[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




 
                  PATIENT PROTECTIONS IN MANAGED CARE

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 24, 2001

                               __________

                           Serial No. 107-14

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Health

                NANCY L. JOHNSON, Connecticut, Chairman

JIM McCRERY, Louisiana               FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois            GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               KAREN L. THURMAN, Florida
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.





                            C O N T E N T S

                               __________
                                                                   Page
Advisory of April 17, 2001, announcing the hearing...............     2

                               WITNESSES

American Medical Association, Richard F. Corlin, M.D.............    22
Association of Trial Lawyers of America, and Robinson, Calcagnie 
  & Robinson, Sharon J. Arkin....................................     9
National Association of Manufacturers, and Ashland, Inc., Michael 
  J. Toohey......................................................    38
National Partnership for Women & Families, Judith L. Lichtman....    32
Patient Access Coalition, American College of Cardiology, and 
  Indiana University School of Medicine, Douglas P. Zipes, M.D...    41

                                 ______

                       SUBMISSIONS FOR THE RECORD

American Psychological Association, statement....................    73
National Council on Disability, Marca Bristo, letter and 
  attachments....................................................    73
Self, Thomas W., San Diego, CA; Linda P. Self, San Diego, CA; and 
  Miles J. Zaremski, Chicago, IL; joint statements...............    79
Zaremski, Miles J., Highland Park, IL, letter....................    81


                  PATIENT PROTECTIONS IN MANAGED CARE

                              ----------                              


                        TUESDAY, APRIL 24, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:08 p.m., in 
room 1100 Longworth House Office Building, Hon. Nancy Johnson 
(Chairwoman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
April 17, 2001
HL-5

                      Johnson Announces Hearing on

                  Patient Protections in Managed Care

    Congresswoman Nancy L. Johnson (R-CT), Chairwoman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on managed care and how to ensure 
quality, affordable care is available to America's patients. The 
hearing will take place on Tuesday, April 24, 2001, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 2 p.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include experts on health plan liability, financing 
health benefits for employees and delivering timely and appropriate 
health services. However, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Committee and for inclusion in the printed record of the 
hearing.
      

BACKGROUND:

      
    In response to rising health care costs and more limited benefits 
through a fee-for-service system, many employers have turned to health 
maintenance organizations (HMO's) and other managed care arrangements. 
While managed care has been helpful in moderating costs, and may have 
helped reduce the number of uninsured, many believe the pressure to 
constrain costs has squeezed health providers and has inserted 
insurance managers into the doctor-patient relationship.
      
    In 1998 and again in 1999, the House passed the Patient Protection 
Act and the Bipartisan Consensus Managed Care Improvement Act 
respectively to protect patients enrolled in managed care plans and to 
ensure timely access to covered benefits. However, both pieces of 
legislation failed to become law.
      
    Earlier this year, President Bush issued principles to guide 
legislators as Congress crafts a patients' bill of rights. Those 
principles state that new protections should apply to all Americans, 
patients should be allowed to go to Federal court after an independent 
medical review, and should include appropriate employer protection with 
caps on damages.
      
    In announcing the hearing, Chairwoman Johnson stated: ``The time to 
enact a real patients' bill of rights is long past due. I am encouraged 
by the principles President Bush issued, which strike the right balance 
between appropriate accountability and costs. I think there is 
significant agreement on both sides of the aisle on the underlying 
patient protections, such as access to OB/GYNs, access to specialists, 
prudent layperson standard for emergency rooms, and disclosure of plan 
information. This hearing will enable Members to assess whether 
consensus has emerged on these issues and how we might best resolve the 
more vexing issue of accountability for health plans.''
      

FOCUS OF THE HEARING:

      
    The hearing begins the Subcommittee's consideration of Patients' 
Bill of Rights legislation. Witnesses on the panel will explore patient 
protection provisions including allowing access to specialty care, 
internal and external review and various proposals to expand health 
plan liability. Witnesses will explore the adequacy of current plan 
review procedures and whether new external review processes should be 
established and exhausted prior to any new liability.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Tuesday, 
May 8, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Health office, room 1136, Longworth 
House Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://www.house.gov/ways__means/''.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                


    Chairwoman Johnson. Good afternoon everyone. Today's 
hearing begins the Subcommittee's examination of issues related 
to the Patients' Bill of Rights. When we started exploring 
legislative solutions to protect patients from bad actors in 
the health insurance market, there was much disagreement 
regarding what the Federal legislation should look like. There 
was even a large degree of uncertainty as to whether Congress 
should enact any Federal protections.
    I am happy to say that after 8 years of examining managed 
care reform legislation, there is now a great deal of consensus 
as to what a Federal patient protection bill should encompass. 
There is also strong bipartisan agreement that Congress should 
act quickly to extend patient protections to all Americans.
    I hope we can achieve this goal this year, and promptly, 
but time to enact a real Patients' Bill of Rights is long 
overdue. In response to rising health care costs and the desire 
to provide more preventive care, many employers have turned to 
health insurance maintenance organizations and other managed 
care arrangements.
    While managed care has been helpful in moderating costs and 
may have helped reduce the number of uninsured, many believe 
the pressure to constrain costs has squeezed health providers 
and inserted insurance managers into the doctor-patient 
relationship.
    In 1998 and 1999, the House passed legislation to protect 
patients enrolled in managed care plans and to ensure timely 
access to covered benefits; however, both pieces of legislation 
failed to become law. Earlier this year, President Bush issued 
principles to guide legislators as Congress crafted a Patients' 
Bill of Rights.
    Those principles stated that new protections should apply 
to all Americans. Patients should be allowed to go to Federal 
Court after exhausting an independent external medical appeals 
process, and there should be appropriate employer protection 
with caps on damages.
    I am encouraged by President Bush's principles which I 
think strike the right balance between accountability and 
costs. I think there is significant agreement on both sides of 
the aisle on the underlying patient protections, such as access 
to OB/GYNs, access to pediatricians for children, access to 
specialists, the prudent standards for emergency room care, and 
disclosure of plan information.
    However, I am concerned about some proposals that would do 
real damage to employer-provided health care and could increase 
the number of the uninsured.
    Some are advocating additional unlimited lawsuits as a 
panacea to better quality health care. We have seen the effect 
of unlimited lawsuits on health care providers with malpractice 
insurance premiums increasing dramatically. Just yesterday, the 
Philadelphia Inquirer reported that hundreds of doctors will 
shut down their offices today and go to Harrisburg to lobby 
their State representatives to grant them relief from soaring 
malpractice insurance premiums. The problem has gotten so 
serious, 11 percent of doctors have left the State to escape 
high premiums.
    I don't believe we can sue our way to better care. 
Ultimately and foremost, we should be trying to ensure that 
patients get the medical care they need, when they need it. A 
strong, independent, external appeals process conducted by 
doctors will ensure patients get that care.
    Health plan enrollees should also be required to exhaust 
the medical review process prior to pursuing court remedies. 
Why establish an external review process which utilizes medical 
experts if that process can be circumvented?
    In an attempt to develop a consensus on the issue, today we 
will hear from the major interest groups on their protections 
in managed care reform.
    The Patient Access Coalition, which collectively represents 
more than 300,000 physicians, will stress the underlying 
patient protections that Congress has been debating for a 
number of years.
    The American Medical Association, which also represents 
about 300,000 physicians, and the Association of Trial Lawyers 
of America will emphasize their belief that an ERISA plan 
should be exposed to unlimited liability.
    Finally, we will hear a consumer perspective; and from an 
employee representing the National Association of 
Manufacturers, providing the viewpoint from someone paying for 
health care and trying to do what is right for their employees.
    But the time is ripe for Congress to act. We spent too much 
time stressing our differences, rather than trying to build on 
common ground. The President has indicated his willingness to 
sign a real Patients' Bill of Rights. It is up to us to deliver 
legislation to his desk. It is also up to us to be coldly 
realistic, not only about what our intended consequences might 
be of legislation, but what the likely unintended consequences 
of legislation will be as well; because day by day, it is 
becoming ever clearer, if you listen carefully, that if we 
manage this situation wrong, if we solve this problem wrong, we 
will push the current employer-provided insurance system from a 
defined benefit system to a defined contribution system.
    That would be a terrible disservice to every working person 
in America who has employer-provided insurance, because over 
time it would steeply erode that benefit.
    So what we do in solving this very real problem of 
patients' rights will determine access to insurance and the 
quality of coverage American workers enjoy in future decades.
    I believe that the issue of unintended consequences is far 
more evident now than it was 2 years ago when this first hit 
the floor of the House, and every day it is more serious as the 
costs of drugs and the costs of other procedures push premiums 
up on their own.
    So I look forward to the testimony of our witnesses, and 
thank you for your preparation and for your attendance.
    [The opening statement of Chairwoman Johnson follows:]
  Opening Statement of Hon. Nancy L. Johnson, M.C., Connecticut, and 
                   Chairwoman, Subcommittee on Health
    Today's hearing begins the Subcommittee's examination of issues 
related to a Patient's Bill of Rights. When we started exploring 
legislative solutions to protect patients from bad actors in the health 
insurance market, there was much disagreement regarding what the 
federal legislation should look like. There was even a large degree of 
uncertainty as to whether Congress should enact any federal 
protections.
    I am happy to say that after eight years of examining managed care 
reform legislation, there is now a great deal of consensus as to what a 
federal patient protection bill should encompass. There is also strong, 
bipartisan agreement that Congress should act quickly to extend patient 
protection to all Americans. I hope we can achieve that goal this year. 
The time to enact a real patients' bill of rights is long past due.
    In response to rising health care costs and the desire to provide 
more preventative care, many employers have turned to health 
maintenance organizations (HMO's) and other managed care arrangements. 
While managed care has been helpful in moderating costs, and may have 
helped reduce the number of uninsured, many believe the pressure to 
constrain costs has squeezed health providers and has inserted 
insurance managers into the doctor-patient relationship.
    In 1998 and again in 1999, the House passed legislation to protect 
patients enrolled in managed care plans and to ensure timely access to 
covered benefits. However, both pieces of legislation failed to become 
law.
    Earlier this year, President Bush issued principles to guide 
legislators as Congress crafts a patients' bill of rights. Those 
principles state that new protections should apply to all Americans, 
patients should be allowed to go to Federal court after exhausting an 
independent, external medical appeals process and there should be 
appropriate employer protection with caps on damages.
    I am encouraged by President Bush's principles, which I think 
strike the right balance between appropriate accountability and costs. 
I think there is significant agreement on both sides of the aisle on 
the underlying patient protections, such as access to OB/GYNs, access 
to specialists, prudent layperson standard for emergency rooms, and 
disclosure of plan information.
    However, I remain concerned about some proposals, which would do 
real damage to employer provided health care and could increase the 
number of uninsured. Some are advocating additional, unlimited lawsuits 
as a panacea to better quality health care. We have seen the effect of 
unlimited lawsuits on health care providers, with malpractice insurance 
premiums increasing dramatically. Just yesterday, the Philadelphia 
Inquirer reported that hundreds of doctors will shut down their offices 
today and got to Harrisburg to lobby their state representatives to 
grant them relief from soaring malpractice insurance premiums. The 
problem has gotten so bad, 11 percent of doctors have left the state to 
escape high premiums.
    I don't believe we can sue our way to better care. Ultimately and 
foremost, we should be trying to ensure that patients get the right 
medical care when they need it. A strong, independent external appeals 
process conducted by doctors, not lawyers or laymen, will ensure 
patients get that care. Health plan enrollees should also be required 
to exhaust the medical review process prior to pursuing court remedies. 
Why establish an external review process which utilizes medical 
experts, if that process can be circumvented by lawyers?
    In an attempt to develop consensus on the issue, today we will hear 
from the major interest groups on their perspectives on managed care 
reform. The Patient Access Coalition, which collectively represents 
more than 300,000 physicians will stress the underlying patient 
protections that Congress has been debating for a number of years. The 
American Medical Association, which also represents about 300,000 
physicians, and the Association of Trial Lawyers of America will 
emphasize their belief that ERISA plans should be exposed to unlimited 
liability. Finally, we will hear a consumer perspective and from an 
employer representing the National Association of Manufacturers, 
providing the view from someone paying for health care and trying to do 
what's right for its employees.
    The time is ripe for Congress to act. We have spent too much time 
stressing our differences rather than trying to build common ground. 
The President has indicated his willingness to sign a real patient bill 
of rights. It is up to us to deliver legislation to his desk.

