Federalism and Patient Protection: Changing Roles for State and Federal Government

Jill A. Marsteller Randall R. Bovbjerg

Occasional Paper Number 28

Assessing the New Federalism An Urban Institute Program to Assess Changing Social Policies

Jill A. Marsteller Randall R. Bovbjerg

Occasional Paper Number 28

The Urban Institute 2100 M Street, N.W. Washington, DC 20037 Phone: 202.833.7200 An Urban Institute Fax: 202.429.0687 Program to Assess E-Mail: Changing Social Policies [email protected] http://www.urban.org Copyright © August 1999. The Urban Institute. All rights reserved. Except for short quotes, no part of this book may be reproduced in any form or utilized in any form by any means, electronic or mechanical, including photocopying, recording, or by information storage or retrieval system, without written permission from the Urban Institute.

This report is part of the Urban Institute’s Assessing the New Federalism project, a multiyear effort to monitor and assess the devolution of social programs from the federal to the state and local levels. Alan Weil is the project director. The project analyzes changes in income support, social services, and health programs. In collabo- ration with Child Trends, the project studies child and family well-being.

The project has received funding from The Annie E. Casey Foundation, the W.K. Kellogg Foundation, The Robert Wood Johnson Foundation, The Henry J. Kaiser Family Foundation, The Ford Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, The David and Lucile Packard Foundation, The McKnight Foundation, The Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, The Fund for New Jersey, The Lynde and Harry Bradley Foundation, the Joyce Foundation, and The Rockefeller Foundation.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Assessing the New Federalism

ssessing the New Federalism is a multiyear Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states, focusing primarily on health care, income security, employment and training programs, and social services.A Researchers monitor program changes and fiscal developments. In collabo- ration with Child Trends, the project studies changes in family well-being. The project aims to provide timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effec- tively.

Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia, available at the Urban Institute’s Web site. This paper is one in a series of occasional papers analyzing information from these and other sources.

Contents

Introduction 1 Background: Managed Care Backlash, State Regulation, and ERISA Limits on States 2 Patient Protection Provisions 3 Federal Responses 7 Pending Federal Proposals 8 What Federal Legislation Means for States 13 Implementation and Enforcement 19 Conclusion 24 Notes 27 References 29 About the Authors 33

Federalism and Patient Protection: Changing Roles for State and Federal Government

Introduction

s indemnity health insurance has given way to managed care in the 1990s, state legislatures and Congress have considered an array of patient protection measures. Also called “consumer protection” acts or “Patients’ Bills of Rights,” such enactments respond to fears that some managed careA practices too often mistreat enrollees (Blendon et al. 1998, Enthoven and Singer 1998). State legislators have imposed standards or processes on insurers and managed care organizations (MCOs), such as a minimum 48-hour hospital stay for childbirth, access to the emergency room or to specialists, and appeals processes for patients denied payment for care. Between 1996 and 1998, nearly 600 bills regulating MCOs were introduced in state houses across the country, and at least some provisions were enacted in every state (Stauffer 1998d). Patient protection is a federal issue as well as a state one. At the federal level, many patient protections have already been imposed by legislation or Executive Order (White House 1998). The 105th Congress introduced some 50 bills focused on patient protection—many addressing only one issue, but others seeking comprehensive change. By mid-February 1999, the 106th Congress had introduced more than 10 comprehensive managed care reform bills. How much practical difference additional federal legislation would make depends on both federal action and state conditions. Federal proposals vary in the portion of the population targeted for reform, the specific protections advanced, and the provisions for enforcement. State conditions vary in the amount and types of existing regulation and the types of coverage now in effect. For example, where there is little managed care penetration, managed care regulation will make little immedi- ate difference. Where there is high self-insurance, new federal rules will matter greatly. Further, some enforcement responsibility might shift from states to federal agencies for insured managed care, and new federal enforcement would apply to self- insured managed care. This paper begins by describing patient protection provisions already enacted by states and proposed in the three prominent federal approaches—Republican, Democratic, and bipartisan. It then assesses the impact federal legislation might have in 13 representative states, based on the relative importance of managed care in each state and existing state regulation. The paper also discusses enforcement and liability issues. The conclusion highlights important differences among the competing federal proposals and the most notable changes each would make for states.

Background: Managed Care Backlash, State Regulation, and ERISA Limits on States

The political push for patient protection legislation has followed a rapid shift from relatively unrestrained indemnity coverage to managed care, which now enrolls more than 75 percent of the privately insured (Ginsburg and Gabel 1998). A consumer backlash has arisen in response to the restrictions imposed by managed care, a relatively unfamiliar form of coverage. Often, enrollees did not choose these restraints, as many employers offer only one option for health coverage (Blendon et al. 1998, Gawande et al. 1998). Many health care providers have also supported regulation of managed care because of its impact on clinical autonomy (and on provider fees). In fact, an early entry in the current round of legislation was the American Medical Association’s (AMA’s) model Patient Protection Act advanced in the early and mid-1990s. Ori- ginally, the AMA endorsed requirements that managed care networks be open to all physicians willing to participate, which would greatly inhibit plans’ ability to contract selectively with providers, a key tool in cost and quality control (Marsteller et al. 1997). There is a tension between the views that these laws “protect patients” versus “restrict managed care.” Protecting patients seems like an unequivocally good notion (even though these laws apply only to insured patients). But regulating MCOs may also risk undermining their ability to control health spending or impede MCO growth. On the one hand, increased regulation has been supported by media atten- tion to some bad outcomes (Brodie et al. 1998, HARP 1999b) and a widely expressed desire among patients for more power vis à vis their managed care plans. On the other hand, there is considerable market demand for managed care, which is often credited with having slowed health care inflation (Ginsberg and Gabel 1998), with little or no effect on quality (Miller and Luft 1994, 1997). States are traditionally responsible for regulation of insurance and of medical quality, but state authority is limited by the Employee Retirement Income Security Act of 1974 (ERISA).1 ERISA preempts all state laws (including legislative enactments, administrative rulings, and judicial proceedings) that “relate to” employee benefits plans—that is, almost all private coverage except government and church

plans and individually purchased insurance. ERISA allows states to continue to reg- 2 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 3

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to handle the needs of the enrollee population. enrollee the of needs the handle to

requirements, such as showing or being able to show that networks are adequate are networks that show to able being or showing as such requirements,

mary care physician within 30 minutes or 30 miles of every enrollee, or looser or enrollee, every of miles 30 or minutes 30 within physician care mary

ratio of providers to enrollees. There may be set rules, such as having one pri- one having as such rules, set be may There enrollees. to providers of ratio

These require MCOs to maintain an acceptable an maintain to MCOs require These • — Network adequacy standards adequacy Network

measures as: as: measures

In response to these concerns, state and federal legislative proposals include such include proposals legislative federal and state concerns, these to response In

inherent in the use of provider networks. provider of use the in inherent

major barrier to access. Thus, providers and patients fear the limitation of choice of limitation the fear patients and providers Thus, access. to barrier major

specialists, the enrollee would have to pay for the visit out-of-pocket, potentially a potentially out-of-pocket, visit the for pay to have would enrollee the specialists,

eminent specialists in that field will not be on the MCO’s provider list. To visit these visit To list. provider MCO’s the on be not will field that in specialists eminent

tionship. Further, if an enrollee develops a rare condition, there is a chance that pre- that chance a is there condition, rare a develops enrollee an if Further, tionship.

may leave or be “deselected” from networks, disrupting the provider-patient rela- provider-patient the disrupting networks, from “deselected” be or leave may

doctor if the hospital or doctor is not included in the MCO network. Also, providers Also, network. MCO the in included not is doctor or hospital the if doctor

the time of service. An enrollee may not be able to visit a favored hospital or family or hospital favored a visit to able be not may enrollee An service. of time the

On the other hand, selective networks limit patient choice among providers at providers among choice patient limit networks selective hand, other the On

demand (GAO 1997a, Christianson 1998). Christianson 1997a, (GAO demand

spending and practice that large employers, governments, and other premium payers premium other and governments, employers, large that practice and spending

providers, managed care would find it very difficult to effect the changes in medical in changes the effect to difficult very it find would care managed providers,

cannot. Without the ability to contract selectively, necessarily excluding some excluding necessarily selectively, contract to ability the Without cannot.

lines and administrative rules on network providers in a way that indemnity insurance indemnity that way a in providers network on rules administrative and lines

based on this expected volume. Furthermore, MCOs can impose treatment guide- treatment impose can MCOs Furthermore, volume. expected this on based

likely volume of patients for each provider and to negotiate service price discounts price service negotiate to and provider each for patients of volume likely

styles. In addition, a defined and limited membership allows MCOs to estimate a estimate to MCOs allows membership limited and defined a addition, In styles.

among fewer physicians, and MCOs can select providers with compatible practice compatible with providers select can MCOs and physicians, fewer among

types of participating providers for many reasons. Coordination of care is simpler is care of Coordination reasons. many for providers participating of types

must use to receive full payment for covered services. MCOs limit the number and number the limit MCOs services. covered for payment full receive to use must

Networks are limited groups of providers, selected by an MCO, that enrollees that MCO, an by selected providers, of groups limited are Networks

Limited Provider Networks Provider Limited

techniques, and (4) financial incentives to providers and patients. and providers to incentives financial (4) and techniques,

use of provider networks, (2) restrictions on benefits, (3) utilization management utilization (3) benefits, on restrictions (2) networks, provider of use

tion measures seek to address four main sources of fear about managed care: (1) the (1) care: managed about fear of sources main four address to seek measures tion

cerns for many consumers, health care providers, and policymakers. Patient protec- Patient policymakers. and providers, care health consumers, many for cerns

Some of managed care’s differences from traditional insurance have become con- become have insurance traditional from differences care’s managed of Some

Patient Protection Provisions Protection Patient

and military-related programs. military-related and

Medicaid and Medicare, the Federal Employee Health Benefits Program (FEHBP), Program Benefits Health Employee Federal the Medicare, and Medicaid

state one. Federal oversight is also implicated for federal programs—notably federal for implicated also is oversight Federal one. state

of ERISA makes patient protection in private insurance a federal issue as well as a as well as issue federal a insurance private in protection patient makes ERISA of

levers over benefits design or administration of groups that self-insure. The existence The self-insure. that groups of administration or design benefits over levers ulate insurance products but not employee benefits plans. States have no regulatory no have States plans. benefits employee not but products insurance ulate • Access to out-of-network care if network is inadequate—An extension of the previous requirement, this provision allows enrollees to visit out-of-network providers if no appropriate participating specialist is available in a timely fashion. • Point of Service (POS) options or Freedom of Choice (FOC) requirements— These require MCOs to permit enrollees to access out-of-network health care providers by requiring some level of coverage for out-of-network use. • Continuity of care requirements—These permit enrollees to continue their care with a health care provider for some transitional period if the provider leaves the network. Patients typically must have special conditions, such as pregnancy or chronic illness, to exercise this privilege. • Rules for provider selection or termination—These include a range of measures that govern the formation of networks, such as requiring public disclosure of selection criteria, written explanations to providers of reasons for nonselection or termination, and restrictions on the factors MCOs may consider in selecting network providers. An extreme version is an any willing provider (AWP) law, which requires MCOs to allow any provider who is willing to accept an MCO’s terms and conditions to be included in a network. Other measures aimed at controlling the use of networks are less often seen or have less practical impact. These include requirements for access to alternative providers, such as naturopaths or acupuncturists, and clauses that prohibit discrimination among providers on the basis of various characteristics. The latter do not typically prohibit selective contracting.

