PATIENTS’ RIGHTS: Study Points to Care Denial Profits

      Opponents of the Senate's managed care reform plan have protested loudly that the bill does not permit patients to file lawsuits against HMOs in cases where care is denied or delayed. And they're using new statistics to bolster their assertion that excluding a liability measure from the plan unfairly protects the health care industry. A report released to the American Psychological Association on July 28th asserts that health plans have a financial incentive to delay care, as they can generate profits by investing funds that would otherwise go to treatment costs. Interest generated from that investment, estimated to be as high as $64,000 for every $1,000,000 worth of claims submitted, would offset any fines imposed upon the industry for delaying or refusing care, the study finds. Prepared by PricewaterhouseCoopers principal Ronald Bachman, the study determines the insurance industry's potential profits if it delays care for 377 days, the maximum amount of time it could take for a legitimate medical claim to run through an internal and external review process and ultimately be settled. Bachman notes that "in many states only the original claim amount is payable after any time delay in processing payments." By delaying a mere 1% of all claims for a year, Bachman concludes, the "insurance industry could generate excess interest gains of up to $280 million per year."

A Matter of Interpretation
      The analysis only fortifies the argument for a liability provision, says Sen. Ted Kennedy (D-MA). "The Pricewaterhouse study is persuasive evidence for the importance of holding health insurance companies and HMOs liable for damages when their actions kill or injure patients," Kennedy said through a spokesperson, adding, "Without such protection, companies have powerful financial incentives to deny needed care -- even when there is a strong external appeals process." Russ Newman, executive director for professional practice at the American Psychological Association, agrees that external appeals processes are inadequate. He said, "If all that's in place is a review panel to overturn an incorrect decision, you have no incentive to make sure the decision is made correctly in the first place. What seems to have been forgotten in the legislative debate is that they are taking the money in their coffers and investing it and standing to gain huge profits by denying claims, even if those claims are later reinstated."
      But Tom Wildsmith, policy research actuary for the Health Insurance Association of America, disputes the study's validity, noting that its calculations are based on a "worst-case scenario" assumption that a claim payment would take a full 377 days. Wildsmith adds that patients themselves often slow down the payment process, since they are given a full six months to dispute a claim. A health plan, on the other hand, has only a 30-day window to review claims and make initial coverage decisions. "In this analysis, they assume that [the patient] would, in fact, take the entire six months to appeal that denial," Wildsmith states. "The study assumes that insurers are going to milk this external review process and are going to be earning interest float during this period. But it costs more to adjudicate an appeal than you would ever make on the interest."

Last Chance in the House
      The study appears at a time when Republican representatives in the House are championing a proposal that would provide for a very narrow liability provision, in limited cases where patients first meet strict medical and legal standards. Bill authors John Shadegg (R-AZ) and Tom Coburn (R-OK) hope their version provides conservatives with a more palatable alternative to the bipartisan Norwood-Dingell plan, which would allow patients to sue HMOs for compensatory and punitive damages in cases of negligence. Newman says the APA supports the Norwood-Dingell plan, noting that 27 states already have laws requiring prompt payment by insurance companies. He said, "I have a hard time believing there's not a problem with prompt payment when that many states have had to make it a law. [A liability provision] ensures that managed care provides quality care upfront." But Wildsmith says the study's claim that HMOs have a financial incentive to deny care is simply wrong, and doubts it will sway lawmakers to vote for a liability provision. He said, "It makes no sense to drag out claim payment to earn 6% [on interest from money invested] if you are going to have to turn around and pay civil penalties, often as high as 10-18%, for denying care. If it's a legitimate claim, you end up paying. They can throw the book at you otherwise" (Caroline Noel, California Healthline).