                                


    Chairwoman Johnson. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair, for holding this hearing 
on the question of patient protections in managed care. I only 
regret that we are having a hearing instead of sitting in the 
Rose Garden, signing the bill which has passed the House. And 
my sentiment is that when you have got Dr. Corlin and Ms. Arkin 
sitting as close together as they are here and agreeing, we 
better drop the gavel and say that we have got a pretty good 
bill.
    My theory on legislation in this town is that if you got 
anybody in the room smiling, somebody is getting away with 
something and you ought not to; but when everyone is looking a 
little grumpy, like our witnesses, that means that everyone has 
to contribute a little and we have got the right mix.
    There isn't much disagreement. We had, I think, 60 
Republicans, and I am sure that you have beaten up on some and 
knocked a few off the bill since we passed it, but it is 
strictly over the issue of liability.
    The CBO came out today and said that it is going to cost 
one-tenth of a percent more, due to the liability portions of 
the right to sue. The doctors understand that if they are 
negligent in malpractice in--in a negligent fashion, they are 
apt to be sued--and rightfully--why should a health plan escape 
having those same penalties?
    I cannot understand for a moment the rationale of letting 
health plans off free. We find that in the State of Texas, 
where a famous politician comes from, that they indeed have not 
had a decrease but an increase in the number of employer-
sponsored insureds after their Patients' Bill of Rights has 
been in effect, I guess, now several years.
    So I would say let us get on with it. Let us hear 
everybody's complaints about the egregiousness of the trial 
lawyers, and let us have the AMA tell us that they ain't so 
bad, or if they've got to suffer, so should everybody else, and 
let us get this bill signed.
    The American public wants it, 60 Republicans joined with 
the Democrats--Senator Nickles stalled it in the Senate, I 
think as long as he reasonably can--and let us get this bill 
passed, get it to the President's desk and see if he chooses 
not to sign it. I can't believe he won't.
    We will have protected an awful lot of Americans from 
capricious actions by the few irresponsible managed care plans 
who do negligently and wantonly withhold or deny needed 
coverage.
    Thank you.
    [The opening statement of Mr. Stark follows:]
     Opening Statement of Hon. Fortney Pete Stark, M.C., California
    Madame Chairwoman, thank you for holding a hearing on the important 
topic of patient protections in managed care. I only regret that this 
is a hearing rather than a signing ceremony. I fear we are ``hearing'' 
this issue to death. In the last Congress the House overwhelmingly 
passed the Patients' Bill of Rights only to be stymied during the 
conference with the Senate. We don't need more hearings on this topic, 
what we need is to get meaningful patient protection legislation signed 
into law.
    At this point in the game, there is broad agreement on the patient 
protection provisions of a real, effective patients' bill of rights.
    There is also widespread agreement in the House that the set of 
protections need to apply to each and every person in private health 
insurance. That has been a point of contention with certain colleagues 
in the Senate, but here in the House there is agreement that a 
patients' bill of rights needs to afford a basic set of protections 
that act as a floor in each and every state and for each and every 
person in private insurance.
    There is also vast agreement that we must have a strong, 
independent appeals process in order to assure that patients get the 
care they need and have paid for with their premiums and that are 
guaranteed under the new law.
    However, at this point we come to the giant chasm in philosophy 
that has stymied ultimate agreement for too long. I hope some of our 
witnesses here today have a solution.
    That chasm is the issue of liability. Why shouldn't plans be 
accountable--i.e. held liable--if their negligence harms or kills a 
patient? If someone suffers personal injury or death as a result of a 
decision made by their health plan, shouldn't that health plan be held 
liable in the same way his/her doctor would be? If a doctor commits 
medical malpractice, there is no question that you can sue that doctor 
under personal injury law. The same is true of a hospital. However, 
under today's laws, a health plan is often protected from any liability 
even if it was the direct action of the plan that caused the patient's 
harm or death.
    I don't want courts deciding what is appropriate medicine any more 
than my colleagues on the other side of the aisle. I want health plans 
providing the appropriate care up front so that patients are not forced 
to go through the appeals process or to court. But, if a health plan 
inappropriately withholds or delays needed care, I want a patient to 
have access to an independent appeals process that will work.
    The only way that an appeals process will be an effective means of 
resolving disputes with health plans is if there are REAL 
consequences--which means real financial consequences--for health plans 
not going along with the determination of the independent appeals 
entity.
    Without a strong, effective liability component in the legislation, 
health plans will continue to deny appropriate care, delay treatment, 
and continue many of today's abusive practices that result in 
substandard care for patients because it will continue to be in their 
financial interest to do so.
    Including effective liability provisions in the legislation isn't 
just about enforcement. It is also about providing people with real 
remedies when they are injured or killed by a plan's bad decision. The 
liability system must be one to which consumers will have adequate 
access. That is why maintaining liability at the state court level is 
so important. The federal courts are overloaded, they lack the 
expertise in tort cases, and they are difficult for consumers to 
access. The state courts have always been the venue for medical 
malpractice and personal injury cases and they are the appropriate 
venue for the vast majority of managed care cases as well.
    So, that is the rub. We agree we need a bill, but we absolutely 
disagree on what is the best venue for people to enforce their rights 
and get remedies if they are injured or killed by a plan's action or 
inaction. I am tired of passing legislation at the federal level and 
sending out press releases saying we've solved the problem--when our 
solutions haven't worked. We passed CHIP, but still have more than 10 
million uninsured children. We passed HIPAA and people are still denied 
health insurance coverage through the use of exorbitant premiums that 
price people out of the coverage. We have an opportunity here to pass a 
bill that will really assure patients of better quality care--and 
redress if they don't get the quality care they deserve and have paid 
for with their premiums. I urge my colleagues to join with me in 
seizing that opportunity.
    Of course, we have a strong bipartisan bill that has been 
introduced this year, H.R. 526, the Bipartisan Patient Protection Act 
of 2001. In the last Congress, the House overwhelming passed a 
patients' bill of rights with broader liability protections. We've 
modified the liability section of the new bill in order to address 
concerns that have been raised. This new legislation has the support of 
a majority of the U.S. Senate--where our actions were stymied last 
year. And just yesterday the CBO confirmed yet again that we can afford 
to guarantee strong patient protections and accountability. The bottom 
line is that providing the all of protections in the Bipartisan Patient 
Protection Act, including accountability, will cost employees less than 
$1.25--less than a gallon of gas or a loaf of bread--per person per 
month.
    During this debate, independent surveys have shown repeatedly that 
a strong majority of both patients and employers are willing and able 
to cover these costs. This legislation is a strong model for reform and 
I urge my colleagues to take a close look at it.
    I look forward to hearing from the distinguished panel of witnesses 
before us today and expect that the question and answer session will be 
quite lively. Thank you again, Madame Chairwoman, for addressing this 
important issue. I hope our next meeting on this topic will be to take 
long overdue action on the problem.

                                


    Chairwoman Johnson. It is a pleasure, before the panel 
begins, to welcome the Chairman of the Ways and Means 
Committee, Chairman Thomas, former chairman of this 
Subcommittee, really remarkable mind on this subject. And I am 
very glad, Bill, that you have been able to join us for at 
least part of this hearing. I hope you will be able to hear the 
whole panel.
    Ms. Arkin.

 STATEMENT OF SHARON J. ARKIN, PARTNER, ROBINSON, CALCAGNIE & 
ROBINSON, NEWPORT BEACH, CALIFORNIA, AND MEMBER, ASSOCIATION OF 
                    TRIAL LAWYERS OF AMERICA

    Ms. Arkin. Thank you. My name is Sharon Arkin. I am a 
partner with the law firm of Robinson, Calcagnie & Robinson, 
and I am a Member of the Association of Trial Lawyers of 
America. First, I greatly appreciate being invited to speak 
here today and that we have been permitted to express our views 
on these incredibly important issues.
    When ERISA was originally passed, it had a very positive 
intent: Congress was trying to protect employees and their 
benefits. Over the intervening years, because of interpretation 
by the Supreme Court, because of the change in the medical care 
delivery system in this country, ERISA now actually hurts 
employees because it provides an unwarranted immunity to the 
managed care health system and allows that system to operate 
without control, without recourse. If they act negligently, if 
they act unreasonably, and even more frightening, if they act 
deliberately to ration and withhold care, they can hurt people 
and not be affected by it.
    If injuries are caused by the wrongful conduct of a person, 
the damages for those injuries should be borne by the person 
who acted improperly. Those damages should not be borne by 
society. They should not be borne by the taxpayers, and they 
should not be borne by the person who was victimized, the 
person who got injured.
    We are not talking unlimited liability here. We are not 
talking caps, I will get to that later. But liability of a 
wrongdoer in the civil justice system is always limited by the 
amount of harm they actually cause to people. And punitive 
damages are always limited by the jury's sense of what is 
appropriate and what is right, and by the trial court's sense 
of what is appropriate and right and by the appeal court's 
sense of what is appropriate and right. They are always limited 
to what is appropriate for the case. It is never unlimited.
    It is a fact of human nature that people who can profit by 
doing wrong will continue to do wrong. We need to deter the 
managed care industry from putting profits over people. They 
accept premiums, they promise services, and they should be held 
to their bargain.
    Speaking of unintended consequences, the tragedy is that 
that is what we are dealing--that is what we are trying to fix 
now. When Congress passed ERISA, the result was unintended 
consequences and giving immunity to an industry that has 
people's lives in their hands, literally.
    I want to emphasize that I do support a fair, prompt, 
unbiased, external review system. I think that that is very 
important. I think it can help people enormously, but it can't 
cure the problem that ERISA has created by itself. It will get 
more people more care faster, and frankly, that is what we are 
after here. We are not after more lawsuits. If there was never 
another lawsuit in the HMO industry because HMOs were doing 
what they were supposed to do, believe me, I wouldn't starve, I 
would be happy. I would find something else to do with my time. 
But until that happens, we have to deal with this problem. We 
have to deal with this issue.
    ERISA limits the liability of a managed care company to 
providing benefits and possibly having to pay attorney's fees. 
The external review process does exactly the same. It doesn't 
compensate people who are injured before they get to the 
external review process, or even after the external review 
process.
    The written testimony that has been submitted by several 
different people demonstrates that there will not be a 
limitation on access to care. There will not be an increase in 
costs that is untoward or unable to be absorbed by employers or 
employees. And that is no reason--given the limitation on the 
costs, it is no reason to strip people of their right to obtain 
damages when they have been hurt.
    The industry is not really afraid of frivolous lawsuits. 
They like to say that frivolous lawsuits will result, but the 
reality is they are afraid of meritorious lawsuits. That is 
what the industry is worried about, and that is why they are 
fighting so hard. If frivolous lawsuits are a problem, then let 
us deal with frivolous lawsuits, but don't take away the rights 
of people who have legitimate claims to get their damages.
    The States have traditionally been the areas to supervise 
regulation of medical care and insurance and that should 
remain. I see I am out of time.
    Chairwoman Johnson. You are out of time, and I did not--I 
did neglect to lay that out clearly for the panel at the 
beginning. We do have a 5-minute rule. You have lights in front 
of you. You can see them from your side, can't you? Yes. Green, 
yellow, and red. And we would appreciate it if you could stay 
within that time limit so we have more time for questions.
    But since I didn't tell you, Ms. Arkin, if you have a 
closing sentence, you're welcome to make it.
    Ms. Arkin. Thank you. I just wanted to close by saying that 
damage caps actually hurt the civil justice system and they 
hurt the people who have the most egregious cases. The people 
who are hurt the worst are then victimized again by damaged 
caps, and that should not be permitted. Thank you.
    Chairwoman Johnson. Thank you, Ms. Arkin.
    [The prepared statement of Ms. Arkin follows:]
Statement of Sharon J. Arkin, Partner, Robinson, Calcagnie & Robinson, 
Newport Beach, California, and Member, Association of Trial Lawyers of 
                                America
TO THE HONORABLE MEMBERS OF THE COMMITTEE:
A. Introduction and Case Histories
    My name is Sharon Arkin. I am a partner in the law firm of 
Robinson, Calcagnie & Robinson, and I am a member of the Association of 
Trial Lawyers of America. I thank you both personally and on behalf of 
ATLA for inviting us to testify for you here today. I was chosen to 
represent ATLA in this hearing because I have extensive experience in 
litigating actions against health maintenance organizations and managed 
care entities. Additionally, I was co-litigation counsel in the case of 
Goodrich v. Aetna US Healthcare of California, in which a San 
Bernardino County, California jury awarded $116 million in punitive 
damages (that is punishment for egregious misbehavior) against an HMO 
for its failure to provide adequate care to its patient. Because of my 
experience in litigating HMO cases, I am personally acquainted with the 
devastation and tragedy that have resulted from the fact that HMOs are 
not legally accountable to their members when they breach their 
contractual agreement to provide care, when they substitute their 
judgment in place of a patient's physician, and when they violate their 
members' trust.
    Examining the facts from cases that I have personally been involved 
in will help you understand why the issue of managed care 
accountability is so important and compelling:

   Mrs. B., a 42-year-old mother of three, was diagnosed with 
        colon cancer. After treatment, she was forced to enroll in a 
        large HMO because of the decision by her husband's employer to 
        change benefit plans. A few months later, the cancer indicators 
        in Mrs. B.'s blood tests signaled a recurrence of her cancer. 
        Without even bothering to find out where the metastasis was--or 
        whether it was treatable--her health plan oncologist told her 
        nothing could be done except to make her ``comfortable.'' In 
        reality, there were several options, but the oncologist--who 
        was also the head of the utilization review committee for the 
        medical group--threw roadblocks up at every turn and 
        considerably delayed her treatment. Ultimately, the cancer 
        metastasized to her liver and her lungs and then her brain. 
        Mrs. B. underwent several rounds of experimental chemotherapy 
        in a desperate effort to live long enough to see her children 
        grown. She did not succeed and died in July 1997.
   Mrs. A enrolled in a senior care health plan. Because she 
        lived in an isolated, mountainous area with only very 
        rudimentary health care services available, she specifically 
        questioned the health care plan's sales representative about 
        the availability of air-lift transport in case of a serious 
        illness or injury that the local hospital could not handle. 
        Mrs. A was assured that such transport would be provided 
        whenever needed. When Mrs. A had a mild heart attack, however, 
        and the emergency room doctor in the local hospital--which had 
        no critical care or cardiac care unit--repeatedly requested 
        airlift transport to the nearest medical center, it was denied. 
        Mrs. A died of cardiac arrest several hours later, in the 
        small, unequipped rural hospital.
   Mrs. S., an elderly lady, enrolled in a large managed care 
        plan. She went to the primary care physician assigned to her by 
        the HMO, complaining of joint pain. The doctor told her she had 
        degenerative arthritis and referred her for physical therapy. 
        Despite the physical therapy, her pain worsened and her health 
        steadily deteriorated. She returned to the doctor time and time 
        again. Each time, the doctor shrugged off her complaints. 
        Finally, a year and a half after her first visit, and after 
        incessant demands by her family to know what was going on, the 
        doctor admitted that Mrs. S. had metastatic cancer--which, the 
        records show, he had known all along. Mrs. S. died a week 
        later. Her cancer had never been treated.
   Mrs. R. also enrolled in a large managed care plan. She 
        began having bladder discomfort and went to her primary care 
        physician. The doctor referred her to a urologist, but the 
        first available appointment was nearly three weeks away. In the 
        meantime, Mrs. R. began bleeding from her urinary tract. She 
        went to the emergency room. The ER doctors wanted to admit her 
        to the hospital and called for authorization from the HMO. 
        Authorization was denied. Mrs. R. went home. She returned to 
        the ER the following day, bleeding even more heavily. Again, 
        the ER doctors requested authorization to admit her. Again, it 
        was denied. Mrs. R. went home. The following day, when Mrs. R 
        went to the emergency room, she was bleeding so heavily that 
        she had to walk with bath towels between her legs. Again the 
        HMO refused authorization to admit her to the hospital. 
        Finally, in desperation, Mrs. R.'s son took her to another 
        hospital. The doctors there discovered a tumor the size of a 
        grapefruit in Mrs. R's bladder, admitted her on an emergency 
        basis and rushed her to surgery. Because of the loss of blood 
        over the preceding days, Mrs. R. suffered a heart attack during 
        the surgery. Although she survived, her health has been 
        seriously compromised.
   David was a highly-respected and well-liked career deputy 
        district attorney enrolled in the health care plan purchased by 
        the county. After he collapsed one day in court and was 
        transported to the hospital, he was diagnosed with a rare form 
        of stomach cancer. The plan oncologist admitted that the type 
        of cancer was beyond his scope of experience and ability and 
        requested referral to UCLA--an out-of-plan facility. After 
        battling with the plan and its administrative review 
        organization, the out-of-plan referral for consultation was 
        finally approved, but by the time approval for the actual 
        treatment was obtained, the cancer had metastasized. Then, when 
        another therapy was recommended by another out-of-plan 
        treatment center--and was specifically requested by and 
        approved by the primary care physician and the plan 
        oncologist--the treatment was denied. The HMO denied the 
        treatment despite the fact that the head of the HMO's 
        technology assessment department actually recommended that 
        David receive the treatment. David's death left his wife 
        bereft--and nearly $750,000 in debt.
   Mr. L. was diagnosed with lung cancer. His plan oncologist 
        told him that the tumor was too close to his heart and that he 
        could, therefore, only be treated with radiation therapy. After 
        the health plan refused Mr. L.'s request for an outside 
        consultation with a surgical oncologist and because the plan 
        did not have a surgical oncologist available, Mr. L. paid for 
        his own consultation with a USC specialist. The USC specialist 
        told Mr. L. that the tumor was, in fact, operable, although it 
        would be a very delicate and tricky operation. The surgeon also 
        told Mr. L. that the surgery was his only chance for survival 
        because radiation therapy simply could not eradicate the tumor 
        and, in addition, was likely to damage his heart. Even more 
        frightening, the surgeon also informed Mr. L. that the tumor 
        was growing very fast and could double in size within 30 days. 
        As such, it was imperative that the surgery occur as soon as 
        possible. Mr. L. then had to start the referral and review 
        process within the HMO to get approval. He had to go back to 
        his primary care physician for a referral to the in-plan 
        oncologist and then had to go to a consultation with the in-
        plan oncologist. The in-plan oncologist concurred that surgery 
        was the best possible treatment and that it had to be done 
        immediately, but that the plan had no surgeons qualified to 
        perform the surgery. Thus, the oncologist recommended, the plan 
        should authorize the out-of-plan treatment. The plan denied the 
        treatment. That process, alone, took one week. Mr. L. simply 
        did not have the luxury of waiting for the plan's internal 
        grievance process to review the issue and he certainly did not 
        have the time to have an external review process deal with the 
        issue. He had to have the surgery immediately. He disenrolled 
        from the health plan the next day and the day after that had 
        the surgery--which was paid for by Medicare. He is still alive 
        and well, four years later.

    The horror stories coming out of the managed care industry are 
legion. The truly horrible part is that they are not the tortured 
imaginings of a fevered plaintiffs' bar. They are real. They are about 
real people. And there are thousands of them.
B. Why Legal Accountability is Necessary for Managed Care Insurers
    The civil justice system in this country is predicated on two 
guiding principles: (1) For every wrong there is a remedy; and, (2) 
When the wrongful misconduct of one person causes injuries to another, 
the wrongdoer must be legally accountable to the injured person and 
must compensate for the injuries their misconduct has caused. There 
are, in fact, two underlying public policy purposes for these 
principles. The first, of course, is to assure that injuries are 
compensated by the person who caused the injuries so that neither 
society nor taxpayers through their government is forced to bear that 
financial burden. The second underlying purpose is akin to one of the 
goals of the criminal justice system: Deterrence. If wrongdoers, 
whether criminal or civil, know that they will face no consequences, 
they have no reason to stop their wrongdoing--especially if their 
conduct is financially rewarding. Forcing civil wrongdoers to 
compensate their injured victims for the harm they cause removes any 
financial incentive that might exist for engaging in that wrongdoing.
    ERISA, as it is presently structured and as it has been interpreted 
by the Supreme Court in Pilot Life v. Dedeaux, lacks this deterrent 
effect. Under ERISA, an HMO can deliberately and purposely deny a claim 
which it knows is covered under the plan. The most that can happen to 
the HMO if the member sues is that the HMO will have to pay for the 
wrongfully-denied benefit and may possibly have to pay some attorneys' 
fees to the patient. That's it. If the denial is for life-saving 
treatment and the patient dies without obtaining that treatment, the 
HMO is completely free of any potential liability: It will never have 
to pay for even the treatment because the treatment was never received 
and the family cannot sue for wrongful death. That, of course, builds 
in an incentive to the HMO to deny care and take the chance that the 
patient will never sue and, tragically, may not be alive to do so.
    1. Market Forces Cannot Correct the Problem
    Some would say that employers and employees would never choose an 
HMO that wrongfully denied claims and that market forces would put 
those companies out of business. That is simply not the case. First, 
remember that in the majority of private sector employment situations, 
most employees do not have a choice--their employer selects one plan 
and the employee must take it or leave it. Second, even when more than 
one plan is provided as a choice, the consumer/employee and even the 
employer often have little or no information on which to base a 
selection, at least with respect to these issues. That is because HMOs 
are ``graded'' on the way they handle routine care rather than the way 
they handle more serious care requests. When accrediting organizations, 
like National Committee for Quality Assurance (``NCQA'') or URAC, 
assess HMOs, they generally do it on the basis of how well the HMOs 
meet standards regarding processes and structure, not whether the HMO 
determines individual claims fairly and properly. And while both 
entities rely on customer service surveys in formulating their 
accreditation criteria, those surveys generally focus, again, on 
routine services--which most HMOs perform well. Since, fortunately, 
many HMO patients do not require more than routine services, they are 
unaware of the problems they may encounter when a health care plan 
decides that its own financial well-being takes priority over a 
patient's medical well-being.
    Additionally, NCQA's own survey shows that, traditionally, patients 
rely on family and friends when choosing a health care plan. (See 
www.ncqa.org/Pages/Programs/QSG/reportcards.htm.) Obviously, this 
information source has the least likelihood of providing accurate 
information about how HMOs respond when care beyond the normal routine 
care is needed.
    Perhaps the most telling statement on the distinction between the 
standard of care an HMO provides with respect to routine care and that 
provided with respect to other types of care comes from the primary 
care physician who treated David Goodrich in the Goodrich case. Dr. 
Wang encountered David's wife in the hospital waiting room while David 
was receiving an MRI that had been denied by his HMO. When Mrs. 
Goodrich asked Dr. Wang--who had requested the MRI--how Aetna could 
deny that test, Dr. Wang's response tells the whole story: ``HMOs are 
good if you don't get sick.''
    Thus, neither employers nor patients/employees have a good means of 
determining whether a particular HMO's decision making is going to 
become problematic once significant or expensive care is needed. 
Because of that, ``market forces'' cannot function well to control or 
limit the abuses.
    2. Case Law Evolution Cannot Correct the Whole of the Problem
    Further evidence that market forces cannot--or, at least, do not--
factor into this problem is the fact that the federal judiciary has 
become a catalyst in an attempt to ameliorate the harshness of the 
ERISA rule. As a whole, federal judges are not activists and are 
unwilling to step on Congressional prerogatives. But the problems 
created by ERISA's liability limitations have driven even the most 
conservative judges to frustration and dismay. For example, J. Spencer 
Letts, a very conservative judge of the United States District Court, 
Central District of California, has undergone an epiphany regarding the 
risks and dangers to insureds where an insurance company decides and 
administers benefits under its own policy where that policy is part of 
an ERISA plan. (Dishman v. UNUM), 21 Empl. Bene. Cas. 2941 (C.D. CA 
1997). Judge Letts' commentary provides a compelling and insightful 
demonstration of the type of insurer conduct that occurs because ERISA 
provides a disincentive for insurers and HMOs to provide promised 
benefits:

          ``This Court has always strongly believed in preserving the 
        remarkably successful balance of competing interests struck by 
        Congress when it enacted ERISA. . . .
          ``However, the facts of this case are so disturbing that they 
        call into question the merit of the expansive scope of ERISA 
        preemption. UNUM's unscrupulous conduct in this case may be 
        closer to the norm of insurance company practice than the Court 
        has previously suspected. This case reveals that for benefit 
        plans funded and administered by insurance companies, there is 
        no practical or legal deterrent to unscrupulous claims 
        practices. Absent such deterrents, the bad faith denial of 
        large claims, as a strategy for settling them for substantially 
        less than the amount owed, may well become a common practice of 
        insurance companies.
                                *  *  *
          ``Insurance companies do not have the same practical 
        incentives as employers to administer benefit plans in good 
        faith. For self-administered and even self-insured plans, 
        employers are motivated to act in good faith not only in order 
        to comply with the law, but by the practical considerations of 
        maintaining employee loyalty and morale. . . . For many 
        employers, trying to hold down the costs of employee plans 
        through unscrupulous practices may undermine employee morale 
        and loyalty even more than not having an employee plan at all.
                                *  *  *
          ``Without these practical incentives, there is no counter-
        balance to insurance companies' interests in minimizing ERISA 
        claims.
                                *  *  *
          ``The fact that most people in the Dishmans' situation would 
        have had to capitulate is the most troubling aspect of this 
        case. The need to deter insurance companies from behaving in 
        this manner is why bad faith liability exists under almost all 
        state laws. ERISA preempts all such laws. Under ERISA, no 
        matter how unfounded the denial of a claim may be, the only 
        recovery permitted to the claimant is the amount of the 
        benefit.
          ``As this case demonstrates, the reform of shifting the 
        attorney's fees to the insurer is not enough to deter this type 
        of conduct. UNUM's bad faith acts placed pressure on the 
        Dishmans because they were deprived of monthly income which 
        they needed to live. A lump sum benefit after a lawsuit, even 
        with interest and free from legal expense, did nothing to 
        alleviate the pressure upon them at the time the claim was 
        denied and during the course of the litigation. UNUM was not 
        deterred by the prospect of paying the Dishmans' attorneys' 
        fees, because it had every reason to believe that the economic 
        straits in which it had placed the Dishmans would force a 
        favorable settlement long before any substantial fees had been 
        accumulated.
                                *  *  *
          ``[W]ithout any statutory or other legal deterrent it is 
        entirely predictable that insurers will go overboard to 
        minimize claims.'' (Emphasis added.)