Benefits Managed care organizations may also restrict the scope of benefits covered or limit access to covered benefits in the search for greater efficiency. Among these practices are limits on lengths of hospital stay, restricted coverage of emergency services, exclusion of experimental treatments, and the use of drug formularies. Out of concern that MCOs’ incentives to reduce costs will lead them to deny access to important services, legislation may require that specific benefits be provided. Among the typical provisions are: • Emergency room (ER) coverage provisions—These require coverage of stabiliza- tion (and sometimes further service) for reasonable visits to the emergency room—for example, when a “prudent layperson” would think she required emergency treatment. The measures ban prior authorization for emergency services, and some require payment to emergency facilities outside the MCO’s network. • Access to clinical trials or experimental treatments—These rules require MCOs to cover routine costs of an enrollee’s participation in clinical trials or coverage for experimental treatments. • Breast cancer hospital stays—Similar to recent laws requiring MCOs to cover a minimum length of hospital stay for maternity care, provisions currently under

consideration permit physicians and patients to determine length of stay for 4 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 5

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laws allow patients to designate a specialist as a PCP or to create “standing refer- “standing create to or PCP a as specialist a designate to patients allow laws

visit specialists without obtaining a referral from a PCP first. Variations of these of Variations first. PCP a from referral a obtaining without specialists visit

These allow enrollees in gatekeeper MCOs to MCOs gatekeeper in enrollees allow These • — Within-MCO access provisions access Within-MCO

options, with enrollees. with options,

cussions of all medically appropriate treatment options, including uncovered including options, treatment appropriate medically all of cussions

These disallow contract clauses that restrict physicians’ dis- physicians’ restrict that clauses contract disallow These • — Bans on gag clauses gag on Bans

medically necessary, rather than MCOs. than rather necessary, medically

strue these definitions to give attending physicians the power to decide what is what decide to power the physicians attending give to definitions these strue

medical necessity as being determined by accepted medical practice. Some con- Some practice. medical accepted by determined being as necessity medical

Some managed care regulation defines regulation care managed Some • — Explicit definitions of medical necessity medical of definitions Explicit

MCO.

“medically necessary,” a standard of coverage that is normally determined by the by determined normally is that coverage of standard a necessary,” “medically

fering with or altering the treating physician’s decisions if ordered services are services ordered if decisions physician’s treating the altering or with fering

These provisions prohibit MCOs from arbitrarily inter- arbitrarily from MCOs prohibit provisions These • Noninterference rules— Noninterference

range of provisions, including the following: the including provisions, of range

Proposals addressing concerns about care management techniques cover a broad a cover techniques management care about concerns addressing Proposals

and that enrollees have recourse if benefits are inappropriately delayed or denied. or delayed inappropriately are benefits if recourse have enrollees that and

Policymakers want to ensure that MCOs do not act arbitrarily in denying services denying in arbitrarily act not do MCOs that ensure to want Policymakers

an external standard should be imposed, such as “accepted medical practice.” medical “accepted as such imposed, be should standard external an

mine medical necessity, as they often do now under insurance contracts, or whether or contracts, insurance under now do often they as necessity, medical mine

reviewed (GAO 1997b). Another issue is whether MCOs should be able to deter- to able be should MCOs whether is issue Another 1997b). (GAO reviewed

Accounting Office (GAO) report found no such “gag” clauses in the contracts it contracts the in clauses “gag” such no found report (GAO) Office Accounting

den the discussion of uncovered treatment options with patients, but a U.S. General U.S. a but patients, with options treatment uncovered of discussion the den

an inadequate level of care. Some physicians have charged that MCOs have forbid- have MCOs that charged have physicians Some care. of level inadequate an

flicts with their own autonomy, especially if they feel that MCO guidelines represent guidelines MCO that feel they if especially autonomy, own their with flicts

services. For their part, providers often feel that MCOs’ management of care con- care of management MCOs’ that feel often providers part, their For services.

of services, but opponents note that these rules restrict enrollee access to specialist to access enrollee restrict rules these that note opponents but services, of

Such UM techniques help MCOs reduce costs by limiting the inappropriate use inappropriate the limiting by costs reduce MCOs help techniques UM Such

treatment protocols, and setting organizationwide targets for service utilization. utilization. service for targets organizationwide setting and protocols, treatment

or care, reviewing services for medical necessity, requiring adherence to standard to adherence requiring necessity, medical for services reviewing care, or

Other UM techniques include requiring preauthorization for expensive procedures expensive for preauthorization requiring include techniques UM Other

case managers and determine when enrollees should be referred for specialist care. specialist for referred be should enrollees when determine and managers case

insurers, often including gatekeepers—primary care physicians (PCPs) who act as act who (PCPs) physicians care gatekeepers—primary including often insurers,

erage denials. MCOs use a much broader range of UM strategies than indemnity than strategies UM of range broader much a use MCOs denials. erage

how service delivery is reviewed and controlled, and how enrollees may appeal cov- appeal may enrollees how and controlled, and reviewed is delivery service how

(UM). UM techniques include the procedures required to access covered benefits, covered access to required procedures the include techniques UM (UM).

Another target of managed care regulation is MCOs’ utilization management utilization MCOs’ is regulation care managed of target Another

Utilization Management Utilization

review procedures at the time of enrollment in the MCO. MCO. the in enrollment of time the at procedures review

consumers about MCO benefits coverage, limitations, and sometimes utilization sometimes and limitations, coverage, benefits MCO about consumers

• These inform These — Requirements for public disclosure of MCO terms and coverage and terms MCO of disclosure public for Requirements

tectomy. breast cancer surgeries. Some also require coverage of reconstruction after mas- after reconstruction of coverage require also Some surgeries. cancer breast rals,” which permit patients with qualifying conditions to receive ongoing treatment from a specialist. • MCO liability—This grants enrollees the right to sue their MCOs for personal injury due to coverage denials or other MCO decisions. Variations of this provision include malpractice liability reform and bans on requirements in physician contracts that MCOs be “held harmless” in any tort action. • Enrollee appeals processes—These require MCOs to permit enrollees to appeal coverage decisions, often both within the organization and to an independent external reviewer, whose recommendations may or may not be binding on the parties. Appeals processes may also set timelines for coverage decisions. • Access to medical records and confidentiality—These provisions require MCOs to have procedures for protecting the confidentiality of patient records. Some include procedures to allow patients to amend their medical files. Laws vary in specificity. • Prohibitions on genetic discrimination—MCOs may not require enrollees to reveal genetic information or use genetic information for underwriting purposes. • Formulary opt-out—This creates a procedure whereby patients can obtain drugs that are not on the MCO formulary if a nonformulary drug is medically appropriate. • Utilization review requirements—These set rules for internal utilization management procedures, often requiring that physicians be involved in setting all protocols/policies. • Quality assurance requirements—These require the establishment of internal quality assurance and improvement processes. Sometimes reporting requirements are included. Many other UM provisions are less prevalent or less directly relevant to patient care. Examples include written policies for advance directives or organ donation or timelines for provider payment. Still other measures duplicate or amplify existing law, such as requirements for MCO solvency and certification or provider credentialing.

Financial Incentives Some observers advocate regulation because managed care relies on financial incentives to patients and providers to encourage cost-effective behavior. For example, MCOs often charge enrollees a copayment for services or pay lesser amounts for out-of-network services. Some provisions restrict MCO payment differentials for out-of-network care or prohibit enrollee penalties for using other services, such as direct specialist access or ER care. More consequential are the financial incentives that MCOs use to influence provider behavior. For example, most managed care organizations pay discounted fees to providers, as mentioned above. Some also use bonuses or “withholds” to reward success or penalize failure to meet utilization targets set by the MCO. Other MCOs use capitation, a flat per member per month fee, paid prospectively to pro-

viders to cover some or all services to enrollees. All of these incentives put providers 6 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 7

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tection measures for Medicare and Medicaid clients. Implementing regulations were regulations Implementing clients. Medicaid and Medicare for measures tection

In the legislative arena, the Balanced Budget Act of 1997 codified patient pro- patient codified 1997 of Act Budget Balanced the arena, legislative the In

people in the United States (BNA 1999b). (BNA States United the in people

ulation. Sources suggest that self-insured employer benefits plans cover 48 million 48 cover plans benefits employer self-insured that suggest Sources ulation.

Among ERISA plans, those that self-insure are not subject to any state insurance reg- insurance state any to subject not are self-insure that those plans, ERISA Among

These ERISA-governed group plans are believed to cover 125 million Americans. million 125 cover to believed are plans group ERISA-governed These

mation and to strengthen MCOs’ internal appeals processes (White House 1998). House (White processes appeals internal MCOs’ strengthen to and mation

vate employee benefit plans, both self- and fully insured, to disclose adequate infor- adequate disclose to insured, fully and self- both plans, benefit employee vate

Labor (DOL) was instructed to use its limited authority under ERISA to require pri- require to ERISA under authority limited its use to instructed was (DOL) Labor

grams cover an estimated 85 million Americans. In addition, the Department of Department the addition, In Americans. million 85 estimated an cover grams

Veterans’ Health Program (White House 1998). Together, these federal health pro- health federal these Together, 1998). House (White Program Health Veterans’

Health Service, the Department of Defense Military Health Program, and the and Program, Health Military Defense of Department the Service, Health

stantially in compliance with the commission’s standards), the FEHBP, the Indian the FEHBP, the standards), commission’s the with compliance in stantially

the Medicare and Medicaid programs (although these programs were already sub- already were programs these (although programs Medicaid and Medicare the

federal health plans to implement the commission’s recommendations. These include These recommendations. commission’s the implement to plans health federal

insurers (Advisory Commission 1997, Stauffer 1999a). The president required all required president The 1999a). Stauffer 1997, Commission (Advisory insurers

records, patient participation in treatment decisions, and choice of providers and providers of choice and decisions, treatment in participation patient records,

emergency care, enrollee grievance and appeals processes, confidentiality of medical of confidentiality processes, appeals and grievance enrollee care, emergency

Patients’ Bill of Rights in November 1997, which included disclosure, access to access disclosure, included which 1997, November in Rights of Bill Patients’

Protection and Quality in the Health Care Industry recommended a national a recommended Industry Care Health the in Quality and Protection

utive and legislative action. The President’s Advisory Commission on Consumer on Commission Advisory President’s The action. legislative and utive

