There is no ability to receive economic damages or awards for other damages such as  "pain and suffering".)

The doctors and patient advocates argue for a much stronger liability protection.  They want a basic federal standard that sets a floor on consumer protections in health care.  If states want to go beyond the federal floor and provide more protections that would be fine with them but all consumers throughout the country would have a clear set of basic rights that do not change regardless of where they live.  And, they want these protections to be enforceable in court.

On February 6. Senators John McCain, Edward Kennedy and John Edwards introduced a bill that would allow patients harmed by treatment denials or delays to sue their managed care plans in state court, subject only to the damage caps in their state.  They would also allow civil assessments of up to $5 million in federal court "if clear and convincing evidence of bad faith and flagrant disregard for a patient's safety is proven."  In other provisions of the bill they would require federal courts to deal with contract questions while state courts would handle medical questions.

The following day, President Bush laid out his principles for a bipartisan patients' bill of rights.  In that statement he proposed that patients be allowed to sue their health plans for denial of needed medical care in federal court after an extended review process.  To discourage excessive litigation he recommended capping the damage awards. 

On May 15, the President gave his support to legislation introduced by Senators Bill Frist, John Breaux, and Jim Jeffords that would not expand patients' rights to sue in state court but would give them a limited right to sue in federal court and win more money than is currently possible.  As I noted earlier, today patients with successful federal lawsuits can only win the value of the medical care they were denied.  Under the Frist proposal, injured patients could also recover damages to reimburse them for lost earnings, medical expenses and related costs.  The bill would prohibit punitive damages and limit pain and suffering awards to $500,000.

Patients who want to sue would have two basic kinds of constraints.  In most cases they would have to bring their complaint to a new outside review panel and then they could only sue if the panel rejected their complaint.  The bill would also not expand their right to sue in state court.  Since the state court system has a much more developed infrastructure for dealing with medical malpractice issues and is usually more convenient and closer to most people, the requirement that patients take their complaints to federal court is also a "de facto" impediment to litigation.

V.  Conclusion
The Frist proposal goes farther than the Senate Republican leadership has accepted in the past and the assistant Republican leader of the Senate, Don Nickles, is sharply critical of it.  At the same time Representative Charlie Norwood, a Republican who has championed patients rights, denounced the bill saying, "If it is brought up in the House, I will personally exhaust every effort to defeat it."  He and Senator Kennedy said the new proposal would undermine victories won by patients in recent court cases.

It looks like after eight long years the public may have to wait a while longer to see some resolution of this issue.  Nevertheless, having the President endorse a specific bill breathes new life into the issue and there will probably be further action in this area soon.

It remains to be seen whether the deep ideological and practical problems posed by the liability provisions can be solved this year.  And it also remains to be seen whether we will ever get national legislation to reform the whole medical liability tort system even though Senator Jack Danforth and I proposed national tort reform years ago.  Our efforts were opposed by some of the people who are currently supporting this bill including the American Trial Lawyers Association and Public Citizen.   While there is general agreement that the tort system needs to be reformed, it has been agreed by the major actors working on the Patient's Bill of Rights that they are not going to be able to take on that problem in this legislation.

The Institute of Medicine reports have stimulated the search for safe and error-free medical systems including the need for reporting of adverse events and comparative performance data.  Purchaser-payors and lawyers obviously see great advantage in this while the medical professions strongly resist.  It is imperative that policymakers take some of the energy they are devoting to the patients’ bill of rights and turn their attention to enacting those public policies that improve system performance.