February 2002
Government Relations
Practice Organization
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Congress should pass strong and meaningful health plan legal accountability to provide both the necessary deterrence to ensure that patients receive quality care and adequate compensation for their injuries when they don’t. Only the accountability provision contained in the Senate-passed Bipartisan Patient Protection Act (S. 1052) affords injured patients fair recourse and adequate redress, while protecting employers from frivolous and inappropriate claims.

Only the Senate’s Accountability Remedy is Adequate and Provides for Deterrence

• Noneconomic damages (e.g., damages for pain and suffering) should not be capped. Only the Senate bill does not cap noneconomic damages for either federal or state actions, and allows for a $5 million penalty in federal actions for bad faith if proven by clear and convincing evidence.
• In contrast, the House bill (H.R.2563) caps noneconomic damages at $1.5 million (or lower state limit) with no adjustment for inflation, and only allows for punitive damages in extremely limited circumstances under a cap of $1.5 million (or lower state limit) with no adjustment for inflation.
• Caps on noneconomic damages may not afford adequate relief for potentially devastating injuries to children, stay-at-home parents and the disabled, who are not employed and thus have no or very low economic damages for lost wages.
• Caps on damages do not provide the necessary deterrence to ensure that patients receive appropriate quality care in the first instance.
• The majority of states do not cap noneconomic damages. If a noneconomic damages cap is imposed, twenty-seven states that have elected not to cap noneconomic damages will be subject to a federally mandated cap in an arena traditionally reserved for state legislatures.
• If a noneconomic damages cap is imposed, it should be uniform in all cases brought in either state or federal court. Federal law should not allow lower state caps to take precedence while simultaneously overriding the decisions of twenty-seven states not to cap noneconomic damages.
• If a noneconomic damages cap is imposed, it should be adjustable for inflation to preserve its compensatory value to injured patients over time, just as in Texas and other states.

Only the Senate’s Accountability Process is Fair

• All parties making health care decisions should be held accountable under the same professional standards of common medical practice, whether they are health care practitioners, hospitals or HMOs. Only the Senate bill holds HMOs and all other healthcare providers accountable for their medical decisions under the same professional standards.
• In contrast, even for decisions that indisputably involve medical judgment -- such as whether hospital admission or surgery is medically necessary -- the House bill holds HMOs accountable under a weaker “reasonable insurer” standard of care. A “reasonable insurer” standard of care will lower the bar as to what qualifies as negligence, thus making it more difficult for injured patients to show that their HMO negligently denied them medically necessary care. Injured patients deserve to have their claims of medical negligence evaluated under the same professional standard of care without regard to whether the negligent party is a health care practitioner, a hospital, or an HMO.
• The Senate bill channels HMO negligence cases involving medical decisions to state court under state law. In state court, patients will have easier access, state HMO legal accountability laws will be preserved, and there will not be inappropriate interference with an area of the law traditionally reserved to the states. Directing HMO negligence cases to state court is consistent with the current trend in the courts and the recommendation of the Federal Judicial Conference.

State courts are more accessible than federal courts. Federal courts’ dockets are heavily backlogged already and federal courts are much less conveniently located. Particularly in rural areas, patients would have to travel hundreds of miles at great expense to pursue their claims in federal court.

The U.S. Supreme Court has said that negligence actions against HMOs belong in state court: “ERISA was not enacted . . . to federalize malpractice actions[.]” Pegram v. Herdrich, 530 U.S. 211 (2000).

The U.S. Judicial Conference opposes federalizing HMO negligence actions involving medical judgments and has urged Congress to make state courts the primary forum for the resolution of personal injury claims arising from the denial of health care benefits[.]” Letter from Leonidas Mecham, Secretary of the Judicial Conference, to Senator Don Nickles, March 3, 2000.

As the traditional arbiters of medical malpractice lawsuits against both individual practitioners and institutional providers, such as hospitals, state courts are better suited to judge cases of HMO negligence. A growing number of states have recognized that state courts are the appropriate forums for HMO negligence actions by enacting HMO legal accountability laws.

Congress should reject provisions in the House bill that would exempt Association Health Plans (AHPs) from state laws designed to protect health care consumers. While APA fully supports efforts to gain health coverage for the uninsured, the House AHP provision is not the answer. AHPs, which are health plans usually sponsored for small business and professional groups, exist in some form in states today and are subject to state laws. The House bill would generally preempt state consumer protection laws, such as mental health benefits laws, through federal certification of AHPs.

• States have enacted consumer protection laws to ensure that consumers, including those enrolled in AHPs, receive quality care and adequate benefits. With mental health coverage, for example, most states have enacted laws that ensure that mental health services are covered. Most states also require coverage of mental health services at parity with services for physical illnesses. The House AHP provision will thwart years of effort by states to protect persons enrolled in AHPs by ensuring that they have adequate mental health coverage.
• With an estimated 43 million uninsured, CBO found that an AHP approach, like that in the House bill, would increase coverage by only 330,000 persons. This minor increase would come at a tremendous cost--

Employers with the healthiest employees would choose AHPs, which would provide coverage at a lower cost because they are no longer state regulated. Unfortunately, these plans would also potentially have inadequate benefits, including mental health benefits, and inadequate quality checks provided by consumer protection laws.

Those employers with less healthy employees would have to remain in traditional insurance coverage. Premiums for these employers would increase due to a smaller pool of employees who need more services.

State oversight would be replaced with more federal bureaucracy as the Department of Labor would now certify and regulate AHPs.

February 2002
APA Practice Organization