The federal government has taken action to regulate managed care through exec- through care managed regulate to action taken has government federal The

Federal Responses Federal

mit no penalties for taking advantage of direct access to specialists. to access direct of advantage taking for penalties no mit

other patient protections. For example, “direct access” provisions typically per- typically provisions access” “direct example, For protections. patient other

• These are usually tied to tied usually are These Prohibition of the use of enrollee financial incentives— financial enrollee of use the of Prohibition

prohibits MCOs from preventing physicians from discussing financial incentives. financial discussing from physicians preventing from MCOs prohibits

sumers of the financial incentives used by the MCO at the time of enrollment or enrollment of time the at MCO the by used incentives financial the of sumers

This requires MCOs to inform con- inform to MCOs requires This • Public disclosure of financial incentives— financial of disclosure Public

MCOs with patients. with MCOs

MCOs from requiring that physicians not discuss the incentive structure of the of structure incentive the discuss not physicians that requiring from MCOs

• These prevent These Bans on gag clauses regarding financial aspects of MCOs— of aspects financial regarding clauses gag on Bans

physicians to delay or deny services. deny or delay to physicians

using specified (sometimes called “improper”) financial incentives to encourage to incentives financial “improper”) called (sometimes specified using

• These prohibit MCOs from MCOs prohibit These Bans on the use of provider financial incentives— financial provider of use the on Bans

incentives in MCOs, including the following: following: the including MCOs, in incentives

Policymakers have enacted or considered a range of measures to address financial address to measures of range a considered or enacted have Policymakers

protect themselves financially. themselves protect

sumers but raise concern that physicians may sometimes sacrifice quality of care to care of quality sacrifice sometimes may physicians that concern raise but sumers

ist referrals, or both. These incentives thus save money for MCOs and insurance con- insurance and MCOs for money save thus incentives These both. or referrals, ist at some risk for high costs, which encourages them to moderate utilization, special- utilization, moderate to them encourages which costs, high for risk some at proposed in September 1998, but final regulations have not yet been promulgated. Congress also has debated managed care consumer protection requirements for private populations. Some single-issue laws have been enacted, including a mandated length of stay for childbirth, but none of the more comprehensive consumer protection proposals have been enacted to date.

Pending Federal Proposals

Among the comprehensive federal patient protection proposals now under consideration (see table 1), there are four front-runners:

Table 1 Managed Care Consumer Protection Bills in the 106th Congress

House Senate Democrat Republican Democrat Republican Bipartisan

Comprehensive patient Dingell, Bilirakis, Norwood, Ganske, Daschle/ Reed, Jeffords, Lott/ Chafee/ protection bill H.R. 358 H.R. 448 H.R. 216 H.R. 719 Kennedy, S. 636 S. 326 Nickles, Graham S. 6/240 (children S. 300 S. 374 only)

Ombudsman program for health Reed, insurance consumers S. 496

Access to clinical trials only Snowe, S. 117

Breast cancer only DeLauro, Kelly, Snowe, H.R. 116 H.R. 383 S. 115

Equity in women’s health Schumer S. 479

Whistleblower protection / Foley, Wellstone/ Ban on retaliation for patient H.R. 137 Kennedy, advocacy S. 652

Physician determination of Coburn, Feinstein, hospital length of stay H.R. 989 S. 265/ (all conditions) 794 Reconstructive surgery Feinstein, (all medical conditions) S. 585

Access to emergency medical Graham, services only S. 517

Prohibition of genetic Snowe, discrimination S. 543

Privacy of medical records Markey, Leahy, Jeffords, H.R. 1057 S. 573 S. 578

Outcomes research and Frist, disclosure S. 580

Source: http://www.thomas.loc.gov, accessed February 1999. 8 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 9

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financially penalizing enrollees for taking advantage of specific protections. The bills The protections. specific of advantage taking for enrollees penalizing financially

GYNs); internal appeals and independent external review processes; and bans on bans and processes; review external independent and appeals internal GYNs);

mation; bans on gag clauses; direct access to obstetricians and gynecologists (OB- gynecologists and obstetricians to access direct clauses; gag on bans mation;

emergency room; disclosure of benefits, procedures, and provider and quality infor- quality and provider and procedures, benefits, of disclosure room; emergency

visions, according to various secondary sources. All of the bills provide access to the to access provide bills the of All sources. secondary various to according visions,

It also shows the number of states that have enacted similar pro- similar enacted have that states of number the shows also It mentioned above. mentioned

Table 3 lists the major patient protection provisions included in the four bills four the in included provisions protection patient major the lists 3 Table

Substantive Provisions Substantive

eral patient protection standards (BNA 1999a). (BNA standards protection patient eral

plans was to make it clear that only the federal government would enforce any fed- any enforce would government federal the only that clear it make to was plans

ance regulation. One reason Senate Republicans sought to regulate only self-insured only regulate to sought Republicans Senate reason One regulation. ance

issues of preemption of state law since self-insured firms are not subject to state insur- state to subject not are firms self-insured since law state of preemption of issues

which primarily applies to self-insured employee benefits plans, does not raise any raise not does plans, benefits employee self-insured to applies primarily which

for insured products, not for employee benefits plans). The Senate Republican bill, Republican Senate The plans). benefits employee for not products, insured for

with the federal legislation. States could impose more stringent rules (though only (though rules stringent more impose could States legislation. federal the with

state rules. The bills would not preempt state statutes unless the state laws conflict laws state the unless statutes state preempt not would bills The rules. state

All bills create a national minimum standard or floor, supplemented by existing by supplemented floor, or standard minimum national a create bills All

(Carey 1998, BNA 1999a). BNA 1998, (Carey

rules for independent external review processes to the fully insured population insured fully the to processes review external independent for rules

employer benefits plans that self-insure (48 million people), but it does extend the extend does it but people), million (48 self-insure that plans benefits employer

bill would have the narrowest application. Most of its provisions regulate only those only regulate provisions its of Most application. narrowest the have would bill

would cover about 125 million people (Carey 1998). Finally, the Senate Republican Senate the Finally, 1998). (Carey people million 125 about cover would

insurance issuers, but not individual products, already subject to state law. The bill The law. state to subject already products, individual not but issuers, insurance

cation, regulating private employer group health benefits plans and their health their and plans benefits health group employer private regulating cation,

1998, BNA 1999b). The House Republican proposal has a slightly narrower appli- narrower slightly a has proposal Republican House The 1999b). BNA 1998,

These plans and issuers are estimated to cover about 160 million Americans (Carey Americans million 160 about cover to estimated are issuers and plans These

insurers, including Blues plans and health maintenance organizations (HMOs).) organizations maintenance health and plans Blues including insurers,

vidual policies. (“Issuers” are what states often call “carriers,” that is, state-licensed is, that “carriers,” call often states what are (“Issuers” policies. vidual

employer health benefits plans and health insurance issuers, for both group and indi- and group both for issuers, insurance health and plans benefits health employer

Democratic measures have the broadest application, regulating both private both regulating application, broadest the have measures Democratic

approaches is the population each seeks to protect (see table 2). The bipartisan and bipartisan The 2). table (see protect to seeks each population the is approaches

One of the biggest differences in the Republican, Democratic, and bipartisan and Democratic, Republican, the in differences biggest the of One

Application

line vote, as of March 1999 (BNA 1999b). (BNA 1999 March of as vote, line

The Jeffords bill is the only one to have advanced past committee, on a party- a on committee, past advanced have to one only the is bill Jeffords The

• A Senate Republican bill (S. 326—Sen. James Jeffords). James 326—Sen. (S. bill Republican Senate A •

• A House Republican bill (H.R. 448—Rep. Michael Bilirakis), and and Bilirakis), Michael 448—Rep. (H.R. bill Republican House A •

• A bipartisan Senate bill (S. 374—Sens. John Chafee and Robert Graham), Robert and Chafee John 374—Sens. (S. bill Senate bipartisan A •

Daschle),

Senate (H.R. 358—sponsored by Rep. John Dingell; S. 6—Sen. Thomas 6—Sen. S. Dingell; John Rep. by 358—sponsored (H.R. Senate • A Democratic measure that takes the same form in both the House and the and House the both in form same the takes that measure Democratic A • Table 2 Application and Enforcement of Comprehensive Consumer Protection Bills under Consideration in the 106th Congress

Bill Amends? Regulates? Preemption of State Law? Enforcement by?

Dingell/ Public Health Employer health benefits plans and Supersedes state law only Secretaries of Daschle Service Act health insurance issuers, covering an where state law would prevent the Health and Human H.R. 358/ (PHSA) estimated 160–161 million Americans application of a requirement of this Services, Labor, and a,b S. 6 ERISA with private health insurance. act. Treasury (issue regu- IRS Code Covers enrollees in group health plans Breast cancer treatment provi- lations) and those with individual coverage. sions do not preempt state law if States state laws fit definitions specified President/Congress in Act. (appoint Health Care Advisory Board) Institutional health care providers (post protections for patient advocacy)

Chafee/ PHSA Employer health benefits plans and Supersedes state law only where Secretaries of Health Graham ERISA health insurance issuers, covering an state law would prevent the appli- and Human Services, c S. 374 IRS Code estimated 160–161 million Americans cation of a requirement of this act. Labor, and Treasury with private health insurance. State may establish any require- (issue regulations) Covers enrollees in group health plans ment or standard that uses a short- Director of Agency and those with individual coverage. er period of time for any internal or for Health Care Policy external appeals process. and Research States

Jeffords/ PHSA Self-insured employer health benefits Bill applies only to self-insured Secretary of DHHS plans, covering an estimated 48 million health plans; no overlap with state (issue regulations) Lott/ Nickles ERISA e S. 326/ S. Americans. law. Attorney General d,e 300 Most provisions apply to group bene- (consult with Secre- fits only. tary of DHHS in impos- Some sections also apply to health ing civil monetary insurance issuers (including information penalties) disclosure, grievance, and coverage appeals). Requirements for confidentiality apply to providers, health plans, health oversight agencies, public health authorities, employers, health or life insurers, health researchers, schools, universities, and law enforcement officials. Prohibition on genetic discrimination applies to individual policies as well as group policies.

Bilirakis PHSA Employer health benefits plans and Preemption of state law where in Secretaries of Labor, f,g H.R. 448 ERISA health insurance issuers, covering an conflict or where it is less strin- Treasury, and Health IRS Code estimated 123–125 million Americans. gent. (Specified only in sections on and Human Services Group benefits only. Association Health Plans, Health (issue regulations) Health care lawsuit reform title applies Marts, and Community Health to actions against health care providers, Organizations.) any health benefit plan (including group health plans, issuers, third-party adminis- trator (TPA), and Medicare+Choice plans), and manufacturers, distributors, suppliers, marketers, promoters, or sell- ers of a medical product.

