Special Subcommittee Studying Managed Care Organization Liability

November 9, 1998, Richmond

A special subcommittee, comprised of four members from each of the House and Senate Courts of Justice committees, met to discuss the subject matter contained in HJR 216 (1998). The resolution recognized the increased use of managed care organizations for the delivery of health care and addressed the issues associated with legal liability for health care decisions made by managed care organizations.

The meeting focused on two objectives: (i) identifying current laws allowing patients to fairly recover damages from managed care organizations for malpractice and (ii) identifying other patient protection initiatives currently underway at the state and federal level.

Virginia Medical Malpractice Act

The applicability of the liability contained in Virginia's medical malpractice statutes to managed health care providers is unclear. The definition of "health care provider" within the Virginia Medical Malpractice Act specifically includes "health maintenance organization." "Health care" is defined as any act or treatment performed or furnished, or which should have been performed or furnished, by any health care provider for, to, or on behalf of a patient during the patient's medical diagnosis, care, treatment or confinement. "Malpractice" means any tort based on health care or professional services rendered, or which should have been rendered, by a health care provider to a patient. However, there is not a reported case in Virginia which has definitively stated whether an HMO may be liable for medical malpractice.

Other Common Law Theories of Liability

Other common law theories under which an injured patient could directly sue his HMO or managed care health plan include negligence (in the hiring of treating physician or in denial of benefits), vicarious liability (depending on the nature of the employment relationship between the doctor and the HMO) and breach of contract. Again, the reported case decisions on this topic do not provide clear guidance as to the applicability of such liability to managed care organizations.

Provisions for Employee Benefit Plans (ERISA)

State-regulated commercial group or individual insurance plans provide coverage for approximately 25 percent of Virginians. The remaining 75 percent are either uninsured, covered by a governmental plan, or receive their health care coverage from an employee welfare benefits program. These so-called "self-insured" plans are exempt from regulation by the states. The federal Employee Retirement Income Security Act (ERISA) preempts legal claims under state common law and state statutory law against these self-insured plans. The federal law does allow for patients enrolled in self-insured plans to obtain equitable relief for the denial of a health benefit if, after completion of the plan's required appeals process, the health benefit is still not received. However, the remedy is merely the value of the wrongfully denied benefit—there are no provisions for the recovery of monetary or punitive damages.

Senate Bill 712 (1998)

The subcommittee also heard about efforts underway at the state and federal level to enhance the quality of patients' health benefits. Senate Bill 712, enacted during the 1998 session of the General Assembly, sets up certification standards for managed care health insurance plans (MCHIPS). Additionally, the bill requires the Board of Health to promulgate regulations governing the quality of health care provided to covered persons. The legislation requires the board to complete these regulations before December 1, 1999.

Joint Commission on Health Care Study

Other potential methods of controlling the quality of health care delivered by managed care entities are (i) the implementation of an ombudsman program and (ii) the establishment of an external appeals mechanism.

The subcommittee learned that both of these options are currently being studied by the Joint Commission on Health Care pursuant to SJR 99. Three of the major managed care bills considered by Congress contained external appeals provisions; one also had provisions for a health insurance ombudsman. Virginia's utilization review statute currently includes provisions for external utilization review, but does not contain an ombudsman provision.

Pending Federal Legislation

The U.S. House of Representatives passed the Patient Protection Act this past July, but the bill has died in the U.S. Senate. A major point of contention in the legislation is whether or not individuals should be given the right to sue their health plans under state law for personal injury or wrongful death.

Texas Statute and Lawsuit

To date, Texas is the only state that has established a statutory provision providing medical malpractice liability for HMOs that breach a standard of ordinary care. The Texas law provides that HMOs are liable for damages caused by the health treatment decisions made by their employees, agents or representatives. HMOs are not liable for health care treatment decisions in which injury occurs if the HMO did not control, influence, or participate in the treatment decision that caused the patient's injury.

This Texas law was immediately challenged in federal court, with Aetna Health Plans arguing that the provisions of the bill are preempted by ERISA. The malpractice liability portion of the bill was upheld by the U.S. District Court for the Southern District of Texas.

Joint Subcommittee Work Plan

Recognizing the ongoing work and study at both the state and federal level, the subcommittee will not hold another meeting this interim.

The Honorable William Howell, Chairman
Legislative Services contact: Robert Omberg