    A similar, though far more lengthy and scholarly, analysis was 
conducted by District Court Judge William Young of the United States 
District Court, District of Massachusetts. Writing in a health care 
case, Andrews-Clarke v. Travelers Insurance Co., 984 F.Supp. 49 (1997), 
Judge Young issued a stinging indictment of ERISA's preemptive effect. 
After summarizing the tragic facts of the case and the prior procedural 
history of the action, Judge Young explained:

          ``Travelers and Greenspring promptly removed [the widow's] 
        case to this Court and then, just as promptly, asked this Court 
        to throw her out without hearing the merits of her claim [on 
        the basis that the wrongful death claim was preempted by 
        ERISA].
          ``This, of course, is ridiculous. The tragic events set forth 
        in Diane Andrews-Clarke's Complaint cry out for relief.
                                *  *  *
    ``Under traditional notions of justice, the harms alleged--if 
true--should entitle Diane Andrews-Clarke to some legal remedy on 
behalf of herself and her children against Travelers and Greenspring. 
Consider just one of her claims--breach of contract. This cause of 
action--that contractual promises can be enforced in the courts--pre-
dates the Magna Carta. It is the very bedrock of our notion of 
individual autonomy and property rights. It was among the first 
precepts of the common law to be recognized in the courts of the 
Commonwealth and has been zealously guarded by the state judiciary from 
that day to this. Our entire capitalist structure depends on it.
    ``Nevertheless, this Court had no choice but to pluck Diane 
Andrews-Clarke's case out of the state court in which she sought 
redress (and where relief to other litigants is available) and then, at 
the behest of Travelers and Greenspring, to slam the courthouse doors 
in her face and leave her without any remedy.
    ``This case, thus, becomes yet another illustration of the glaring 
need for Congress to amend ERISA to account for the changing realities 
of the modern health care system. Enacted to safeguard the interests of 
employees and their beneficiaries, ERISA has evolved into a shield of 
immunity that protects health insurers, utilization review providers, 
and other managed care entities from potential liability for the 
consequences of their wrongful denial of health benefits.'' (Andrews-
Clarke, 984 F.Supp. at 52-53.)
    The judiciary has not only vocally expressed its dissatisfaction 
with ERISA's effect on the rights of private sector employees to obtain 
compensation for their damages, they have begun to chip away at its 
application. Although it is generally held--in the context of a health 
care plan subject to ERISA preemption--that contract and tort claims 
arising from an HMO's refusal to provide approval for referrals, tests 
and/or treatments (i.e., a denial of benefits) are preempted, the 
courts have carved out an exception and have held that malpractice 
claims against an HMO are not preempted by ERISA.
    The lead case on this issue is Dukes v. U.S. Healthcare, 57 F.3d 
350 (3rd Cir. 1995) in which the court determined that the HMO should 
properly be subject to vicarious liability for the medical negligence 
of the medical providers arranged for by the HMO under the plan and 
that such medical negligence is not preempted by ERISA. Essentially, 
the Dukes court's analysis turns on a distinction between the existence 
of coverage for the treatment and the quality of the treatment itself. 
In other words, if the HMO denies requested care because the treatment 
is not covered, e.g., the treatment falls under the plan's experimental 
exclusion, the claim is subject to ERISA preemption because it deals 
with coverage for benefits. If, on the other hand, the treatment is 
covered under the terms of the plan, but the doctor or the HMO want to 
provide a less effective treatment (usually for reasons of cost) and 
that injures the patient, it is not preempted because, in fact, 
benefits were provided, but the benefits were simply of poor quality. 
The Dukes court pointed out that ERISA was only designed and intended 
to assure that the promised benefits are, in fact, provided and was 
never intended to operate beyond that threshold or go into the realm of 
examining the quality of the benefit provided. Thus, the court 
concluded, state law acts in that context.
    One of the most telling examples of the shift in the courts towards 
easing the impact of ERISA's remedy preemption is that of the Fifth 
Circuit. In Corcoran v. United Health Care, Inc., 965 F.2d 1321 (5th 
Cir. 1992), cert. denied 113 S.Ct. 812, 121 L.Ed.2d 684 (1992), the 
Fifth Circuit held that a wrongful death action based on claims of 
malpractice brought against the HMO was preempted by ERISA. Seven years 
later, in Giles v. NYLCare Health Plans, 172 F.3d 331 (5th Cir. 1999), 
the Fifth Circuit upheld the district court's order remanding the 
action to the state court on the grounds that the malpractice action 
raised a state-law claim not completely preempted by ERISA.
    The Fifth Circuit, however, never addressed the merits of the 
Corcoran issue at all--i.e., does ERISA preempt the malpractice claims. 
Rather, the court fashioned its analysis around the procedural question 
of jurisdiction, and dodged the Corcoran issue by expressly stating 
that ``restraint and comity indicate we should reserve the issue [of 
whether ERISA does, in fact, preempt the state law claims of 
malpractice] for resolution in the first instance by the state court.''
    That the Fifth Circuit would utilize a procedural vehicle to avoid 
a conflict with its Corcoran decision on the merits of the substantive 
issue of preemption of malpractice claims provides a telling 
demonstration of how far the courts will now go to avoid sacrificing 
victims' remedies on the altar of ERISA preemption.
    Even the United States Supreme Court has expressed a growing 
dissatisfaction with the consequences resulting from the breadth of 
ERISA preemption and has retrenched to some degree on that issue. In a 
series of decisions, the Court began to narrow and limit ERISA's 
preemptive effect: New York State Conference of Blue Cross & Blue 
Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S.Ct. 1671, 131 
L.Ed.2d 695 (1995); De Buono v. NYSA-ILA Med. and Clinical Servs., 520 
U.S. 806, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997); California Div. of 
Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 
316, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997).
    More importantly, in the specific context of insurance and managed 
care benefits, the Supreme Court has indicated that ERISA preemption 
should not be so broadly applied. In UNUM Life Ins. Co. of America v. 
Ward, 526 U.S. 358 (1999), the Court held that a state law claim which 
might otherwise relate to an ERISA plan is saved from ERISA preemption 
where the relevant state law regulates the business of insurance. And, 
even more recently, the Court held in Pegram v. Herdrich, 530 U.S. 211, 
120 S.Ct. 2143 (2000) that ``mixed'' decisions by a managed care doctor 
that implicated both medical judgment and administrative concerns do 
not constitute fiduciary actions subject to control under ERISA.
    The ``sticking point,'' however, with these judicial efforts to 
chip away at the devastating effect of ERISA preemption in the 
insurance or health care context is the second half of the Court's 
opinion in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549 
(1987). In the first half of the opinion, the Court held that state 
tort law of general application was not saved from ERISA preemption. 
Further, the Court noted, the tort law at issue in that case, 
Mississippi's bad faith law, was a tort law of general application and 
was not restricted in its application to the insurance industry. It was 
not, therefore, saved from ERISA preemption.
    In the second half of its opinion, however, the Court went on to 
express reservations about whether a state law which did, in fact, 
regulate insurance would still be saved from ERISA preemption. The 
Court's concern centered around the issue of whether any state law 
which provided remedies other than those set forth in the ERISA statute 
should be permitted in light of Congress's apparent intent that all 
such plans be given similar administrative regulation and protection, 
even if that state law would otherwise be exempted from ERISA 
preemption. It is that portion of the Pilot Life case which remains 
intact and which has not been readdressed by the Court since that 
decision. And it is that portion of the decision which necessarily 
hampers any other court from imposing damages against an HMO or health 
insurance company, no matter how outrageous or egregious the 
misconduct. It is that portion of the decision which must be 
addressed--and fixed--by Congress.
C. Accountability Will Not Increase Either Costs or the Number of 
        Lawsuits
    Opponents of permitting liability lawsuits against irresponsible 
HMOs or health insurers raise two common objections. First that 
liability provisions will increase costs and that in turn, will require 
an increase in premiums and a resulting decrease in the number of 
people who can or will be insured. Second, that public outcry for 
legislation that would give patients the legal right to hold the HMO 
industry accountable is somehow nothing more than an attempt by trial 
lawyers to have another basis for bringing ``frivolous'' lawsuits. 
Neither of these criticisms has any merit.
    1. Fear of Increased Costs is Unfounded
    The first thing to keep in mind, of course, is that ERISA has 
granted the managed care industry an extraordinary immunity--absolute 
immunity from legal accountability for the injuries and deaths their 
decisions may cause. No other industry has that. Indeed, even the 
Federal government has not given itself such broad immunity. And there 
is simply no justification for this immunity. HMOs and insurers are in 
business just like every other industry. They have been making profits 
just like every other industry. Despite some massive losses for not-
for-profit HMOs, the managed care industry expects profits of more than 
$3 billion in 2000, a 60 percent increase over 1999 profits, according 
to a study by the Corporate Research Group Inc., New Rochelle, New 
York, as reported in the May 2000 edition of Healthcare Finance 
Management. Revenues are expected to increase about $14 billion to $176 
billion this year. Because HMO enrollment will rise only about 1 
percent in 2000, most of the increase in industry revenues is expected 
to come from higher rates, according to the study.
    More importantly, the claim that costs would increase, that 
premiums would increase and that the number of uninsured Americans 
would increase are simply not supportable, either logically or 
empirically.
    First, premiums are already increasing, in part, because premiums 
during the last decade have been artificially depressed. In addition, 
huge increases in the cost of prescription drugs are driving medical 
inflation according to a September 2000 survey by Kaiser Family 
Foundation and Health Research & Educational Trust.
    Second, costs should not increase at all as the result of HMO 
accountability legislation. If an HMO is providing the care it is 
contractually required to provide--and is acting in good faith--it will 
not be sued. Indeed, the best way to avoid litigation is to provide 
quality services and products that do not endanger the health and 
safety of consumers. Texas is a good example. In 1997, when the Texas 
Legislature passed an HMO accountability law, 24.5 percent of Texans 
had no health insurance. By 1999, the percentage of Texans without 
health insurance decreased to 23.3 percent according to the U.S. Census 
Bureau. (Data available online at: http://www.census.gov/hhes/hlthins/
hlthin99/hi99te.html.) Clearly, in Texas, fears of increasing the 
number of uninsured were unfounded.
    Third, if medical costs increase, it will only be because HMOs 
start paying for services they were contractually obligated to provide, 
but for which they were unreasonably denying claims. That means that 
they were receiving a windfall--getting premiums for benefits they 
previously were not providing. The fact that they will now be providing 
the benefits for which they have been receiving premiums should not 
increase costs--since, in fact, they were receiving premiums for those 
benefits all along. If the cost of providing those promised benefits 
does drive up premiums, that could only be the result of the fact that 
the HMOs were deliberately deflating the premiums in order to obtain 
market share--a very common occurrence during the mid-to-late '90's. 
None of that economic theory, however, justifies immunizing this 
particular industry from its own wrongdoing when the health and the 
lives of Americans are at stake.
    That premium costs should not be impacted as the result of the 
advent of liability provisions is confirmed by empirical analysis as 
well. In a study conducted by the Kaiser Family Foundation prior to the 
enactment of California's new HMO liability law, patterned on the Texas 
legislation, it was estimated that additional liability exposure should 
have an extremely minimal impact on premiums--on the order of 
approximately 17 cents per member per month or $2 a year.
    2. The Contingency Fee System Deters ``Frivolous'' Lawsuits
    ATLA and the plaintiffs' bar do not support the inclusion of 
accountability provisions in order to generate lawsuits for their own 
sake. We support it, and patients and their families support it, 
because they want people to receive the care they have been promised 
and be protected from, not exposed to, serious illness, injury, or 
death. Our society does not make bank robbery illegal because we want 
to fill up the jails with prisoners. We make bank robbery illegal 
because we want people to stop robbing banks. The same is true here. We 
do not want liability provisions because we want to fill the courts 
with law suits. We want to make HMOs accountable because we want HMOs 
to fulfill their contractual promises to provide quality care to the 
patients who are paying premiums.
    Most plaintiffs' attorneys are in reality small business people. No 
lawyer--especially a contingency fee lawyer, who is paid and reimbursed 
for expenses only if he or she wins for the client--will take a case 
that has little merit or a case where it is a ``close call'' as to 
whether the HMO's denial of care was unreasonable. It simply does not 
make financial sense for the lawyer to do so. Thus, if the HMOs provide 
the benefits they are supposed to provide, costs will not increase as 
the result of damages imposed in litigation--because there will be no 
litigation. And if the HMOs do not provide the care they are supposed 
to provide, what justification is there for protecting them--unlike 
anyone else--from the consequences of that misconduct? Again, Texas is 
a good example. Although no government entity in Texas officially 
tracks the number of lawsuits brought under the HMO statute, only 10 
lawsuits have been brought against managed care entities even though 4 
million Texans are covered by managed care plans.
    If frivolous lawsuits are a concern, then that is the concern that 
should be addressed. The rational approach is to punish lawyers who 
file frivolous claims. State court and state bar associations already 
have mechanisms in place to punish such lawyers. It is never a wise 
public policy to deal with frivolous lawsuits by taking away the legal 
rights of people who have been injured through no fault of their own.
D. External Review Cannot Solve the Problem
    The industry asserts that the problems of abuse by the industry can 
be rectified by the use of the external, or independent, review 
process. I have several comments with regard to that proposal.
    First, in a perfect world, an external review system that is truly 
fair and prompt could eliminate many--though not all--of the problems 
engendered by the health care benefits industry's pattern and history 
of misconduct. And to the extent that even an imperfect system may 
help, I whole-heartedly support it. But it cannot be embraced as the 
cure-all for the problems faced by managed care patients. And there are 
several reasons why:

   Because any exhaustion of remedies requirement is 
        necessarily a limitation on access to justice, it should be as 
        narrow as possible. This issue is of particular concern with 
        respect to the suggestion that an external review process be 
        binding. Essentially, such a provision would deny patients 
        their 7th Amendment right to a jury trial in cases where an HMO 
        has made a incorrect medical decision that results in injury or 
        death. That is contrary to 225 years' of jurisprudence in 
        America. The American jury is a uniquely democratic 
        institution. The more than five million Americans called for 
        jury duty each year still serve as the conscience of the 
        community. And it is the only governmental body that is truly 
        neutral, unswayed by electoral pressure, financial self-
        interest, and blind ambition.