Sources: a. Daschle 1999; b. Carey 1998; c. Chafee 1999; d. Jeffords 1999; e. BNA 1999a; f. Bilirakis 1999; g. BNA 1999b.

differ in the general philosophy and range of other provisions, however. The Democratic bill takes the most restrictive approach, including controversial measures

allowing enrollees to sue their MCOs or benefits plans (under limited circum- 10 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 11

GOVERNMENT FEDERAL AND STATE FOR ROLES CHANGING PROTECTION: PATIENT AND FEDERALISM

INSTITUTE

THE URBAN THE

necessary” care (AHL 1999). Last year’s House Republican bill (H.R. 4250), the 4250), (H.R. bill Republican House year’s Last 1999). (AHL care necessary”

tives, or broad requirements of clinical autonomy over what constitutes “medically constitutes what over autonomy clinical of requirements broad or tives,

versial provisions such as the right to sue, sweeping prohibitions of financial incen- financial of prohibitions sweeping sue, to right the as such provisions versial

care. Such compromises have helped states break legislative deadlocks over contro- over deadlocks legislative break states helped have compromises Such care.

that do not greatly raise costs or challenge the most fundamental aspects of managed of aspects fundamental most the challenge or costs raise greatly not do that

mise would be a “lean” bill embodying the most broadly accepted provisions—those accepted broadly most the embodying bill “lean” a be would mise

If no agreement can be reached on a comprehensive bill, one possible compro- possible one bill, comprehensive a on reached be can agreement no If

bills have the same provisions, the specifics differ enormously. differ specifics the provisions, same the have bills

require the health plan or issuer to pay the costs of the process. In short, even where even short, In process. the of costs the pay to issuer or plan health the require

In contrast, the Democratic and bipartisan measures bipartisan and Democratic the contrast, In reviewer’s recommendations. reviewer’s

does not require employee benefits plans or health insurance issuers to follow the follow to issuers insurance health or plans benefits employee require not does

Republican bill, unlike the other bills, requires the enrollee to pay for the review but review the for pay to enrollee the requires bills, other the unlike bill, Republican

review of the entire case, as in the Democratic bill (BNA 1999b). The House The 1999b). (BNA bill Democratic the in as case, entire the of review

de novo de complete allow not does it but guidelines, practice clinical plan’s a to tion

external reviewers to review the medical evidence of patients and physicians in addi- in physicians and patients of evidence medical the review to reviewers external

outside reviewers may consider on appeal. The Senate bill has been amended to allow to amended been has bill Senate The appeal. on consider may reviewers outside

sity or experimental treatment. Both Republican bills also constrain the evidence that evidence the constrain also bills Republican Both treatment. experimental or sity

while the Republican measures permit review only of denials based on medical neces- medical on based denials of only review permit measures Republican the while

(DHHS), DOL, or Treasury. The Democratic bill allows appeals of any grievance, any of appeals allows bill Democratic The Treasury. or DOL, (DHHS),

fied by the state or a federal Department of Health and Human Services secretary Services Human and Health of Department federal a or state the by fied

ers, while the Democratic and bipartisan bills require external reviewers to be certi- be to reviewers external require bills bipartisan and Democratic the while ers,

pendent external reviewer. Republican bills allow health plans to choose the review- the choose to plans health allow bills Republican reviewer. external pendent

example, all grant enrollees the right to appeal plan coverage decisions to an inde- an to decisions coverage plan appeal to right the enrollees grant all example,

Republican, and bipartisan approaches are often quite different in the details. For details. the in different quite often are approaches bipartisan and Republican,

Even where all the bills include the same provisions, however, the Democratic, the however, provisions, same the include bills the all where Even

uncontrollable or abusive behavior. behavior. abusive or uncontrollable

other bills, protecting the mentally ill from involuntary disenrollment based on based disenrollment involuntary from ill mentally the protecting bills, other

of a POS option, the bipartisan bill does not. It also includes a provision not seen in seen not provision a includes also It not. does bill bipartisan the option, POS a of

strongly favored by Republicans. Oddly, while all three other bills require the offer the require bills other three all while Oddly, Republicans. by favored strongly

issuers, strongly opposed by Republicans, and includes direct access to pediatricians, to access direct includes and Republicans, by opposed strongly issuers,

in the Democratic bill, but importantly omits the enrollee right to sue plans or plans sue to right enrollee the omits importantly but bill, Democratic the in

The bipartisan bill seeks the middle ground: it duplicates most of the provisions the of most duplicates it ground: middle the seeks bill bipartisan The

mation to set premiums or exclude individuals from coverage. from individuals exclude or premiums set to mation

publican bill is the only one that prohibits issuers and plans from using genetic infor- genetic using from plans and issuers prohibits that one only the is bill publican

standards for health care liability lawsuits but no new ability to sue. The Senate Re- Senate The sue. to ability new no but lawsuits liability care health for standards

of the Jeffords bill. The House bill does include a unique section creating new creating section unique a include does bill House The bill. Jeffords the of

ity of care, confidentiality, or disclosure of physician financial incentives that are part are that incentives financial physician of disclosure or confidentiality, care, of ity

House bill, sponsored by Rep. Bilirakis, does not include the measures for continu- for measures the include not does Bilirakis, Rep. by sponsored bill, House

ities, however, the two Republican bills are quite different from each other. The other. each from different quite are bills Republican two the however, ities,

provision not seen in the bipartisan and Democratic bills. Beyond these commonal- these Beyond bills. Democratic and bipartisan the in seen not provision

and patients. They do allow patients to access and amend their medical records, a records, medical their amend and access to patients allow do They patients. and

do they ban any prohibition of discussions of financial incentives between physicians between incentives financial of discussions of prohibition any ban they do

premiums and force people to lose coverage,” mentioned above (BNA 1999b). Nor 1999b). (BNA above mentioned coverage,” lose to people force and premiums

The Republican bills seek to avoid the more “costly mandates that could raise could that mandates “costly more the avoid to seek bills Republican The

cian decisions, and banning inappropriate financial incentives to physicians. to incentives financial inappropriate banning and decisions, cian stances), defining medical necessity, prohibiting “arbitrary” interference with physi- with interference “arbitrary” prohibiting necessity, medical defining stances), Table 3 Managed Care Patient Protection Provisions in Federal Bills, 106th Congress

Democratic Bipartisan Republican Number of Dingell/Daschle Chafee/Graham Jeffords/Lott Bilirakis States Provision H.R. 358/S. 6a S. 374b S. 326/S. 300c,d H.R. 448 e (Approximations)

Network Formation Network access standards X X 20f Access to out-of-network care if X X 15g network is inadequate h i POS option X X X 17 –18 Continuity of care X X X 21j Provider Written notice of X X 24k selection/ contract termination Termination or nonselection i k rules Provider appeals X X 11–17 process k Disclosure of selection X X 17 criteria Specified terms of provider X X n/a* selection/nondiscrimination i Any willing provider 24

Benefits Coverage and Limitations

l ER access X X X X 43 g Access to clinical trials X X 3 i Hospital stay for breast cancer surgeries X X 18 f Disclosure X X X X at least 27

Utilization Management No arbitrary interference with physician X X n/a treatment decisions m Medical necessity defined as consistent X X 3 with accepted professional medical practice n Ban on gag clauses X X X X 47 g Access Specialists as PCPs X X X 10 within Direct access to OB-GYNs X X X X 31g network Direct access to X X X n/a pediatricians g Standing referrals X X 13 g Health plan Enrollee right to sue X 2 liability Uniform standards for health X n/a care liability lawsuits o Prohibition of indemnifica- X X 16 tion (hold harmless) clauses f Coverage decision timeframes and written X X X at least 3 notice requirements p Internal appeals rules X X X X 50 i Independent external review X X X X 22 Patient access to medical records, X X n/a procedures for amendment

(continued on next page) 12 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 13

GOVERNMENT FEDERAL AND STATE FOR ROLES CHANGING PROTECTION: PATIENT AND FEDERALISM

INSTITUTE

THE URBAN THE

tant in understanding how any enactment would affect the states. Practical impacts Practical states. the affect would enactment any how understanding in tant

The legal application and content of federal bills just discussed are very impor- very are discussed just bills federal of content and application legal The

What Federal Legislation Means for States for Means Legislation Federal What

and medical record confidentiality rules. rules. confidentiality record medical and

women, standards for internal appeals, provisions for independent external appeals, external independent for provisions appeals, internal for standards women,

clauses, access to emergency room care, continuity-of-care provisions for pregnant for provisions continuity-of-care care, room emergency to access clauses,

include: mandatory offer of a POS option, disclosure requirements, a ban on gag on ban a requirements, disclosure option, POS a of offer mandatory include:

only bill to pass either chamber, may hint at what a successful compromise bill could bill compromise successful a what at hint may chamber, either pass to bill only

*n/a means not available. States may have such provisions, but no secondary source has catalogued such requirements. such catalogued has source secondary no but provisions, such have may States available. not means *n/a

o. Rothouse 1999; p. Stauffer 1999b; q. Herstek 1999; r. Stauffer 1999c; s. Laudicina et al. 1998a. al. et Laudicina s. 1999c; Stauffer r. 1999; Herstek q. 1999b; Stauffer p. 1999; Rothouse o.

auffer 1999d; auffer St n. 1999h; Stauffer m. 1999e; Stauffer l. 1999g; Stauffer k. 1999i; Stauffer j. 1998b; al. et Laudicina i. 1999f; Stauffer h.

a. Daschle 1999; b. Chafee 1999; c. Jeffords 1999; d. BNA 1999b; e. Bilirakis 1999; f. Stauffer 1999a; g. Families USA 1998; USA Families g. 1999a; Stauffer f. 1999; Bilirakis e. 1999b; BNA d. 1999; Jeffords c. 1999; Chafee b. 1999; Daschle a. Sources:

Board

raino ainlHat aeAvsr 0 X Advisory Care Health National of Creation

proposed benefits mandates benefits proposed

Institutes of Health (NIH) of all future all of (NIH) Health of Institutes

Medicine (IOM), AHRQ, and National National and AHRQ, (IOM), Medicine

eurdsuyb HS nttt fX0 X of Institute DHHS, by study Required

for Healthcare Research and Quality (AHRQ) Quality and Research Healthcare for

Policy and Research (AHCPR) as Agency as (AHCPR) Research and Policy

eomto fAec o elhCr X0 X Care Health for Agency of Reformation

delivery of services of delivery

odsrmnto gis nole nXXn/a X X in enrollees against Nondiscrimination

mental illness mental

oivlnaydsnoletdet Xn/a X to due disenrollment involuntary No

osmrassac rga 3 X X program assistance Consumer

s n o i s i v o r P r e h t O

certain services certain

oerle iaca netvsfr 13 X X X X for incentives financial enrollee No

i,s

icoueo opnainmtosXXX6 X X X methods compensation of Disclosure

with patients with

from discussing financial terms of plan of terms financial discussing from

aso lue rvnigpyiin 8 X physicians preventing clauses on Bans

i,s

to deny care deny to

rhbto nfnnilicnie 24 X X incentives financial on Prohibition

s e v i t n e c n I l a i c n a n i F

improvement programs improvement

Mandated quality assurance and X X at least 11 least at X X and assurance quality Mandated

procedures

Requirements for utilization review X X at least 19 least at X X review utilization for Requirements

rcdrst bannnomlr rg 8 X X X drugs nonformulary obtain to Procedures

rhbto fgntcdsrmnto 27 X discrimination genetic of Prohibition

Medical record confidentiality X X X at least 12 least at X X X confidentiality record Medical

, t n e m e g a n a M n o i t a z i l i t U d e u n i t n o c

rvso ..38S .34S 2/.30HR 4 (Approximations) 448 H.R. 300 326/S. S. 374 S. 6 358/S. H.R. Provision

c,d a e b

igl/acl hfeGaa efrsLt iiai States Bilirakis Jeffords/Lott Chafee/Graham Dingell/Daschle

Number of Number

eortcBpria Republican Bipartisan Democratic

Table 3 Table aae aePtetPoeto rvsosi eea il,16hCnrs,continued Congress, 106th Bills, Federal in Provisions Protection Patient Care Managed in any given state also depend on how many residents are in managed care but have little or no patient protection under existing state or federal rules. This section addresses state-by-state variations in impact depending on the size of each state’s affected populations and the extent of existing state protections. The 13 ANF focus states5 illustrate the wide variation in both these factors.

