HMO Shield Against Suits Can’t Cure the Crisis
When the Supreme Court decided last month to immunize health plans from damage suits for wrongfully denying coverage, industry leaders called the ruling a triumph for consumers. Legal accountability raises costs, health plan administrators insist. Savings from immunity will trickle down, lowering premiums for companies and their workers. Meanwhile, consumer advocates and congressional Democrats are urging legislation to restore the right to sue health insurers for their coverage decisions.
For those who see managed care’s new impunity as a travesty, as I do, choosing sides in this dispute is easy. But the industry’s claim that damage suits raise costs needs to be treated seriously.
Soaring healthcare spending burdens businesses, strains labor-management relations and pushes more Americans into the ranks of the uninsured. Impunity saves money because rational actors take legal risk into account. Eliminating this risk enables insurers to skimp on coverage without consequences.
Can health plans be held accountable for bad behavior without denying them the tools they need to control costs? Yes, but we need to face up to a problem that neither health plans nor their critics have been inclined to acknowledge.
In their advertising and contracts with patients, almost all health insurers promise to cover “medically necessary” care, as though this term were a clear rule grounded in medical science. But for most of the decisions doctors make, hard science isn’t available.
Doctors disagree about how well tests and treatments work and how to balance risks and benefits. Their therapeutic approaches accordingly vary enormously.
A health plan’s promise to pay for “medically necessary” care is thus a commitment in search of a meaning. Before the rise of managed care, treating physicians supplied the meaning, and insurers almost always paid for whatever doctors prescribed. Then HMOs began to say no, citing medical-necessity grounds. The stage was set for conflict between plans and physicians over what medical necessity means.
The law has not adjusted to the realities of uncertainty and wide variation in medical practice. In dealing with suits charging wrongful coverage denial, courts adopt the fiction that there are one or a few correct standards of care. As in medical malpractice cases, judges ask juries to choose between standards of care urged by plaintiffs’ and defendants’ medical experts.
Thus, if my insurer declines, on medical-necessity grounds, to cover my doctor’s proposed treatment and, as a result, I don’t get the treatment and things go badly, my doctor can testify in a damage suit against the plan, giving jurors a basis for a verdict in my favor. This prospect, understandably, alarms health plans. By refusing to approve an unconventional, unproved, high-cost therapy, an HMO puts itself at risk for a multimillion-dollar verdict if tragic results ensue and the prescribing doctor can get before a sympathetic jury. It’s often a safer bet to provide coverage in such cases and to raise premiums to cover the cost.
This concern has inspired the industry’s fight for immunity. But it can be allayed, without sacrificing legal accountability, by limiting the ability of plaintiffs to claim that unconventional, unproved treatments were “medically necessary” and thus wrongfully withheld.
Americans should be able to sue for damages when HMOs promise all “medically necessary” care, then deny coverage for tests and treatments backed by scientific evidence or mainstream medical opinion. But the law should permit insurers to defend against such suits by showing the care that was withheld lacks both scientific support and strong professional backing.
Ideally, lack of scientific proof for a treatment should be enough to defeat damage claims for care denied. But since there isn’t a science-based “right answer” to most of the clinical questions doctors face, this is unrealistic. More research on the effectiveness of medical treatments is badly needed, but in the meantime we must make do with physicians’ best judgments.
The promise to cover “medically necessary” care, though, is not a commitment to pay for every idiosyncratic, speculative approach proposed by a doctor. It’s a pledge to pay for care that falls within the range of conventional opinion or is well supported by scientific data. It’s important that the borders of conventional opinion be well policed.
Legislation aiming to ensure managed-care accountability should bar plaintiffs from introducing medical testimony without first showing that the treatment in question falls within mainstream clinical practice or is scientifically sound. Beyond this, HMOs should be encouraged to replace medical-necessity language with more specific rules. Plans could, for example, offer openly cost-conscious approaches in return for lower premiums.
Plans that set coverage limits by contract and make them clear to consumers shouldn’t have to pay damages for withholding care they didn’t promise. They should be held accountable based on their contractual commitments, even when these fall below mainstream professional standards.
In its brief to the Supreme Court on behalf of HMO immunity, the Bush administration said allowing damage suits would prevent employers from crafting “innovative health plans” that control medical costs. The opposite is true. Legal accountability, if not taken to excess, can promote health plans that limit spending in forthright fashion.
Impunity, on the other hand, is a shortsighted strategy, likely to rouse public ire. The justices handed managed care a famous victory, but fame is likely to be this victory’s undoing. Already, HMO impunity has become a presidential campaign issue, and pressure is building on Congress to close what Justices Ruth Bader Ginsburg and Stephen G. Breyer, quoting 2nd Circuit Judge Guido Calabresi, have called a “gaping wound.”
HMO leaders, meanwhile, should rethink their commitment to a business strategy that calls for keeping a step ahead of the law. Candor about coverage options, limits and costs should be the starting point for plan design.