    There is no proof that an external review process would not be 
biased, complicated, or otherwise impose a hardship on a sick patient 
or a family that has already suffered a loss. I also fear that there 
would be unfairness at the internal review stage of the process. At 
both stages, most patients likely would not have counsel to assist them 
in preparing their case for review or in presenting their case. The 
HMOs, of course, would have counsel on staff for just that purpose. 
Thus, many patients would be placed at an immediate disadvantage. 
Similarly, most patients at that stage do not have either the access 
to, or the funds necessary to obtain, expert medical opinions in 
support of their claims. Again, the HMOs would and do have those 
resources. The system is thus skewed in favor of the HMO going in. 
These problems, of course, raising serious due process concerns for 
patients.
    A major concern would be the issue of who conducts the reviews. In 
my experience as a litigator dealing with purportedly ``experimental'' 
procedures, and denials of care based on that exclusion, I have 
observed a distinct disparity in the opinions of equally-qualified 
experts, depending on the nature of their practices. The clinicians--
the doctors who actually treat patients as opposed to merely studying 
them--tend to be on the cutting edge of medical practice. They are 
aware of the alternative treatments, what their likelihood of success 
may be and what the downside risks of the treatment are. More 
importantly, they are willing to let their patients decide whether they 
are willing to undergo that treatment in the hope of obtaining relief 
from illness or disease. These doctors see, up close and personally, on 
a daily basis what works and what does not.
    On the other hand, academics, who may have virtually no hands on 
experience with real live patients with real health problems, tend to 
be far more cautious and conservative. They are more tied to the 
scientific method than they are to the practice of medicine as a 
healing art. They require stringent standards of scientific proof that 
may not be realistic when dealing with a particular patient's illness.
    This disparity in the way that clinicians versus academics view 
cutting edge treatments can have a significant impact on the outcome of 
an external review evaluation process. And the question is, who should 
resolve that dispute? If the external reviewer deciding the case is a 
clinician, the HMO may claim the process is not fair. If the reviewer 
is an academic, the patient may claim the process is not fair. If the 
process is binding, without recourse to a jury to resolve that dispute, 
there is no way to assure fairness at all.
    These due process and fairness concerns, in fact, led California to 
provide that its external review process not be binding. Thus, a 
patient can proceed through the external review process and, even if 
the reviewer decides that the care need not be provided, the patient 
still retains his or her Constitutional right to a jury trial to 
correct the injustice of the HMO's denial of benefits.

   For many people, an external review process simply cannot 
        help. In the case history examples provided at the beginning of 
        this testimony, for example, external review could achieve 
        nothing. For Mrs. A, the lady who died of a heart attack in a 
        rural hospital because the HMO would not authorize an air lift 
        for her to a medical center, external review could not bring 
        her back to life or restore her to the bosom of her family. In 
        that context, then, if the only remedy were external review, it 
        would continue to give HMOs the incentive to deny necessary, 
        life-saving emergency care because there would be no 
        consequences resulting from that denial. Similarly, in the case 
        of Mrs. R--who had the tumor in her bladder and needed 
        immediate surgery--external review alone could not help her get 
        the care in time. Moreover, it could do nothing to compensate 
        her for the heart attack she suffered as the result of the 
        HMO's delay in care. And what about Mrs. S--who was diagnosed 
        with cancer, but never told about that diagnosis until shortly 
        before she died? What good would external review do her? Or her 
        family?

    External review without legal accountability is a sham. As these 
examples illustrate, the fundamental problem with external review is 
that it leaves the same loophole as ERISA itself. Where death or injury 
has already occurred, where damage is imminent or has already happened, 
external review provides no remedies. All it can do is what ERISA does 
now--tell the HMO to provide the care it should have provided to begin 
with. How will that give HMOs the incentive to provide the care 
willingly, and without forcing patients to go through yet another 
process? It cannot.
    Thus, while external review may be an important adjunct to the 
liability provisions, it cannot, by itself, solve the problems that 
have resulted from the HMOs' abuse of ERISA immunity.
E. State Law Should Apply to Control HMO Misconduct
    1. Insurance Law has Historically been Regulated by the States
    Once it is decided that adequate remedies should be included in 
ERISA, the question becomes whether those remedies should be federally 
mandated or controlled by state law. The history of insurance 
regulation and the regulation of health and safety mandate that this 
issue be controlled by state law.
    Many of the courts which have followed the Dukes line of cases have 
reasoned that malpractice-type claims or ``quality of care'' claims 
against HMOs should be governed by state law and not preempted by ERISA 
on the basis of the standard ``police powers'' analysis. In other 
words, the Constitution, and the cases interpreting and applying it, 
have been very clear that states can and should regulate and control 
issues relating to the health and safety of their citizens. Thus, where 
an HMO makes a determination that impacts the health or safety of a 
state's citizens, principles of federalism mandate that the state 
controls the remedies that are to be afforded those citizens.
    In addition, the McCarran-Ferguson Act leads irrevocably to the 
same conclusion. When anti-trust legislation was being passed by 
Congress in the 1940's, the insurance industry lobbied for and obtained 
an exemption from that regulation for itself. In the McCarran-Ferguson 
Act, Congress expressly declared ``that the continued regulation and 
taxation by the several States of the business of insurance is in the 
public interest.'' (15 U.S.C. section 1011.) As such, under that Act, 
no federal legislation of general application is permitted to preempt 
state regulation of the business of insurance.
    And that HMOs are, in fact, in the business of insurance cannot 
seriously be challenged. The Ninth Circuit, the Wisconsin Supreme 
Court, the California Supreme Court and the California Legislature have 
all made express findings to that effect. (See Washington Physicians 
Service Ass'n v. Gregoire (9th Cir. 1998) 147 F.3d 1039, 1045-1046; 
Sarchett v. Blue Shield of California (1987) 43 Cal.3d 1, 3, fn. 1; 
McEvoy v. Group Health Cooperative of Eau Claire (1997) 213 Wis. 2d 
507, 570 N.W.2d 397; California Civil Code section 3428, 1999 ch. 536, 
section 1.)
    Since HMOs are in the business of insurance, and since the 
McCarran-Ferguson Act--obtained through the insurance industry's own 
efforts--mandates that state regulation of insurance is in the public 
interest, state regulation of HMO conduct is demanded.
    State regulation of HMO conduct also makes sense on other levels. 
Each state already regulates HMOs and even nationwide HMOs, like Aetna, 
incorporate separately in each state. Additionally, state-based 
regulation of HMOs allows local community standards regarding 
appropriateness of damages--both as to type and extent--to prevail. 
State regulation also puts government employees and private sector 
employees living in the same community on precisely the same footing. 
As it now stands, the rights and remedies of employees of local and 
state governmental agencies are regulated by state law while a next-
door-neighbor who is a private sector employee is subject to ERISA's 
limitations. A teacher at a public school who suffers precisely the 
same injury as a result of an HMO's decision as a private school 
teacher has a remedy under state law. But the private school teacher 
has no remedy. If state control of ERISA-based remedies is permitted, 
both citizens are afforded equal treatment.
    2. Federalizing HMO Claims Wastes Limited Judicial Resources
    There is nothing magical about federal court. Federalizing managed 
care liability denigrates legitimate states' rights. Throughout 
American history, state courts have always been the arbiter of medical 
malpractice claims and related lawsuits. Federalization duplicates the 
work of state courts and wastes limited judicial resources. Since the 
mid-1990s, the federal civil dockets have been severely backlogged as 
the result of unprecedented number of judicial vacancies and the 
increasing federalization of state and local criminal drug laws. Chief 
Justice Rehnquist has repeatedly asked Congress not to expand the 
jurisdiction of the federal judiciary. Federalizing HMO suits only 
ensures that such cases will go to the back of the line of the federal 
docket, creating unreasonable delays for injured patients. In contrast, 
state courts' civil dockets move with much greater speed due to a 
smaller caseload and greater experience with state-law based injury 
claims.
    Managed care insurers often prefer the federal court system because 
they have found that it allows them to delay the resolution of claims--
and thereby earn investment income on even the most meritorious 
compensation--and blame the ``empty chair''--the doctor or the 
hospital--for the patient's injuries. Since only managed care insurers, 
and no other potential defendants, would be under the jurisdiction of 
federal court, successfully blaming the empty chair lets HMOs off the 
hook.
    In addition, federal court can be extremely expensive, time 
consuming and inconvenient for patients, who may live hundreds of miles 
from the nearest federal courthouse. In some of the larger, western 
states, for example, injured patients often live hundreds of miles from 
the nearest federal courthouse while the local state court is likely 
just across town.
    Proponents of federal jurisdiction argue that federal regulation of 
ERISA remedies is necessary in order to assure administrative 
consistency and efficiency of ERISA plan administration. The reality is 
that--even under ERISA as it is presently structured--every HMO already 
operates under both state and federal regulation simultaneously. This 
is because the vast majority of commercial HMOs offer plans to both 
private sector employers and government employers. Any time a 
government or church employee is covered, the entire panoply of state-
based regulations--and state remedies--is automatically triggered. That 
necessarily requires the HMO to be attuned to and prepared for that 
state regulation. Indeed, state regulation of HMO remedies under ERISA 
will ease HMO compliance requirements because each HMO in each state 
will be required to comply only with that state's regulatory scheme and 
will not be burdened with a continuing dual system of both state and 
federal regulation.
    Thus, for both historical, constitutional reasons and for 
practical, procedural reasons, state regulation of HMO liability simply 
makes the most sense.
    3. Caps on Damages are Unnecessary and Unfair
    Congress should not federally mandate limitations on damages. A 
federal mandate would again abrogate and violate the state's interests 
and the principles underlying the McCarran-Ferguson Act. The issue of 
limiting damages and whether, in a particular state, such limits are 
warranted should be left to each state and its legislature, consistent, 
of course, with state and federal constitutions. A Washington-knows-
best philosophy in an area of the law that has historically been left 
to the states has no place in our system of government.
    Non-economic damages compensate injured patients for very real 
injuries--such as the loss of a limb or sight, the loss of mobility, 
the loss of fertility, excruciating pain, and permanent and severe 
disfigurement. They also compensate for the loss of a child or a 
spouse. Caps on non-economic damages discriminate against those 
patients who are not in the workforce--children, seniors, homemakers--
and who cannot show substantial economic loss, such as lost wages or 
salary. There is no reason why the injuries of a stay-at-home mom 
should be valued less than the same injuries of a corporate executive.
    Experience at the state level shows that damage caps have virtually 
no impact on health care costs. An arbitrary and inflexible cap is 
inconsistent with the completely unpredictable nature and extent of 
injuries caused by a managed care insurer's negligence. Fairly 
compensating victims is not a ``one-size-fits-all'' proposition. Rather 
jurors, who are sitting in the courtroom, are in a better position than 
Congress to determine what damages are justified in cases involving 
differing injuries and circumstances.
    Caps on non-economic damages punish those with the most severe, 
devastating injuries and do nothing to address concerns regarding 
frivolous claims. (As I have stated previously in my testimony, if 
frivolous lawsuits are a concern, then that is the concern that should 
be addressed--but not by penalizing someone who has been injured.) Caps 
on damages reward the person or company which caused the injury by 
limiting liability, while further harming the injured patient by 
denying full compensation determined by a citizen jury.
    I understand there is some confusion over Texas' law on non-
economic damages. Texas does not cap non-economic damages in personal 
injury cases. The only non-economic damage cap in Texas applies in 
statutorily created medical malpractice actions for wrongful death. 
That cap is adjusted for inflation and the 2000 cap amount is 
$1,410,000. This cap does not apply to a cause of action against a 
managed care insurer.
    While non-economic damages are designed to compensate injured 
patients for very real injuries, punitive damages are very rare and are 
designed to punish wrongdoers for egregious misconduct. While some 
states limit or do not recognize punitive damages, that is not the case 
in California. Indeed, as the California Supreme Court noted, one of 
the most important factors in determining whether an award of punitive 
damages is excessive is the wealth of the company: Too small an award 
will not have the effect of deterring the misconduct while too large an 
award may risk permanent damage to the company's operations. (Adams v. 
Murikami (1991) 54 Cal.3d 105.) Clearly, a rote formula of three times 
compensatory damages or an overall cap cannot fulfill either the 
ameliorative deterrent purposes of punitive damages or the protective 
effect of assuring that the award will not cause excessive harm to the 
defendant. States which have reached this conclusion--and which have 
done so on the basis of reasoned logic--should not be hamstrung by a 
federal mandate limiting the effectiveness of the state's regulation of 
its businesses.
F. Employers Need Not Fear Accountability Provisions Aimed at HMO or 
        Insurer Activity
    Employers and employer groups are necessarily concerned about 
potential imposition of liability provisions on them. It is not 
intended that the current ERISA protections be abrogated with respect 
to them--so long as they are not the entities making the health care 
benefit decisions. The practical reality is that once an employer or 
employer group purchases an HMO or health insurance policy for its 
employees, the employer is literally ``out-of-the-picture'' with 
respect to the benefit determinations. There is simply no reason to 
impose liability on an employer or employer group when it has fulfilled 
its ERISA obligation to provide benefits through the purchase of an 
independent plan or policy. Legislative language limiting employer 
liability unless there is direct participation in a benefit decision 
effectively addresses employers concerns.
    Opponents of managed care reform seem to forget that employers can 
be held liable under the current ERISA statute for breach of fiduciary 
duty. The mere handful of cases in this area occur in situations where 
the employer deducts a portion of the employee's pay for insurance 
premiums, but fails to turn that premium over to the insurer, 
effectively rendering the employee uninsured. In these sorts of 
situations, employers should continue to be held accountable.
    One note of warning must be sounded here. I have been involved in 
litigation in which the employer purportedly provided the benefits 
directly with the assistance of a ``third party administrator'' which 
was, in fact, an HMO. Under the operative contract, the employer 
maintained a checking account which the administrator could draw on in 
order to pay benefits and the contract provided--at least nominally--
that the employer had the final right to determine claims. Under normal 
circumstances, this situation would not impose additional liability on 
either the employer or the administrator under current ERISA reform 
proposals. But the reality in the case I litigated was vastly different 
from the appearances and creates a potential loophole that could be 
abused by HMOs or health insurers if ERISA is amended to protect 
patients.
    The reality of this case was that, although final coverage 
decisions were ``reserved'' to the employer, that was a subterfuge. The 
employees were issued plan booklets by the HMO that were identical to 
those issued by the HMO to employees of plans that had been purchased 
by employers; the exact same health care provider network was 
established and used by the ``third-party administrator;'' the claims 
were administered in precisely the same way as in all the other plans 
and the net effect of the operation was that the HMO, as the ``third-
party administrator,'' in fact, made all the claim determinations and 
the employer had no actual input into that process, even though the 
final decision was ``reserved'' to the employer under the 
administration contract.
    It can be expected that, if HMO liability provisions are amended 
into ERISA, that this type of subterfuge will be attempted, and it 
should be made clear that even where the HMO is purportedly operating 
only as a third-party administrator, it may still be liable for unfair 
claim decisions. This will protect both the patient and the employer.
G. What Standard of Conduct Should Be Applied?
    Once Congress agrees that patients and their families can be 
protected only if HMOs are--like every other industry and even the 
government--held accountable for their misconduct, the next concern is 
the standard of conduct to be applied.
    Some may suggest that HMO decisions which implicate medical 
considerations should be measured against a medical malpractice 
standard, i.e., the standard of care in the medical community. I would 
vigorously disagree with that proposal, and I will give you an example 
provided by a gynecologist to explain why.
    I was attending an ERISA seminar in which a gynecologist spoke 
regarding her experience with the HMO system. She had been practicing 
for several years in Phoenix, which has a very high HMO penetration. 
She had, however, just moved to Boise, Idaho, which has very little HMO 
activity, for the express purpose of escaping HMOs and the problems 
they bring to the practice of medicine. She explained this situation as 
one example of why she moved.
    The doctor's patient was a woman in her late 30's who had been 
diagnosed with non-invasive cervical cancer. This type of cancer is 
very treatable and usually curable. The first treatment of choice is a 
cryosurgery, in which the cervix is frozen with liquid nitrogen. The 
freezing destroys the cancer cells and does not impair the woman's 
fertility. The treatment was provided to this patient without incident. 
Approximately two years later, however, tests showed a recurrence of 
the cervical cancer. The cancer was still non-invasive, but a 
recurrence was, of course, worrisome. The medical standard of care at 
that point offered two alternatives: Either another cryosurgery or a 
hysterectomy. The woman was now in her early 40's, had three children 
and was not interested in having any more. She elected to have the 
hysterectomy. Her health plan, however, refused to authorize a 
hysterectomy and forced her to accept the less expensive cryosurgery. 
Two years later, she was diagnosed with invasive cervical cancer, 
requiring a complete hysterectomy and other follow-up treatment, long-
term care and monitoring and engendering the risk of metastatic cancer. 
All because the HMO wanted to save money.
    The point here is that the medical standard of care permitted 
either procedure. But the HMO's obligations go beyond what the medical 
standard of care provides. The HMO contractually obligated itself to 
provide any medically necessary care needed by the patient. When 
marketing themselves to employers or employees, HMOs never disclose to 
those potential purchasers that they intend to provide the minimal care 
needed, or the least expensive care needed and that they reserve to 
themselves the exclusive right to make these life-and-death decisions. 
To the contrary, HMOs market themselves as providing comprehensive care 
of the highest quality.
    When a patient has the choice between two accepted and medically 
appropriate treatment options, it should be left to the patient to 
choose what treatment he or she will undergo. That is not a choice that 
should ever be made by an HMO, let alone a choice made by an HMO solely 
on the basis of cost.
    So, it is not the medical malpractice standard of care that should 
be applied to an HMO's benefit decisions. Rather, a simple test of 
reasonableness--the standard test for negligence--should apply. Was the 
HMO's denial of benefits reasonable under the circumstances? If an 
HMO's decision is based on monetary self-interest, that should, by 
definition, be considered unreasonable.
    This standard has the further benefit of being a common standard 
for liability in every state and involves a well-developed body of law 
which can be applied in this context.
H. Conclusion
    The ERISA ``experiment'' of total tort immunity is a dismal 
failure. People have suffered and died as a direct result. It is time 
to call a halt to this unwarranted and unprecedented immunity and to 
restore balance to the system.
    Something must be done about ERISA's remedy limitations. And the 
need is not just the ``superficial'' one of fulfilling the fundamental 
principle of equity that ``for every wrong there is a remedy.'' The 
need runs much deeper. As noted by Judge Young:
    ``A further cost of this near absolute immunity is its pernicious 
effect on our democratic system. Whenever Congress extinguishes a right 
which heretofore has been vindicated in the courts through citizen 
juries, there is a cost. It is not a monetary cost. It is a cost paid 
in rarer coin--the treasure of democracy self.'' (Andrews-Clarke, at p. 
63, fn. 73.)