Size of the Affected Population Some residents in every state are already covered by managed care consumer protections under federal government–sponsored health plans. Also, in some states, only a small percentage of the population is covered by self-insured health benefits plans, expanding the reach of any existing state regulation. The importance of federal patient protection legislation depends in part on how many people in the state are enrolled in managed care plans, the target of most patient protection standards. So in a given state, the number of people affected by new federal legislation would depend in part on the extent of coverage in federal plans, self-insurance, and managed care penetration.

Federal plan coverage

A substantial portion of people in every state are already covered by patient protection requirements under federal health programs. Medicare, FEHBP, and military and veterans’ programs insure about 15 to 20 percent of residents in each of the 13 focus states (U.S. Bureau of the Census 1998).6 There is even greater variation across the 13 focus states in Medicaid enrollment, ranging from 5.9 to 18.1 percent of the nonelderly population in Colorado and California, respectively (Liska et al. 1998).

Self-insurance

The fewest legal protections apply to the self-insured, so it is of great interest to know the extent of self-insurance by state. Unfortunately, there are no state-level estimates for the number of people covered by self-insured health benefits plans, but the figure surely varies by state.7

MCO penetration

A more measurable portion of the state population likely to be affected is the percentage covered by managed care organizations. Where few residents are served by MCOs, legislation limiting MCO practices would affect care for only those few. Note that low MCO penetration does not always correspond with low levels of state managed care regulation. Table 4 shows the penetration of health maintenance organizations and preferred provider organizations (PPOs) in the 13 focus states.8 California, Colorado, and Minnesota have high rates of both HMO and PPO penetration relative to other focus states. Thus, these states would feel the largest impact of new federal managed care legislation, other things equal. The smallest impact would occur in states with

relatively low enrollment in both HMOs and PPOs, like Mississippi and Michigan. 14 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT Table 4 Managed Care Penetration in 13 States

HMO Penetration, 1996a In-State PPO Penetration, 1994b State (percent of total population) (percent of total population)

United States 24.0 N/A* Alabama 8.6 34.5 California 42.6 23.4 Colorado 28.3 50.9 Florida 26.3 22.2 Massachusetts 39.3 7.6 Michigan 23.2 7.7 Minnesota 31.5 32.9 Mississippi 1.9 22.8 New Jersey 26.7 13.1 New York 30.9 3.8 Texas 13.2 28.7 Washington 21.1 24.1 Wisconsin 29.4 11.2

Sources: a. Interstudy 1997; b. HIAA 1995. * Not available. Health Insurance Association of America (HIAA) included enrollment in national PPOs in the U.S. total but omitted enrollment in multistate PPOs from state figures. For that reason, the national and state numbers are not comparable. Several other states have high percentages in HMOs but not PPOs (such as Massachusetts) or vice versa (for example, Texas). Such disparity in penetration rates may occur where one type of health plan enjoys regulatory advantages or became entrenched before other plan types developed. New regulation will have considerable effects if it targets the type of managed care with the largest enrollment but only marginal effects if it targets a plan type with small statewide enrollment. Where regulations apply to all forms of health insurance, the impact on the state will still be influenced by managed care penetration, because managed care practices will be more widespread (even among traditional forms of insurance) where MCOs have high market share. The specific requirements enacted will also be more relevant to some forms of health insurance than to others. In general, patient protection provisions would be expected to affect indemnity plans the least, HMOs the most, and PPOs somewhere in between; but this depends on the mix of controls used by a given MCO. For example, since there are no networks and no gatekeepers in indemnity insurance, provisions like direct access to specialists, the option to use out-of-network providers, and continuity of care would be irrelevant to indemnity carriers. Most PPOs do not use gatekeepers but do have a limited provider network, so some network restrictions would apply. However, PPOs already provide partial coverage for out-of-network services, so a mandated POS option would be superfluous. Mandated POS and continuity of care might be most onerous for staff-model HMOs, which rely on a relatively small, closed panel of physician employees. HMOs that capitate physician groups globally for all services might be little affected by UM restrictions but would have big problems with restrictions on financial incentives. To the extent that HMOs are most apt to use all of these types of controls, they would be most affected by patient protection regulation. THE URBAN

INSTITUTE FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 15 Existing State Regulation The likely effect of federal patient protection legislation also depends on the extent to which states have already enacted similar statutes. Duplicative federal legislation would not make substantial changes. Indeed, if federal legislation delegates enforcement authority to states (as discussed below), nothing would change. The exceptions to this, of course, are that federal statutes may preempt conflicting state requirements and that they can protect more insured people than state regulation can. The provisions under consideration at the federal level were generally enacted first at the state level, so they tend to be similar to the managed care rules seen at the state level. However, the details of some provisions, such as the appeals timetable, often vary across states and between the states and the federal proposals. Table 5 shows the key provisions in the 13 focus states and the total number of provisions each state has in force. The types and numbers of provisions enacted vary greatly across the selected states (this is also true for the rest of the states not shown here). A few provisions in proposed federal legislation would be totally new to every state because no state has them, including rules requiring direct access to pediatricians and noninterference with physician decisions. Other measures have been enacted in only a few states, including an enrollee right to sue health plans (Texas and Missouri), definitions of medical necessity (North Dakota, Georgia, and Texas), and access to clinical trials (Georgia, Maryland, and Rhode Island) (Stauffer 1999h, Families USA 1998). A few state measures would be wholly unaffected by the legislative proposals we studied because they have no federal counterpart, including AWP laws and others not included in Table 5. The four bills we studied would not make managed care regulation completely uniform across states but would generally create a floor of minimum standards. Certain measures have been widely enacted across states. The ban on gag clauses has achieved near unanimity, even though in practice gag clauses appear to be rare (GAO 1997b). Other widely enacted measures are direct access to OB-GYNs, access to emergency services, and disclosure of plan information at the time of enrollment. These provisions may evince either the most widely shared fears about managed care or, alternatively, the simplest points of consensus. Seven of the 13 states have high counts of managed care patient protection provisions.9 Texas, New York, and New Jersey have the largest number of restrictions, at 21, 18, and 17, respectively. Other things equal, these states would see the least impact from the federal legislation, although state law might have to be harmonized with specific provisions of federal law. Among the six focus states with low numbers of managed care provisions are Washington, Massachusetts, and Alabama, with only 5, 6, and 6 already in force. These states would see the greatest impact from a federal law. Because of the split in regulatory authority over fully insured vs. self-insured employee benefits plans, after any federal enactment, protections for residents within any one state might be uniform or might still vary by insurance status. Under the Democratic and bipartisan federal bills, protections for a given state’s residents would be uniform in states that previously had the same or fewer enacted protections,

because the minimum floor of federal legislation would set a new state maximum. 16 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 17

GOVERNMENT FEDERAL AND STATE FOR ROLES CHANGING PROTECTION: PATIENT AND FEDERALISM

INSTITUTE

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(continued on next page) next on (continued

improvement programs improvement

b X and assurance quality Mandated

procedures*

a eurmnsfruiiainrve X X X review utilization for Requirements

X Procedures to obtain nonformulary drugs nonformulary obtain to Procedures

XX XXX discrimination genetic of Prohibition XX

++ ++ p

X confidentiality* record Medical

procedures for amendment for procedures

ain cest eia eod, / / / / / / / / / / / / n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a records, medical to access Patient

X XXXX XX XXX review external Independent

+ c,o

XXXXXXXXXXX X X rules appeals Internal

notice requirements* notice

a Coverage decision timeframes and written and timeframes decision Coverage

tion (hold harmless) clauses harmless) (hold tion

rhbto fidmiia X X indemnifica- of Prohibition study

care liability lawsuits liability care

/ / / / / / / / / / / / n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a health for standards Uniform

liability for damages for liability

c,n elhpa nolergtt u lnX plan sue to right Enrollee plan Health

Standing referrals Standing XXXX X X XX

a,b,c

pediatricians

ietacs onanananananananananananan/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a to access Direct

network

XXXXXXX XX X X OB-GYNs to access Direct

within

a,b,c

XXXX X Access Specialists as PCPs as Specialists Access

a,b,c

Ban on gag clauses gag on Ban XX XXXX XXXXX X

c,m

accepted professional medical practice medical professional accepted

ossetwt X** with consistent — necessity Medical

oitreec ihpyiindcsosnanananananananananananan/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a decisions physician with Noninterference

U t n e m e g a n a M n o i t a z i l i t

XXXXX XX X X X Disclosure*

a,b

Hospital stay for breast cancer surgeries cancer breast for stay Hospital XXX XX

k,l

Access to clinical trials clinical to Access

XXXXXX XX X X X access ER

b,c,j

B s n o i t a t i m i L d n a e g a r e v o C s t i f e n e

Any willing provider willing Any X XXXXX X XXX XX

^ b,i

selection/nondiscrimination

e em fpoie / / / / / / / / / / / / n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a provider of terms Set

criteria

g,h icoueo eeto X X X X X X selection of Disclosure

process

rvdrapasX appeals Provider XXXX

rules

Termination or nonselection or Termination

g selection/ contract termination contract selection/

rvdrWitnntc fXXXXXXX X X X X X X of notice Written Provider

Continuity of care of Continuity XXXXX XXX X XX X

O O O O O ohPSboth POS both FOC POS POS FOC FOC option FOC or POS

d,e

network is inadequate is network

c cest u-fntokcr fXXXX X X X if care out-of-network to Access

XXXX X XX standards* access Network

¶ , a,b

N n o i t a m r o F k r o w t e

rvso LC OF AM NM JN XW WI WA TX NY NJ MS MN MI MA FL CO CA AL Provision

Table 5 Table Managed Care Patient Protection Provisions in the 13 Focus States Focus 13 the in Provisions Protection Patient Care Managed Table 5 Managed Care Patient Protection Provisions in the 13 Focus States, continued

