HMO LAWSUITS: Texas Case Could Set Tone for Reform

      Amidst recent debate in Congress and state legislatures on managed care reform, a Texas case pitting UnitedHealthcare, one of the nation's largest health insurance providers, against state officials who want to punish one of the company's medical directors has gained importance, with several key patients' rights issues hanging in the balance, the New York Times reports. If Texas prevails, insurers may lose the ability to contain costs, hampered by oversight from state medical boards. But a decision favoring UnitedHealthcare would set back efforts by state boards to hold HMOs accountable for treatment decisions. The case stems from a medical director's decision to deny home skilled-nursing care coverage to a 13-year-old boy who had spent five weeks in a hospital for respiratory failure, despite insistence from the boy's doctor that the treatment was "medically necessary." According to the medical director, however, the treatment fell under "custodial care" and was not covered by the insurance policy. The Texas State Board of Medical Examiners took disciplinary action against the medical director after it determined that the director "failed to provide proper care" by denying coverage. Defending its medical direction, UnitedHealthcare contends that the board overstepped its authority in handing down the punishment.

A Tarnished Shield
      The case raises important questions about the liability of managed care companies. "The physicians who direct treatment need to be accountable to the public for their conduct," Dr. James Winn, executive vice president of the Federation of State Medical Boards, said. "Doctors shouldn't be able to claim a safe harbor simply because they work for an insurance company," he added, referring to the 1974 Employee Retirement Income Security Act that HMOs often use to fend off lawsuits. The provision limits state court actions against benefit plans, even in cases of wrongful death or injury. UnitedHealthcare argues that the law applies in the Texas case as well, barring state officials from taking action against medical directors and other who make decisions about treatments. Although Congress continues to stall on the issue of patients' rights and their ability to sue HMOs, federal courts have gradually "chipped away" at the protective shield, and a dozen states have enacted rules requiring medical directors to be physicians licensed in the state where their health plans reside -- bringing them under the authority of state medical boards.

A Benefit-Coverage Call?
      Physicians' groups also argue that HMOs often make medical, rather than administrative, decisions when they deny coverage for treatments. While some health insurers have stopped this practice, Louis Saccoccio, general counsel of the American Association of Health Plans, contends that in the Texas case, the state is attempting to "second-guess" a coverage decision, something it lacks the authority to do. "The board of medical examiners is getting involved in what is basically a benefit or coverage determination. It's a concern for health plans and it would be a concern for medical directors, and it would be a concern for employers and consumers," he said. United Healthcare supports that position as well. In addition to threats from state and federal lawmakers, a wave of class action lawsuits have been filed against HMOs, based on claims that the plans "have systematically defrauded and short changed patients by limiting care" (Oppel, 5/28).