                                


    Chairwoman Johnson. Dr. Corlin.

STATEMENT OF RICHARD F. CORLIN, M.D., PRESIDENT-ELECT, AMERICAN 
                      MEDICAL ASSOCIATION

    Dr. Corlin. Thank you, Mrs. Johnson. My name is Richard 
Corlin. I am the President-Elect of the American Medical 
Association and a practicing gastroenterologist from Santa 
Monica, California.
    As Chairman Johnson has observed, virtually everyone now 
agrees that patient protection legislation must include certain 
basic patient rights. We are strongly encouraged by this and by 
President Bush's principles for a bipartisan Patients' Bill of 
Rights which include these protections.
    A core issue remains: How can patients hold health plans 
accountable for their decisions? It is about the patient. This 
is a crucial point for everyone to understand. If a managed 
care organization makes a negligent medical decision that harms 
or kills a patient, it must take the responsibility. Is it fair 
to grant a shield of immunity to managed care organizations, a 
shield which is not given to any other private business entity? 
We don't think so. Neither do a vast majority of Americans.
    But why is this even an issue? ERISA was never intended to 
apply to managed care. There is no sound policy reason why this 
law should leave patients who are injured by negligent health 
plans with no real remedy.
    The judiciary agrees with this point. Numerous Federal 
judges have called on Congress to amend ERISA. In one instance, 
a Federal judge had to throw out a case, and he complained 
that, quote, the tragic events set forth in this woman's 
complaint cry out for relief; nevertheless, this court has no 
choice but to slam the courthouse doors in her face and leave 
her without any remedy. This is truly an issue of fundamental 
fairness.
    I think many of us here would agree that health plans need 
to be held accountable. So what is the best solution for this 
problem? The best solution must reflect the relative strengths 
of the different courts and levels of government.
    Under principles of federalism, the States retain powers 
not delegated to the Federal Government. Historically, the 
States have retained jurisdiction to govern the practice of 
medicine and the delivery of health care.
    We support a split cause of action. If a patient is injured 
by a negligent health plan, the patient must have a legal 
remedy in either the State or the Federal court, but not both. 
Because States retain jurisdiction to govern the practice of 
medicine, if the case involves medical judgment, the case 
should go to State court.
    Federal courts should hear cases that have traditionally 
been decided under ERISA, the eligibility of benefits claims. 
An acceptable patient protection bill should in a targeted 
fashion remove certain ERISA preemptions allowing State laws to 
continue to govern the delivery of health care.
    The bill should also provide an adequate Federal remedy for 
patients injured when a plan makes a negligent nonmedical 
decision.
    Our proposal is in no way arbitrary. The Judicial 
Conference of the United States, headed by Chief Justice 
Rehnquist, has expressed support for this view by stating, 
quote, the State courts have significant experience with 
personal injury claims and would be an appropriate forum to 
consider personal injury actions pertaining to health care 
treatment.
    He also urged Congress, and again I quote, to provide that 
in any managed care legislation, the State courts be the 
primary forum for the resolution of personal injury claims 
arising from the denial of health care benefits.
    This solution would also protect the rights of States and 
their citizens. Every State legislature has passed laws 
governing the delivery of health care services. In addition to 
existing common law rights, States have passed laws granting 
their citizens a cause of action against negative health plans.
    We urge Congress, therefore, not to pass a ``Federal-only'' 
cause of action that would destroy these State laws. The 
insurance industry continues to claim that making health plans 
accountable in this targeted way will open a Pandora's box. The 
gloom and doom predictions by the insurance industry have not 
come about.
    President Bush has repeatedly stated that the patient 
protection laws in Texas are working well. Despite the 
insurance industry's claims, accountability has not caused 
health care costs to skyrocket. Employers have not suddenly 
dropped health benefits and the courts have not been overrun by 
participants filing frivolous lawsuits.
    In closing, the patient protections we support, including 
accountability, closely reflect President Bush's principles. A 
Federal Patients' Bill of Rights must ensure that every person 
enrolled in a health plan enjoys strong patient protections, 
with deference given to State laws.
    Madam Chairman, and the entire Committee, thank you for 
inviting me to participate today, and we look forward to any 
further discussions.
    Chairwoman Johnson. Thank you, Dr. Corlin.
    [The prepared statement of Dr. Corlin follows:]
Statement of Richard F. Corlin, M.D., President-Elect, American Medical 
                              Association
    Madam Chairman and members of the Subcommittee, my name is Richard 
F. Corlin, MD. I am the President-Elect of the American Medical 
Association (AMA), and formerly served as the Speaker of the AMA's 
House of Delegates. I am a practicing gastroenterologist from Santa 
Monica, California. On behalf of the three hundred thousand physician 
and medical student members of the AMA, I appreciate the opportunity to 
comment on patient protections in managed care.
Close to Agreement
    The AMA firmly believes that virtually all patient protections are 
interrelated. Ensuring that patients have information about accessible 
grievance and appeals procedures, for instance, would mean little if 
the standards that the review entities would apply are arbitrarily 
defined by the plans. Similarly, guaranteeing that patients have access 
to specialty care, would be virtually meaningless if plans could 
arbitrarily determine that the specialty treatment was not medically 
necessary. And even though we may discuss only one or two patients' 
rights in a particular forum, we should realize that it would be 
inappropriate to barter or trade one set of patient rights at the 
expense of other legitimate patient rights. Patients deserve to have 
protected all of the rights which fairness and justice require.
    The good news is that, as Chairman Johnson has said, there truly is 
``significant agreement on both sides of the aisle on the underlying 
patient protections, such as access to OB/GYNs, access to specialists, 
prudent layperson standard for emergency rooms, and disclosure of plan 
information.'' Virtually everyone now agrees that any patient 
protection legislation considered by Congress should include certain 
basic rights which all patients deserve and want. Even the details of 
those rights in most of the various competing bills are extraordinarily 
similar. We are strongly encouraged by this progress and by President 
Bush's Principles for a Bipartisan Patients' Bill of Rights, which 
include these protections.
    Allow us to focus, therefore, on what--as Chairman Johnson has 
called--the ``more vexing issue'': how to ensure that health plans can 
be held accountable for their decisions.
An Issue of Fundamental Fairness
    The Employee Retirement Income Security Act of 1974 (ERISA) 
established an elaborate regulatory system intended to ensure that 
employees receive the pension benefits which their employers have 
promised them. The statute was enacted in response to widespread 
allegations of pension fund mismanagement and fraud. In addition to 
preventing these abuses, the statute sought to create uniform 
regulatory requirements that would govern the administration of pension 
and benefit plans, thereby encouraging employers to offer employees 
these benefits. The intention of the bill's sponsors therefore was to 
ensure that employers doing business in more than one state could 
design financial benefits plans that could operate nationwide and would 
not face conflicting state requirements. To override then current state 
laws that sought to regulate pension plans, Congress incorporated broad 
preemption language into ERISA.
    Most of the remedies included in ERISA were also geared toward 
protecting plan assets. ERISA's appeals procedures and civil 
enforcement mechanisms were all directed at ensuring that plan 
fiduciaries handled plan funds properly and prudently for the plan 
participants' benefit. The drafters of ERISA never anticipated or 
intended the bill to protect plan participants who sought to access 
services, such as medical care, as part of a health care benefits 
package.
    The drafters of ERISA also could not have anticipated the eventual 
effects of ERISA and its preemption provision because of the dramatic 
changes the health care market itself has undergone. In 1974, the 
health care delivery system was entirely different from today's market. 
Over the last several decades, we have seen a transformation in 
employer-sponsored health care plans from traditionally insured or 
``fee-for-service'' to managed care. This transformation has given rise 
to new types of arrangements and relationships for financing and 
delivering health care that were not foreseen by the framers of ERISA 
in 1974.
A Matter of Fundamental Fairness
    In the era of managed care, health plans increasingly make 
decisions that directly affect the care that patients receive. 
Illustrations of these practices include: inappropriately limiting 
access to physicians through restricted networks (blocking patient 
access to specialists); refusing to cover or delaying needed medical 
services (transplants, transfusions, therapies); drawing treatment 
protocols too narrowly (patients discharged from a hospital 
prematurely); offering payment incentives or creating deterrents to 
care (disciplining physicians who refer patients for necessary medical 
care); and discouraging physicians from fully discussing health plan 
treatment options (gag rules and gag practices).
    These non-financial functions were never intended to be covered or 
regulated by ERISA. Instead, the states typically have regulated the 
practice of medicine and, more generally, the delivery of health care. 
Even the federal courts have repeatedly noted that the regulation of 
quality of care has traditionally been a matter of state law, and that 
quality of care standards should be enforced in state courts.
    Nevertheless, under many circumstances, ERISA currently preempts 
state-based causes of action, thereby preventing injured patients from 
recovering against health plans that have acted wrongfully. As a 
result, ERISA's federal preemption of state liability actions leads to 
harsh consequences for many patients harmed by their health plans. The 
federal judiciary has also observed the incongruity and inherent 
unfairness resulting from ERISA preemption, with several federal judges 
calling on Congress to amend ERISA. One case involved a 41-year-old 
father of four who went on a drinking binge and committed suicide. 
After his death, his widow said that the health plan had refused to 
approve a detoxification program after an earlier suicide attempt. 
Unable even to look at the merits of the case, the U.S. District Judge 
threw it out of court, saying that ERISA gave the health plan a 
``shield of immunity.'' The judge went on to say that ``the tragic 
events set forth in Diane Andrews-Clarke's complaint cry out for 
relief. . . . Nevertheless, this court has no choice but to . . . slam 
the courthouse doors in her face and leave her without any remedy.'' 
\1\ According to Judge Young, ``the shield of near absolute immunity 
now provided by ERISA simply cannot be justified. . . . Even more 
disturbing to this Court is the failure of Congress to amend a statute 
that, due to the changing realities of the modern health care system, 
has gone conspicuously awry from its original intent.'' \2\
---------------------------------------------------------------------------
    \1\ Andrews-Clarke v. Travelers Insurance Co., 984 F. Supp. 49, 64-
5 (D. Mass. 1997).
    \2\ Id.
---------------------------------------------------------------------------
    Allowing plans to continue to escape liability for negligent 
decision-making through this statutory loophole leaves patients in 
serious jeopardy. If ERISA plans know they can avoid liability due to 
ERISA preemption of state law, they have no incentive to act 
responsibly and provide needed and contracted for medical care.
    Consider, for example, some evidence presented in a lawsuit against 
one of the nation's largest insurance companies last year. The case 
involved a deputy district attorney, Mr. Goodrich, who died of stomach 
cancer after trying for 2\1/2\ years to get his insurance company to 
approve the cancer treatment that the insurance company's own 
physicians had recommended. During the trial, a training video of the 
insurance company was admitted into evidence. The training film showed 
one of the company's attorneys instructing claims handlers, and telling 
them ``[a]s a practical matter, you really may have to do more on a 
non-ERISA plan to protect against some of the legal exposure we're 
talking about.'' \3\
---------------------------------------------------------------------------