Provision AL CA CO FL MA MI MN MS NJ NY TX WA WI Financial Incentives Prohibition on financial incentives X X X X X c,q to deny care Bans on clauses preventing physicians X X X b from discussing financial terms of plan b Disclosure of compensation methods XXX No enrollee financial incentives for X X X X b certain services

Other Provisions Consumer assistance programc XX^^ X Count per state 6 15 14 16 6 9 16 8 17 18 21 5 8

Sources: a. Stauffer 1999a; b. Laudicina et al. 1998a; c. Families USA 1998; d. Stauffer 1998g; e. Stauffer 1998h; f. Stauffer 1998e; g. Stauffer 1999g; h. HPTS 1998; i. Stauffer 1998a; j. Stauffer 1998f; k. Kaiser 1998; l. Laudicina et al., 1998b; m. Stauffer 1998c; n. Rothouse 1999; o. Stauffer 1998i; p. Herstek 1999; q. Stauffer 1999c. Notes: * No source deals with these standards explicitly; therefore, we may have missed existing legislation in some states. ¶ UI ANF case studies. ^Alabama’s AWP law was ruled preempted by ERISA by a U.S. District Court. **Texas defines medical necessity only to bar MCOs from retaliating against physicians who advocate for medically necessary care for their patients (sec. 888.002(f)). +Texas’s hold harmless and external appeals laws were overturned by the U.S. District Court for the Southern District of Texas. ++New York and Florida have laws requiring confidentiality of genetic testing but do not prohibit rate or coverage discrimination. ^^By Executive Order. n/a appears where we do not have evidence regarding individual state enactment of certain provisions.

However, states with greater regulation would have two tiers of protection—more for residents with fully insured coverage regulated by the state and only the federal minimum for the self-insured. Under the Senate Republican approach, nearly every state would have different levels of protection for different populations, because existing state rules would continue for the fully insured, and probably somewhat different national federal rules would apply to the self-insured. State insurance regulators, through the National Association of Insurance Commissioners, have urged Congress not to interfere with existing state regulations or to impose national uniformity, arguing that states are responsive to their own conditions (Sebelius 1999). They are thus perceived as supporting the Jeffords bill or a similar Republican proposal (AMN 1999).

Intersection of Regulation and Penetration The influences of managed care penetration and existing state regulation inter- act. High-penetration states with few existing provisions would be greatly affected by new federal law. In contrast, low-penetration states with more existing regulation would see little change for the fully insured population. Tables 6a and 6b plot the intersection of managed care regulation and managed care penetration among the 13 focus states. With regard to HMO enrollment, Texas would probably be least

affected by federal legislation because it has relatively low HMO penetration but 18 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 19

GOVERNMENT FEDERAL AND STATE FOR ROLES CHANGING PROTECTION: PATIENT AND FEDERALISM

INSTITUTE

THE URBAN THE

for aggrieved individuals. aggrieved for

through administrative oversight and through the provision of legal remedies legal of provision the through and oversight administrative through — law

(HIPAA). As a group, the federal proposals make use of two ways to enforce new enforce to ways two of use make proposals federal the group, a As (HIPAA).

responsibilities under the Health Insurance Portability and Availability Act of 1996 of Act Availability and Portability Insurance Health the under responsibilities

already discussed. All current proposals build on the prior federal assignment of assignment federal prior the on build proposals current All discussed. already

Differences follow partisan lines, as they do for the substantive rules substantive the for do they as lines, partisan follow Differences regulation.

and enforcement, which derive from the differences in the entities they target for target they entities the in differences the from derive which enforcement, and

The pending federal proposals take very different approaches to implementation to approaches different very take proposals federal pending The

Implementation and Enforcement and Implementation

insurance would affect the calculus of practical impacts as well. as impacts practical of calculus the affect would insurance

and New York would see little impact. As already mentioned, the extent of self- of extent the mentioned, already As impact. little see would York New and

would be likely to see the greatest impact from federal legislation, while New Jersey New while legislation, federal from impact greatest the see to likely be would

high and the number of provisions is low. Looking at PPO enrollment, Alabama enrollment, PPO at Looking low. is provisions of number the and high

would theoretically come in Massachusetts, where HMO enrollment is relatively is enrollment HMO where Massachusetts, in come theoretically would

many patient protection measures. Among the 13 focus states, the greatest impact greatest the states, focus 13 the Among measures. protection patient many

Massachusetts

Michigan New York New Michigan

Low Wisconsin New Jersey New Wisconsin Low

issip Florida Mississippi

Medium Washington California Washington Medium

Texas

Minnesota

ihAaaaColorado Alabama High

ecn nPO o High Low PPOs in Percent

Number of Provisions Provisions of Number

Table 6b Table Managed Care Regulation and PPO Penetration in the 13 Focus States Focus 13 the in Penetration PPO and Regulation Care Managed

Mississippi

o lbm Texas Alabama Low

Florida

New Jersey Jersey New

ahntnColorado Washington

Michigan New York York New Michigan

Medium Wisconsin Minnesota Minnesota Wisconsin Medium

ihMsahstsCalifornia Massachusetts High

ecn nHO o High Low HMOs in Percent

Number of Provisions Provisions of Number

Table 6a Table Managed Care Regulation and HMO Penetration in the 13 Focus States Focus 13 the in Penetration HMO and Regulation Care Managed Administrative Oversight For administrative oversight, HIPAA established a hierarchy of shared responsibilities, both within the federal level and between federal and state enforcement authorities. Arrangements are complex and can only be sketched here.11 Federal responsibilities are split between the Departments of Labor and of Health and Human Services, with a smaller role for the Treasury Department, mainly to enforce some tax penalties. All the departments collaborate to develop substantive regulations to implement HIPAA, but implementation is parceled out: DOL oversees ERISA plans, namely workplace-based group benefits plans run by employers or unions. DHHS covers issuers of coverage, that is, state-regulated insurers. For such insurance products, Congress intended states to play a major role, and HIPAA calls for DHHS to delegate responsibility for enforcement to states where their laws are consistent with HIPAA rules (some states had to enact conforming amendments). Where state rules fall short of HIPAA requirements, DHHS regulates issuers directly; as of this writing, direct DHHS regulation applies in five states. The Senate Republican bill on patient protection applies almost exclusively to coverage for self-insured, employment-based groups, which under ERISA are not subject to any state regulation. Requirements on appeals of benefit denials apply to all ERISA plans. To issue regulations and enforce requirements, the bills rely exclusively on DOL, which oversees ERISA. Enforcement powers include the ability to set limited civil monetary penalties. DOL has already applied some patient protection rules relating to disclosure for employment-based plans, as mentioned above (DOL 1998b). State rules are unaffected by the Senate Republican approach. It is possible that there will be some administrative coordination of activities between DOL and state authorities, although this is not explicitly provided in the bills. The main Democratic bills follow the HIPAA model even more closely because they apply to all private coverage, as HIPAA did. Like HIPAA, they allow states to assume enforcement responsibility where they already have enacted or subsequently enact similar or stronger patient protections. Where states have not acted, DHHS is to enforce patient protections for plans buying fully insured coverage through rules on “issuers” of coverage. The bills do not specify who will judge whether states qual- ify for enforcement responsibility, but this will presumably be similar to the HIPAA process of state certification and DHHS review and approval. For ERISA plans, notably including the self-insured, the Democratic proposals call for DOL to enforce the federal patient protections (just as the Republican one does). The bipartisan proposal (S. 374) has the most developed enforcement provisions (Subtitle D—Enhanced Enforcement Authority). It gives DHHS the same authority to investigate violations as DOL has to enforce ERISA and allows DHHS to compel states that have assumed HIPAA responsibilities to explain their enforcement efforts relevant to patient protection (sect. 141(a)). The bill creates authority for the secretaries of DHHS and DOL to apply a graduated schedule of civil money penalties and

new power to order injunctive relief. 20 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 21

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but none has enacted them. enacted has none but

Morreim 1997). Most state legislatures considered liability reforms in 1998 or 1999, or 1998 in reforms liability considered legislatures state Most 1997). Morreim

(sect. 88.001 (10)), potentially a very important distinction (Bovbjerg 1975, (Bovbjerg distinction important very a potentially (10)), 88.001 (sect.

ment of managed care behavior by managed care standards, not by medical standards medical by not standards, care managed by behavior care managed of ment

(Texas Code 1999, sect. 88.002(a)). The law calls for assess- for calls law The 88.002(a)). sect. 1999, Code (Texas ” decisions treatment “

in making in ” care ordinary “ exercise to fails that ” entity care managed other or tion,

health insurance carrier, health maintenance organiza- maintenance health carrier, insurance health “ any for liability establishes

protect medical providers, notably including limits on damages. The Texas statute Texas The damages. on limits including notably providers, medical protect

that ” reforms tort “ legislative from benefit also would Plans clinicians. as standards

(sect. 538.205). Thus, HMOs would be judged liable for malpractice by the same the by malpractice for liable judged be would HMOs Thus, 538.205). (sect.

” care health improper on based actions “ tort of purposes for ” providers medical “

plans (Butler 1997). The Missouri reform defines HMOs (but not other MCOs) as MCOs) other not (but HMOs defines reform Missouri The 1997). (Butler plans

Texas and Missouri in 1997 legislated new legal bases for claims against health against claims for bases legal new legislated 1997 in Missouri and Texas

Maedgen 1995). 1995). Maedgen

dent has only just begun to evolve new theories of managerial liability (Bearden and (Bearden liability managerial of theories new evolve to begun just only has dent

negligence the plans were not responsible (Rosoff 1987, Sage 1997). Judicial prece- Judicial 1997). Sage 1987, (Rosoff responsible not were plans the negligence

for whose for ” contractors independent “ as arrangements care managed most under

sued for malpractice. Similarly, the law traditionally viewed physicians and hospitals and physicians viewed traditionally law the Similarly, malpractice. for sued

doctrine traditionally held that plans do not practice medicine, hence they cannot be cannot they hence medicine, practice not do plans that held traditionally doctrine

not yet evolved to hold plans responsible for failures in medical care. State judicial State care. medical in failures for responsible plans hold to evolved yet not

personal injury (Table 7), for two main reasons. First, state judicial doctrines have doctrines judicial state First, reasons. main two for 7), (Table injury personal

under state law, they can seldom litigate claims that managers of care have caused have care of managers that claims litigate seldom can they law, state under

Today, although patients can readily sue a health care provider for malpractice for provider care health a sue readily can patients although Today,

State law of personal injury and federal preemption of litigation of preemption federal and injury personal of law State

injury and most Republicans opposed or allowing only very structured remedies. structured very only allowing or opposed Republicans most and injury

President Clinton and most Democrats supporting expanded claims for personal for claims expanded supporting Democrats most and Clinton President

issuers. Federal proposals have differed markedly in their treatment of lawsuits, with lawsuits, of treatment their in markedly differed have proposals Federal issuers.

to bring personal injury lawsuits against health benefits plans and health insurance health and plans benefits health against lawsuits injury personal bring to

Another highly controversial source of enforcement is expanding patients expanding is enforcement of source controversial highly Another ability ’

Patient Protection and Lawsuits against Health Plans Health against Lawsuits and Protection Patient

kinds of violations. of kinds

authority. Under ERISA, various fines can be imposed on a daily basis for different for basis daily a on imposed be can fines various ERISA, Under authority.

