In response to consumer dissatisfaction with managed care, the U.S. Senate on June 29 passed a version of the Patients’ Bill of Rights (PBOR) intended to protect patients from alleged abuses in the managed care system and guaranteeing HMO participants broad new rights to sue their health plans.
But concern is growing in the managed care community, not only over the PBOR’s potential negative impact on health care costs, but also its potential to pressure health care professionals into making tough choices that could result in negative patient outcomes.
According to economist Roger Feldman, editor of American Health Care (Independent Institute, 2000), “the Patients’ Bill of Rights will likely make health-insurance premiums increase. Add to that the outlays (as high as 30 percent) that many HMOs spent on new equipment, drugs and facilities, and it becomes clear that health care costs won’t be falling anytime soon.”
Supporters of the PBOR say the medical and private-sector insurance communities are overstating the potential financial impact of such a bill. But HMOs in Georgia and Hawaii offer real-world examples of why managed care organizations are worried. Faced with added liability, HMOs insist they will be forced to raise premiums and shift that additional cost to employers. Ultimately, individual consumers insured by managed care plans—including senior and low-income citizens covered by government plans like Medicare and Medicaid—will pay the price.
Case Study #1: Georgia
Given all the media reports, the greatest concern seems to be that the patients’ bill of rights will allow trial attorneys to turn HMOs into a cash cow. In an interview published by bizjournals.com, Kirk McGhee, director of the Georgia Association of Health Plans, said, “One ‘runaway’ trial verdict, resulting in a multimillion-dollar settlement, could be devastating.”
Devastating because the health care system does not operate in a vacuum. Years of unfunded mandates big and small have forced HMOs to struggle in an effort to stay solvent; the PBOR would represent yet another such mandate.
Aetna Inc., the nation’s largest health insurer, reported losses for the first quarter of 2001 and told shareholders costs had unexpectedly outpaced premium revenue. Cigna Corp. has said its profits will be lower than expected for the rest of the year. In Georgia, first-quarter profits dipped sharply for a handful of HMOs around the state, including United Health Care, Athens Area Health Plan, and Humana.
Health insurers face a major problem, as described to bizjournal.com by Brent Layton of Atlanta consulting firm Layton & Associates: “For one thing, they have found that they can’t push down any further what hospitals and doctors charge. They’ve reached a negotiation bottom, costs are rising, and now the patients’ bill of rights is looming.”
Case Study #2: Hawaii
Local health care officials and businesses are especially concerned by one provision in the Senate version of the PBOR: the possibility that employers could be held liable for medical malpractice and wrongful death suits under the umbrella of health plan liability.
Although the Senate did away with the provision, the topic could be revived has Congress negotiates a compromise plan everyone can agree on. This provision has all the makings of a political poker chip.
Bette Tatum, state director of the National Federation of Independent Business, explained in an NFIB news release, “The absence of iron-clad protection from liability for an HMO’s mistakes is a loaded gun pointed to the head of any small-business owner who provides health insurance for his or her employees—and in Hawaii (because of the play-or-pay mandate), that’s everyone.”
The federal legislation would supersede Hawaii’s 1998 patients’ rights law, which establishes a process for appealing to a three-member panel directed by the state insurance commissioner. The federal Employee Retirement Income Security Act (ERISA) already allows lawsuits against health plans, and many fear the PBOR would increase the number of lawsuits and size of damages awarded.
Although a provision in the Senate version of the bill currently says employers cannot be sued if they do not directly participate in the decision concerning health care coverage, how that provision is interpreted will have important implications for business. Simply choosing Plan A over Plan B could be construed as being “directly involved” in the health care decision process.
In an analysis of the PBOR’s potential impact on the Aloha State, the Hawaii Medical Service Association cites Congressional Budget Office estimates that the PBOR would increase health care costs by 4 percent. For Hawaii, HMSA calculates, a small business with 20 employees could expect an increase of $2,000 per year in health care costs. HMSA also cites Employment Policy Foundation research, concluding lawsuits could increase costs to employers and health plans by between $7.9 and $16.3 billion.
In response to early complaints that managed care too tightly restricted consumer choice, HMOs over the years have expanded their patients’ options . . . but the increased choice has not come cheap. By giving plan members access to a larger number of health care providers, HMOs limited their ability to negotiate rates, because they cannot guarantee providers cost-effective patient volumes.
Increasing HMOs’ vulnerability to legal action will accelerate the rising cost trend. In the worst-case scenario, some employers will throw up their hands—either in frustration over the rising costs, or in fear of subjecting themselves to legal liability—and drop heath benefits altogether.
Passage of PBOR could thus stimulate activity in health plan options like defined contribution plans, where employees are given tax-favored money each year to purchase their own health insurance. The American Medical Association and many individual health policy analysts have said defined contribution plans could be a good thing for consumers, giving them greater freedom to select a health plan tailor-made for their own circumstances, as well as all the consumer rights available under contract law.
For more information . . .
A summary of Roger Feldstein’s book, American Health Care, is available on the Independent Institute’s Web site at http://www.independent.org/tii/content/briefs/BriefAmHealthCare.html.