    \3\ January 27, 1999, Los Angeles Times, B. 7.
---------------------------------------------------------------------------
    The bottom line is that patients who receive health benefits 
through ERISA plans are currently denied the same rights and remedies 
as patients in non-ERISA plan. This is a simple question of fairness. 
It is also a matter of the public's will and desire. A vast majority of 
Americans believe that health plans should be legally accountable for 
negligent decisions that injure or kill patients.\4\ We strongly agree.
---------------------------------------------------------------------------
    \4\ A national public opinion poll conducted by Penn, Schoen & 
Berland showed that seventy-seven percent (77%) of Americans support 
changing federal law to allow patients to sue a managed care company 
when they are injured by negligent decisions or cost containment 
actions. May 7, 1998, APA News Release. Henry J. Kaiser Family 
Foundation, Harvard School of Public Health survey conducted on January 
25, 2001, found that seventy-five percent (75%) of Americans support 
patient protection legislation, including the right to sue health 
plans. Fifty-three percent (53%) of Americans favor legislation making 
it easier to sue managed care plans that make negligent decisions which 
cause injury or harm to patients. Harris Poll #56, September 29, 1999.
---------------------------------------------------------------------------
    While some courts continue to view ERISA as preempting all state-
based causes of action against health plans, many courts have allowed 
injured patients' complaints against health plans to survive ERISA 
preemption scrutiny. In fact, most ERISA experts acknowledge a definite 
trend in federal courts whereby the courts are deciding that causes of 
action against health plans based on medical decisions or ``mixed'' 
medical-eligibility decisions are not preempted by ERISA. In other 
words, injured patients or the estates of deceased patients may 
increasingly pursue legal remedies in state courts under state law. 
Legislative ERISA reform, however, is necessary to ensure that all 
patients are protected.
A Developing Trend
    Because of the existing ``preemption'' provision of ERISA, patients 
enrolled in ERISA plans lack the remedies currently available to 
patients participating in non-ERISA plans. Many courts have recognized 
this problem. In Corcoran v. United Healthcare,\5\ for instance, a 
patient who had a high-risk pregnancy was advised by her physician to 
be hospitalized as she approached her due date. The plan, however, 
denied the request and instead authorized nursing home care. When the 
patient was at the nursing home and the nurse was off-duty, the fetus 
went into distress and died. The woman sued the plan alleging that the 
plan was negligent in not hospitalizing her. The federal court, 
however, decided that because the woman's claim involved a decision 
about the availability of hospitalization it was actually a 
``benefits'' decision, and consequently preempted by ERISA. As a 
result, the woman could only proceed under ERISA, which provides as the 
woman's sole remedy the benefits sought--in this case pre-delivery 
hospitalization. The woman therefore could obtain no real legal remedy 
under either ERISA or state law.
---------------------------------------------------------------------------
    \5\ 965 F.2d 1321 (5th Cir. 1992).
---------------------------------------------------------------------------
    Several other federal courts, however, have taken the position that 
ERISA was never intended to preempt injured patients from suing managed 
care plans for negligence simply because the plans contract with 
private employers or unions. These courts have looked to the preemption 
doctrine as articulated in the Pilot Life Insurance Co. v. Dedeaux \6\ 
and Metropolitan Life Insurance Co. v. Taylor \7\ cases, and then 
focused on the Dukes v. U.S. Healthcare, Inc. \8\ case. In Dukes, the 
Third U.S. Circuit Court of Appeals acknowledged a previously 
identified distinction between ``quality of care'' decisions and 
``quantity of benefits'' claims, and found that state law claims 
addressing the quality of care that the enrollees received were outside 
the scope of ERISA remedies and were not preempted.
---------------------------------------------------------------------------
    \6\ 481 U.S. 41 (1987).
    \7\ 481 U.S. 58 (1987).
    \8\ 57 F.3d 350 (3d Cir. 1995), rev'g Visconti v. U.S. Healthcare, 
857 F. Supp. 1097 (E.D. Pa. 1994), and Dukes v. United States 
Healthcare Sys. of Pennsylvania, Inc., 848 F. Supp. 39 (E.D. Pa. 1994), 
cert. denied, 116 S. Ct. 564 (1995).
---------------------------------------------------------------------------
    After the Dukes case, a federal court in Connecticut found in 
Moscovitch v. Danbury Hospital \9\ that a claim against an ERISA plan 
in which the enrollee challenged the medical and psychiatric decisions 
of the plan administrator was not preempted by ERISA, despite the 
plan's allegations to the contrary. The enrollee had on two occasions 
attempted suicide and was hospitalized both times. Determined to be 
suicidal on a third occasion, the patient was again hospitalized. 
Deciding that hospitalization was no longer medically necessary, the 
plan administrator on this occasion transferred the enrollee from the 
hospital to a treatment center, where he committed suicide.
---------------------------------------------------------------------------
    \9\ 25 F. Supp. 2d 74 (D. Conn. 1998).
---------------------------------------------------------------------------
    Similarly, federal and state courts in Pennsylvania, Missouri, and 
Illinois, in the Tiemann v. U.S. Healthcare, Inc.\10\ and Pappas v. 
Asbel,\11\ Harris v. Deaconess Health Services Corp.,\12\ and Crum v. 
Health Alliance-Midwest, Inc.,\13\ respectively, all found that plan 
participants and beneficiaries could bring their negligence claims 
against the health plans in state court--ERISA did not preempt them. In 
Harris, a plan participant had sought authorization for 
hospitalization, for what he thought was appendicitis. The plan denied 
him admission and his appendix ruptured. The participant suffered 
permanent physical injury as a result. In the recent Pappas case, a 
managed care plan physician denied one of the plan enrollees permission 
for admission to a spinal cord trauma center. The patient now suffers 
from permanent quadriplegia resulting from an abscess compressing his 
spine. The Pennsylvania Supreme Court found that the plan's decision 
which determined where and when the patient's epidural abscess would be 
treated, constituted a ``mixed eligibility and treatment decision'' and 
was not preempted by ERISA. In Crum, a plan participant believed that 
he may be suffering a heart attack and sought admission to an emergency 
room. The plan's advisory nurses twice denied him permission for 
emergency room services, and he died of a heart attack.
---------------------------------------------------------------------------
    \10\ 93 F. Supp. 2d 585 (E.D. Pa. 2000).
    \11\ 2001 Pa. LEXIS 687. See also, Lazorko v. Pennsylvania 
Hospital, 2000 U.S. App. LEXIS 33792 (3d Cir.) (finding that a managed 
care plan physician's decision not to rehospitalize an enrollee for 
treatment of depression and schizophrenia constituted a ``mixed 
eligibility decision'' which implicates the quality of care the patient 
could receive, and the patient's claim must therefore be decided in 
state court).
    \12\ 61 F. Supp. 2d 889 (E.D. Mo. 1999).
    \13\ 47 F. Supp. 2d 1013 (C.D. Ill. 1999).
---------------------------------------------------------------------------
    As we have stated, however, this trend remains in its nascent stage 
and without clear leadership from Congress, the court rulings will 
remain inconsistent and unpredictable. Many patients will continue to 
have no legal remedies when their health plans act negligently and 
cause them injury or death.
A Complementary Solution
    Under the principle of federalism, the federal and state 
governments maintain a complementary relationship; the states retain 
all powers not delegated to the federal government. The Tenth Amendment 
of our U.S. Constitution reiterates this principle by assuring that 
``the powers not delegated to the United States'' nor prohibited to the 
states ``are reserved to the states respectively, or to the people.''
    The political theory underlying this judicial philosophy was that 
the local or state governments were best equipped to address the needs 
of their citizens. The Founders were also generally concerned about an 
excessively powerful, excessively centralized national government. As a 
result, many of the Founders sought to ensure that the national 
government would be empowered to legislate only in those areas in which 
the separate states were incompetent.
    Historically, the states have retained jurisdiction to govern the 
practice of medicine and, more generally, the delivery of health care 
for their citizens. The states, for instance, retain virtually sole 
authority to license and regulate health care professionals and 
institutions, as well as to provide remedies to citizens who are harmed 
by the negligent acts of those practicing medicine. When health plans, 
insurance companies, or even employers, make medical treatment 
decisions--and in essence, practice medicine--they should therefore be 
held accountable under state law, in state courts.
    Recent statements by the Judicial Conference of the United States, 
which is headed by Chief Justice Rehnquist, prove instructive on this 
issue. In a March 2000 letter to the Chairman of the conference 
committee on managed care legislation passed in the 106th Congress, the 
Judicial Conference stated that: ``Personal injury claims arising from 
the provision or denial of medical treatment have historically been 
governed by state tort law, and suits on such claims have traditionally 
and satisfactorily been resolved primarily in the state court system. . 
. . The state courts have significant experience with personal injury 
claims and would be an appropriate forum to consider personal injury 
actions pertaining to health care treatment.'' (Emphasis added).
    The Judicial Conference urged Congress ``to provide that, in any 
managed care legislation agreed upon, the state courts be the primary 
forum for the resolution of personal injury claims arising from the 
denial of health care benefits.'' (Emphasis added).
    Recent federal case law reflects the Judicial Conference's policy 
favoring state court jurisdiction over cases regarding medical 
judgments. The Supreme Court in last year's Pegram v. Herdrich \14\ 
case stated that health plan coverage decisions often involve medical 
and administrative components which are ``inextricably mixed,'' and the 
``eligibility decisions cannot be untangled from physicians' judgements 
about reasonable medical treatment.'' The Court expressly declined to 
find a ``fiduciary malpractice claim'' under ERISA, and noted that 
permitting such a cause of action would create the unattractive 
possibility of ERISA preemption of state medical malpractice laws. The 
Supreme Court's reasoning therefore supports the contention that state 
courts remain the appropriate forum for holding health plans 
accountable. Many lower federal courts have made similar statements, 
acknowledging that states retain ``their traditional police powers in 
regulating the quality of health care.'' \15\
---------------------------------------------------------------------------
    \14\ 530 U.S. 211.
    \15\ (Corporate Health Insurance Inc. v. Texas Department of 
Insurance, 5th Cir., June 20, 2000, No. 98-20940, 215 F.3d 
526; 2000 U.S. App. LEXIS 14215).
---------------------------------------------------------------------------
    Not only does the federal judicial branch--including the U.S. 
Supreme Court--recognize the importance of states retaining 
jurisdiction over the practice of medicine, the states also are trying 
to exercise their authority over the regulation of medical care. Every 
state legislature has passed laws governing the delivery of health care 
services to its citizens, whether pertaining to external appeal rights, 
utilization review, access to emergency services, or some other patient 
protection. Eight states have passed laws expressly authorizing 
statutory causes of action against health plans, in addition to the 
state ``common law'' actions already recognized by their courts.
    Texas, for instance, in 1997 passed a statute that creates a new 
state cause of action against health insurance carriers, HMOs, and 
other managed care entities who breach their duty to exercise ordinary 
care when making health care treatment decisions, and the breach causes 
harm to the patient. An additional seven (7) states--Arizona, 
California, Georgia, Louisiana, Maine, Oklahoma, and Washington--have 
passed similar health plan accountability statutes.
    We strongly urge Congress therefore to recognize the legitimate 
authority of states and incorporate a bifurcated cause of action into a 
bipartisan patient protection bill. Such a bill would need to remove 
ERISA preemption in a targeted fashion, permitting states to pass or 
retain their own legislation which would protect the legitimate 
interests of their citizens. Additionally, removing ERISA preemption in 