The leading Democratic bill (S. 6/H.R. 358) relies mainly on existing sanction existing on mainly relies 358) 6/H.R. (S. bill Democratic leading The

are so frequent as to constitute a general business practice. business general a constitute to as frequent so are

terpart (H.R. 448) goes further, authorizing fines up to $100,000 where violations where $100,000 to up fines authorizing further, goes 448) (H.R. terpart

enforcement apply (Social Security Act sec. 1128A). The House Republican coun- Republican House The 1128A). sec. Act Security (Social apply enforcement

attorney general in making this determination, and the procedures of Medicare of procedures the and determination, this making in general attorney

The secretary must consult with the with consult must secretary The violating the act (sec. 231(a)). (sec. act the violating ” materially and

sion authorizing the secretary to impose a civil penalty on any party for for party any on penalty civil a impose to secretary the authorizing sion substantially “ The leading Senate Republican bill (S. 326) relies mainly on one general provi- general one on mainly relies 326) (S. bill Republican Senate leading The Table 7 Consumers’ Ability to Sue for Injury Caused by Health Plan Coverage Decisions

Estimated Number of Americans Source of Coverage Covered* Available Remedies

State-regulated plans 10–16 million In most states, individuals can sue health plans in state courts either under contract law to (individual market) claim denied benefits or under tort law for personal injury, to claim compensation for monetary and intangible losses as well as punitive damages. State and local 23 million In most states, individuals can sue health plans in state courts under contract law for benefits government or under tort for personal injury. employee plans Medicaid 37 million Individuals cannot sue the federal government but can sue state Medicaid programs and (traditional or health plans in state courts under either contract law or tort law for personal injury. managed care) Medicare 37 million Individuals cannot sue the federal government but can sue health plans in state courts under (traditional or either contract law or tort law. managed care) Federal Employees 9 million Individuals can sue either the Office of Personnel Management in federal court or a health plan Health Benefits in state or federal court. Remedies are limited to provision of the service denied, an injunction Program to order the plan to act, and clarification of future benefits. (fully insured plans) ERISA-regulated plans 123 million Individuals cannot sue health plans in state courts. Suits can be brought in federal court, where (workplace group (includes remedies are limited to provision of the covered service at issue or the cost of that service, an plans, both self- 76–92 million injunction ordering the plan to act, and clarification of future benefits. (States may regulate insured and fully fully insured; insurers’ benefit packages but not their dispute resolution.) Some courts have recently held insured, except 32–48 million plans responsible for provider negligence. government and self-insured) church plans)

Source: Adapted from Advisory Commission (1998), chapter 10, table 1.

Note: * Total may be higher than the number of insured Americans because of dual eligibility among the categories.

The second reason that litigation focuses on providers rather than plans is ERISA preemption. In the interest of national uniformity of benefits administration, ERISA creates an exclusive federal court remedy for resolving disputes about benefits under employee benefits plans (Sage 1997). ERISA preempts inconsistent state laws, including not merely insurance regulation of self-insured plans but also court-made tort law. An ERISA claim can recover only denied benefits plus reasonable attorneys’ fees—not lost wages, pain and suffering, or punitive damages. Before the mid-1990s, courts interpreted ERISA very broadly, striking down many state actions that affected health benefits plans, notably including a claim for punitive damages against an ERISA insurer.13 Since two landmark U.S. Supreme Court decisions upholding state health regulation,14 courts have sometimes allowed personal injury lawsuits to proceed despite ERISA, especially with regard to quality of benefits (Rooney 1998).15 Still, claims for direct negligence in benefits administration typically remain preempted (Sage 1997), and the main legal remedy available is an ERISA claim for lost benefits.

Federal Proposals Expanding patients’ ability to sue is one of the most contentious aspects of the

federal debates over patient protection. Major differences in approach among 22 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 23

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of care. If any of the proposals are enacted as written, the liability provisions would provisions liability the written, as enacted are proposals the of any If care. of

courts develop for MCOs, and the responses from patients, providers, and managers and providers, patients, from responses the and MCOs, for develop courts

s ’ state each duties the brought, cases new of scope and number the on depends occur

tections and develop new bases of liability in court. What practical impacts would impacts practical What court. in liability of bases new develop and tections

engine of change would be the threat of litigation to enforce statutory patient pro- patient statutory enforce to litigation of threat the be would change of engine

ing ERISA preemption of state law. States would be free to legislate, but the main the but legislate, to free be would States law. state of preemption ERISA ing

proposals, however, would greatly accelerate the development of tort law by remov- by law tort of development the accelerate greatly would however, proposals,

would still be determined mainly by court interpretations of ERISA. The Democratic The ERISA. of interpretations court by mainly determined be still would

states or to patients. For most Americans, the liability of their managers of care of managers their of liability the Americans, most For patients. to or states

The main Republican and bipartisan reforms would make little difference to difference little make would reforms bipartisan and Republican main The

Implications of Federal Law for States for Law Federal of Implications

terms.

s obligations to patients would remain largely determined by its own its by determined largely remain would patients to obligations s ’ plan A sibility.

sion could make lawsuits more likely but would not change the basis of plan respon- plan of basis the change not would but likely more lawsuits make could sion

denied benefits (sect. 302). By increasing the value of ERISA recoveries, this provi- this recoveries, ERISA of value the increasing By 302). (sect. benefits denied

(e.g., medical expenses, lost wages) in addition to the cost of the wrongfully the of cost the to addition in wages) lost expenses, medical (e.g., ” loss

or not made in accordance with terms of the plan. It allows recovery of of recovery allows It plan. the of terms with accordance in made not or economic “

under ERISA for injuries resulting from coverage determinations that are not timely not are that determinations coverage from resulting injuries for ERISA under

The bipartisan proposal (S. 374) expands sanctions against group health plans health group against sanctions expands 374) (S. proposal bipartisan The

law. They also provide that any other existing private rights to action are to survive. to are action to rights private existing other any that provide also They law.

ical negligence, on what damages are obtainable, or on any other aspect of liability of aspect other any on or obtainable, are damages what on negligence, ical

should be judged by new managed care standards or by traditional concepts of med- of concepts traditional by or standards care managed new by judged be should

Missouri or Texas laws, the federal bills take no position on whether managed care managed whether on position no take bills federal the laws, Texas or Missouri

would leave all rules to be developed by state courts and state legislatures. Unlike the Unlike legislatures. state and courts state by developed be to rules all leave would

These bills These in utilization review or other similar influences on delivery of care. of delivery on influences similar other or review utilization in

358, sect. 713(3)). The intent seems to be to hold liable only those only liable hold to be to seems intent The 713(3)). sect. 358, involved directly

are exercising discretionary authority on a claim for benefits (S. 6, sect. 302(e), H.R. 302(e), sect. 6, (S. benefits for claim a on authority discretionary exercising are

ERISA preemption of state lawsuits but exempt employers from liability unless they unless liability from employers exempt but lawsuits state of preemption ERISA

iments to personal injury lawsuits. The identical Daschle and Dingell bills remove the remove bills Dingell and Daschle identical The lawsuits. injury personal to iments

In sharp contrast, Democratic proposals would amend ERISA to remove imped- remove to ERISA amend would proposals Democratic contrast, sharp In

would amend ERISA to allow lawsuits but would greatly restrict punitive damages. punitive restrict greatly would but lawsuits allow to ERISA amend would

One exception is H.R. 719 from Rep. Greg Ganske of Iowa, which Iowa, of Ganske Greg Rep. from 719 H.R. is exception One precedent.

rights, such as the Missouri and Texas statutes, as well as a growing body of judicial of body growing a as well as statutes, Texas and Missouri the as such rights,

do the Republican bills attempt to restrict state developments that are creating such creating are that developments state restrict to attempt bills Republican the do

partnerships to address the issue, not new legal remedies. Nor, on the other hand, other the on Nor, remedies. legal new not issue, the address to partnerships

recognizes the issue of error in medicine but calls for research and private-public and research for calls but medicine in error of issue the recognizes

federal right to sue health plans or other managers of care. The Jeffords bill (S. 326) (S. bill Jeffords The care. of managers other or plans health sue to right federal

Accordingly, the main Republican patient protection bills would create no new no create would bills protection patient Republican main the Accordingly,

1999).

tion as an appropriate shield for private purchasing of benefits (Collins 1999, Nickles 1999, (Collins benefits of purchasing private for shield appropriate an as tion

Republicans tend to see litigation as slow, costly, and ineffective and ERISA protec- ERISA and ineffective and costly, slow, as litigation see to tend Republicans

tool, and ERISA preemption is an unjust roadblock that needs to be removed. be to needs that roadblock unjust an is preemption ERISA and tool,

reform of many types. For Democrats, ensuring access to courts is a key enforcement key a is courts to access ensuring Democrats, For types. many of reform Republican, Democratic, and bipartisan proposals echo previous disputes over tort over disputes previous echo proposals bipartisan and Democratic, Republican, create no national uniformity whatsoever—unlike the other patient protection provisions. All rules would vary by state. This would be a major change for ERISA plans, although companies face exactly this sort of legal variability by state in other aspects of injury law, such as workers’ compensation and products liability.

Conclusion

Patient protection has become an important legislative issue, first in states and now in competing federal proposals. Our comparative review of enactments and proposals, along with case-study information about 13 representative states, suggests four main conclusions. First, all the main federal patient protection bills would apply to some populations not now reached by state rules. Most obviously, all the federal proposals would impose at least some standards on ERISA plans, that is, workplace-based employee benefit plans. States cannot regulate ERISA benefit plans directly and cannot even indirectly regulate those that self-insure. States can regulate only fully insured products, including HMOs and other risk-bearing managed care entities. The Senate Republican bills limit themselves almost exclusively to self-insured employer plans, whereas other proposals, including the House Republican, Democratic, and bipartisan bills, set minimum standards for fully insured coverage as well. Second, how much difference any new rules make in their practical application depends on how much the new rules differ from existing rules and voluntary practice and on the extent of managed care within the affected population. Federal enrollees and beneficiaries nationwide, including Medicaid clients, would experience relatively little change. The Balanced Budget Act of 1997 and presidential Executive Orders in 1998 have already imposed many or most of the protections proposed in the federal bills. For private enrollees, employment groups and health plans are already implementing some protections voluntarily or through private certification programs (AAHP 1997, NCQA 1999). How much this has occurred is not as- certainable from available information. Moreover, in many states, managed care penetration remains low. In others, state regulation is already high. In such states, relatively fewer people would be affected by new federal provisions. Practical impact would be greatest in states where penetration is relatively high, yet regulation is low. Impact would be least where penetration is low and regulation high. Third, the leading federal bills have very few wholly new substantive provisions. What is new is the comprehensiveness of the “package” of protections and the breadth of their proposed application. In other words, states developed the overall repertory of available methods of protection—rules on network formation, benefits coverage, utilization management, and financial incentives—but a federal law would make the enacted package of rules relatively comprehensive in all states for the targeted share of the population. Today, all states have some provisions, and half say they have a “patients’ bill of rights,” but it is rare for any single provision to have been enacted in most states. The count for most rules does rise each year, as states

continue adding provisions. 24 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT 25

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would immediately lift ERISA restraints on litigation nationwide. litigation on restraints ERISA lift immediately would

rent law and how far it can go are not clear. The Democratic proposals, in contrast, in proposals, Democratic The clear. not are go can it far how and law rent

states have enacted facilitating statutes. But how quickly change will occur under cur- under occur will change quickly how But statutes. facilitating enacted have states

will grow under any scenario, as courts are changing their interpretations, and two and interpretations, their changing are courts as scenario, any under grow will

Budget Act stopped short of such change. Liability of managed care organizations care managed of Liability change. such of short stopped Act Budget

law seldom imposes liability, and the federal administrative rules and the Balanced the and rules administrative federal the and liability, imposes seldom law

A new right to sue managed care organizations would be a big change. Current change. big a be would organizations care managed sue to right new A

to a ban on punitive awards when appeals procedures have been followed.) been have procedures appeals when awards punitive on ban a to

and the Ganske Republican bill proposed as a compromise would allow suits, subject suits, allow would compromise a as proposed bill Republican Ganske the and

— law state, not federal, under — recoveries restricted allows proposal bipartisan (The

external appeal, for example, could take another shot at winning through litigation. through winning at shot another take could example, for appeal, external

provisions. A patient losing an losing patient A provisions. ’ bills the of rest the of violations to tied not is sue

right to right ’ bills their but tool, enforcement an lawsuits consider Democrats litigation.

ted from bipartisan and Republican bills, as Republicans in general oppose expanded oppose general in Republicans as bills, Republican and bipartisan from ted

law. The right to sue is a centerpiece of the main Democratic proposals but is omit- is but proposals Democratic main the of centerpiece a is sue to right The law.

come from a new, open-ended right to sue for personal injury, normally under state under normally injury, personal for sue to right open-ended new, a from come

The biggest enforcement change, and arguably the biggest change overall, would overall, change biggest the arguably and change, enforcement biggest The

and are consistent with the corresponding federal rule. federal corresponding the with consistent are and

so long as they provide at least substantially similar protections similar substantially least at provide they as long so — provision federal

lican bill does not) would allow states to opt to enforce their own rules in place of a of place in rules own their enforce to opt to states allow would not) does bill lican

license. All the bills that regulate insured forms of managed care (the Senate Repub- Senate (the care managed of forms insured regulate that bills the All license.

insurance regulators and departments of health, notably including revocation of revocation including notably health, of departments and regulators insurance

over insured plans that are available to state to available are that plans insured over ” levers “ of panoply full the have not

of Labor and Health and Human Services. Even so, the federal enforcers still would still enforcers federal the so, Even Services. Human and Health and Labor of

fer some new powers on federal enforcement agencies, specifically the Departments the specifically agencies, enforcement federal on powers new some fer

appeals rights, both in state legislatures and in private certification. The bills also con- also bills The certification. private in and legislatures state in both rights, appeals

less than half of states address appeals, although the trend is toward expansion of expansion toward is trend the although appeals, address states of half than less

denials are appealable; Democratic proposals are broader. In contrast, significantly contrast, In broader. are proposals Democratic appealable; are denials

internal and external appeals of payment denials. They differ in defining which defining in differ They denials. payment of appeals external and internal

significantly depart from existing state practice. All the bills include standards for standards include bills the All practice. state existing from depart significantly

Finally, in terms of enforcement provisions, some of the federal proposals would proposals federal the of some provisions, enforcement of terms in Finally,

in court under ERISA. under court in

exist in about half the states, although some laws on the books have been invalidated been have books the on laws some although states, the half about in exist

networks, no federal bill includes an an includes bill federal no networks, requirement. AWP laws AWP requirement. ” provider willing any “

from state practice, and there is greater variation among federal bills. Notably, as to as Notably, bills. federal among variation greater is there and practice, state from

On network formation and financial incentives, the federal proposals differ more differ proposals federal the incentives, financial and formation network On

major restraint on managed care operations. operations. care managed on restraint major

rules appear to be very rare at the state level. On its face, this would seem to be a be to seem would this face, its On level. state the at rare very be to appear rules

and hence contractually covered for payment. Such payment. for covered contractually hence and ” necessary medically “ is service

posals would impose strong new requirements on how MCOs determine whether a whether determine MCOs how on requirements new strong impose would posals

One major difference should be highlighted: The Democratic and bipartisan pro- bipartisan and Democratic The highlighted: be should difference major One

Republicans have somewhat fewer than the bipartisan, and the Democrats more. Democrats the and bipartisan, the than fewer somewhat have Republicans

laws. All the federal proposals have numerous such provisions, although the although provisions, such numerous have proposals federal the All laws.

agement overlap most among the federal bills and between them and existing state existing and them between and bills federal the among most overlap agement Among the types of provisions, rules on benefits coverage and utilization man- utilization and coverage benefits on rules provisions, of types the Among Thus, almost all of the federal proposals look very familiar; many would not apply to indemnity or lightly managed care in many regions. Many of the proposed regulations would duplicate existing rights and remedies, yet all would extend new protections to many people, especially the self-insured and residents of states with few state provisions. Depending on the precise substantive provisions enacted, any fed-

eral bill could considerably alter the operations of health coverage nationwide. 26 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT Notes

1. ERISA is codified at 29 U.S.C. sect. 1101–1461 (1994). 2. It is unclear whether states can enforce external appeals laws because they are not directly related to health insurance. A recent ruling on Texas’s patient protection laws held that its external appeals process was preempted by ERISA (BNA 1999b). 3. Several of the bills have additional measures that are not strictly patient protections and are thus not included here. These are mainly targeted at expanding options for insurance coverage, such as provisions creating Health Marts or liberalizing Medical Savings Accounts. 4. Enrollees are reimbursed if they win. 5. The Urban Institute conducted case studies for the Assessing the New Federalism (ANF) project in Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington, and Wisconsin (Kondratas et al. 1998). These states were selected to present a balanced view of state activity and its impact on low-income families. Selection criteria included socioeconomic and political characteristics, availability and generosity of publicly supported health and welfare programs, and geographic diversity. Site visits to the 13 states from July 1996 to May 1997 included numerous interviews with public officials, advocates, associations, and providers. 6. We arrived at this estimate by adding 1997 Medicare enrollment, 1996 federal civilian employment (including part-time but excluding Central Intelligence Agency, Defense Intelligence Agency, sea- sonal, on call, and National Security Agency staff), 1996 onshore active-duty military personnel, and 1997 veterans, all divided by 1997 population. We then lowered the estimate boundaries by 5 percent to acknowledge possible double-counting in the Medicare and veteran populations. 7. As a rough guide, we looked at the percentage of workers in firms with more than 100 employees across states, since many or most large firms self-insure their health benefits. The rate varies from 39 to 50 percent in the 13 focus states (Liska et al. 1998). 8. Note that the PPO and HMO data in table 4 are from different years and sources. PPO enrollment is underestimated because the in-state enrollment of national PPOs operating in each state is not known. 9. A count of the number of provisions in force in a state is an unsophisticated proxy for the level of regulation, since laws vary in stringency and application, as discussed above. However, it is useful for illustrative purposes. 10. Note that the entities regulated correspond to the earlier discussion of different populations affected—those covered by self-insured plans versus fully insured plans. 11. For details, see AAHP 1998; Nichols and Blumberg 1998; DOL 1997, 1998a, b, and c; Polzer 1999. 12. The bill says this is the “aggregate” amount but does not specify if this represents an annual total, a total for any one enforcement action, or some other total. (H.R. 448 has the same provision and says annual total.) There is also a provision for fines of up to $10,000 for violations of title IV, related to health care research. 13. The U.S. Supreme Court blocked a state claim for punitive damages for negligent administration of a disability policy in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987). A good summary of restrictive court interpretations appears in Scholtens v. Schneider, 173 Ill. 2d 375 (1996); see also Jacobson and Pomfret 1998. 14. New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995), and DeBuono v. NYSA-ILA, 117 S.Ct. 1747 (1997). 15. The leading case is Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d Cir. Ct. of Appeals 1995). For a listing of relevant cases, including hyperlinks to opinions, see HARP (1999a). 16. The House Republican bill (H.R. 448) does create new national standards of tort reform for all lawsuits touching upon health care, including those against insurers (title IV). The bill focuses on limiting allowable damages through a “cap” on pain and suffering, along with other provisions. It does not create or destroy any substantive bases for holding managed care plans liable for patient injury. 17. Sec. 302(a) would bar punitive damages where a plan or issuer’s decision followed the recommendation of an external reviewer. 18. The Norwood (Republican) bill is identical in its main provisions (H.R. 216, sect. 302) but adds additional explanation of what constitutes discretionary authority as further protection for employers. Defined out of potential employer liability are decisions on what benefits to include in a plan, decisions upholding the recommendation of a treating health care professional, and decisions to

extend benefits beyond the specified limits of the plan. 28 FEDERALISM AND PATIENT PROTECTION: CHANGING ROLES FOR STATE AND FEDERAL GOVERNMENT References

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Stauffer, Molly. 1998c. 1998c. Molly. Stauffer, Issue Brief: Bans on Gag Clauses. Gag on Bans Brief: Issue Health Policy Tracking Service, National Con- National Service, Tracking Policy Health About the Authors

Jill A. Marsteller is a research associate with the Health Policy Center of the Urban Institute. She has investigated the changing organization of delivery and financing systems and the spread of managed care organizations. Her most recent work has concerned health insurance reform and market competition issues. She came to the Urban Institute after working in Employee Benefits Research for KPMG Peat Marwick in Washington, D.C. Randall R. Bovbjerg is a principal research associate in the Health Policy Center of the Urban Institute. His main research interests are health coverage and financing; regulation, competition, and the appropriate role for government action; and the working of law in action, including the influence of legal culture upon policy. Earlier work on changing state policy led him to coauthor one book on Medicaid and another on block grants, both from the Urban Institute Press.

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