this manner would preserve prior federal court decisions that have 
recognized state common law causes of action.
    The ``split'' between the federal and state causes of action must 
be made according to whether the plan exercised medical judgment when 
making its decision. The judiciary has repeatedly relied on that 
criteria, and so should Congress. When a health plan intervenes in the 
medical decision-making process, and imposes its medical judgment on 
the patient, the plan is engaging in the practice of medicine and 
should be held accountable under state law. If the plan has not made a 
medical judgment and has made simply an eligibility decision, the claim 
should be brought in federal court.
    Because of the gross inadequacy of ERISA remedies, an acceptable 
patients' bill of rights must modify ERISA to also permit a meaningful 
federal cause of action when an enrollee has been injured by a health 
plan's decision that did not involve medical judgment. As we mentioned 
above, ERISA was enacted to protect pension plan and other employee 
benefit financial assets. ERISA needs to be updated to reflect the 
current managed care market and protect plan participants and 
beneficiaries when their group health plans act negligently and cause 
them harm.
    Some advocates of plan accountability have suggested that patient 
protection legislation should provide only a federal cause of action. A 
federal cause of action alone however would wipe out those state 
statutes as well as state common law rights which have provided 
citizens with state law remedies against health plans for negligent 
medical decision-making. Additionally it would prevent forty-two (42) 
other state legislatures from passing similar patient protection 
legislation in the future. The AMA firmly believes that Congress should 
not override the will of the states by passing a federal-only cause of 
action.
    Creating solely a federal remedy for health plan and employer 
misconduct would also violate the most basic principles of federalism. 
Chief Justice Rehnquist has warned that ``Congress should commit itself 
to conserving the federal courts as a distinctive judicial forum of 
limited jurisdiction in our system of federalism. . . . [M]atters that 
can be adequately handled by states should be left to them. . . .'' 
\16\ (Emphasis added).
---------------------------------------------------------------------------
    \16\ Remarks of Chief Justice William H. Rehnquist at the American 
Law Institute Annual Meeting, May 11, 1998.
---------------------------------------------------------------------------
    To provide all patients with adequate remedies, Congress must enact 
federal legislation permitting patients to seek legal recourse against 
managed care plans under state law when the plans' negligent medical 
decisions result in death or injury.
Controlling Litigation
    A bifurcated cause of action would grant all Americans who receive 
employer-based health benefits an extremely important patient 
protection, which they both need and desire. This protection could, and 
should, be coupled with other critical patient rights that would 
directly benefit patients while both directly and indirectly benefiting 
health plans.
    As we have noted, many federal courts have begun to allow injured 
patients to bring causes of action against health plans in state 
courts. The pleadings and legal theories for these cases will 
increasingly mimic the pleadings and theories of those cases that have 
successfully withstood ERISA preemption scrutiny. As a result, managed 
care organizations will most likely become increasingly subject to 
liability--despite ERISA--for improper claims decisions that result in 
patient injury or death.
    When patients have been successful in bringing legal actions 
against ERISA plans, current law provides few protections for the 
plans. In many jurisdictions, patients would be able to proceed 
directly to court without appealing internally or externally, and 
theoretically, could proceed against their employers, as well. Critical 
to any acceptable patient protection bill, therefore, are provisions 
granting employers protection against unwarranted liability and 
independent external appeals provisions that would eliminate 
unnecessary litigation. With these provisions, health plans and 
employers would also certainly benefit from the bill.
Restricting Negligence Actions
    Crucial to an acceptable patients' bill of rights are a grievance 
system and an internal and independent external appeals provision. 
Without a grievance system, disgruntled patients with legitimate, 
though perhaps minor, complaints against their health plans would be 
required to go to court to resolve their disputes. And patients who are 
seeking medical care and have serious coverage disputes with their 
health plans, need and want timely coverage determinations and medical 
treatment, not lengthy and expensive litigation.
    We therefore consider it essential that a patient protection bill 
provide patients with access to a grievance system and an internal and 
independent external appeals process, which would effectively eliminate 
any need for litigation.
    An acceptable bill, for instance, could require patients first to 
appeal coverage denials directly to reviewers selected by their plans. 
The plans could control whether an internal review would be conducted, 
but their decision would have to be timely and account for the medical 
exigencies of the specific case. If the plan chose not to waive this 
requirement, the patient would be obligated to complete the internal 
review before proceeding to an external appeal.
    External appeals should be independent, binding on the plan, timely 
and conducted by qualified physicians (MDs/DOs) of the appropriate 
specialty. To ensure that their decisions are truly independent, plan 
definitions of ``medically necessary'' and ``investigational and 
experimental treatment'' must not be binding on the external reviewers. 
An effective independent appeals process would resolve virtually all of 
the egregious cases--like Corcoran--without the need for litigation. We 
firmly believe that with access to efficient, effective, and truly 
independent external appeals entities, patients will rarely need to go 
to court.
Employer Liability
    The insurance industry and some other opponents of patient 
protection legislation have alleged that a patient protection bill 
would place employers in jeopardy. They claim that by holding health 
plans accountable for their own negligence, the legislation would 
somehow expand employers' liability. These concerns, though 
understandable, can easily be addressed and remedied in a bipartisan 
patients' bill of rights.
    A patient protection bill can offer real and meaningful protection 
to employers and other plan sponsors. The bill for example could 
expressly state that it does not authorize a cause of action against an 
employer or other plan sponsor, and only an employer or plan sponsor 
that directly participates in making an incorrect medical determination 
for an individual claim decision could be held accountable. 
Consequently, only if an employer or plan sponsor directly participated 
in making an incorrect medical decision for an individual claim 
decision under its group health plan, and that decision resulted in 
injury or wrongful death, could it be exposed to a state law claim. 
Even then, to recover, the injured patient would have to prove: (1) 
that the employer directly participated in making an incorrect medical 
determination on that particular claim for benefits, (2) that 
individual decision caused the patient's injury or death, and then (3) 
that the employer's conduct also met all elements of an applicable 
state law cause of action.
    Some opponents of patient protection legislation have spuriously 
alleged that employers will be held liable for simply selecting the 
plans, under this scenario. We therefore believe that the bill should 
explicitly state that employers and other plan sponsors cannot be held 
liable for fulfilling their traditional roles as employers and plan 
sponsors. The bill should provide ``safe harbors,'' for instance, for 
the following activities: (I) any participation by the employer or 
other plan sponsor in the selection of the group health plan or health 
insurance coverage involved or the third party administrator or other 
agent; (II) any engagement by the employer or other plan sponsor in any 
cost-benefit analysis undertaken in connection with the selection of, 
or continued maintenance of, the plan or coverage involved; (III) any 
participation by the employer or other plan sponsor in the process of 
creating, continuing, modifying, or terminating the plan or any benefit 
under the plan, if such process was not substantially focused solely on 
the particular situation of the participant or beneficiary; and (IV) 
any participation by the employer or other plan sponsor in the design 
of any benefit under the plan.
    Additionally, because many employers and other plan sponsors seek 
to advocate for their employees during the review and appeals 
processes, an acceptable patient protection bill should explicitly 
protect employers and plan sponsors functioning as patient advocates as 
well.
    Some advocates of patient protection legislation have suggested 
that a federal bill should mirror the Texas ``accountability'' statute. 
In fact, the provisions we have identified would provide employers the 
same if not greater protection than what is offered in the Texas law. 
Both our principles and the Texas statute protect employers, but 
neither specifically excludes from liability employers who ``play 
doctor'' and improperly intervene in medical decisions. We note, 
though, that our proposed principles also expressly protect employers 
functioning as employers.
    We anticipate that some employer advocacy groups will continue to 
allege nevertheless that employers would, despite these employer 
protections, still be exposed to liability under such a bill. 
Interestingly, in our many discussions with many of these 
organizations, we and the sponsors of several patients' rights bills 
have explicitly requested alternative language that the employer groups 
believe would adequately address their concerns. In every instance, 
these organizations have failed even to propose such language. After 
our repeated and diligent efforts to arrive at an agreement, we have 
begun to think that some of the organizations are not genuinely 
interested in solving what they claim is a potential problem.
    We acknowledge that if an employer ``plays doctor'' and directly 
participates in making an incorrect medical determination on a 
particular claim for benefits, the employer could potentially be held 
liable in state court. In such an extraordinarily rare situation of an 
employer directly interfering in a specific medical treatment decision 
and injuring a patient, should it not be exposed to liability? 
President Bush apparently thinks so, since he stated in his Principles 
for a Bipartisan Patients' Bill of Rights that he would hold those 
employers accountable ``who retain responsibility for and make final 
medical decisions.''
Exhaustion of Remedies
    In order to ensure that the external appeals process can 
effectively reduce litigation while encouraging timely coverage 
decisions, patients must be required to utilize the appeals process. 
Patients should therefore have to exhaust all appropriate 
administrative remedies before going to court.
    The purpose of the appeals process is to ensure that coverage 
disputes may be resolved in a timely fashion, so that patients may 
obtain the medical treatment to which they are entitled before they 
unnecessarily suffer harm. If, because of the health plan's conduct, 
they suffer serious and irreparable harm or die, they or their estates 
should not be required to exhaust all administrative appeals. At that 
point, the patient is no longer seeking the medical treatment, but 
instead desires and needs court protection. Consequently, the patient 
or the patient's estate should not be required to spend additional time 
and money unnecessarily in an appeals process. To complete the external 
appeals process under those circumstances would be futile. The patient 
should at that time be allowed access to the court system.
    Texas law includes a very similar exception in its appeals process. 
Under Texas law, a person is permitted to bypass the independent review 
if harm has already occurred.
    The AMA recognizes the current controversy regarding the extent to 
which exceptions to an exhaustion of administrative remedies 
requirement are appropriate. As with various other specific provisions 
of patient protection legislation, the AMA is willing to work with this 
Subcommittee to find new ways to address the various parties' concerns 
with an exhaustion requirement and any applicable exceptions.
Cost
    In the past, many opponents of health plan accountability have 
alleged that federal patient protection legislation would cause health 
care premiums to skyrocket. Although no cost reports are presently 
available for pending federal patients' rights legislation, the fact 
remains that if plans were forced to accept responsibility for their 
decisions, costs would not be significantly affected.
    We are aware for instance that in Texas, the first state to adopt 
managed care accountability legislation, this issue was hotly debated. 
Milliman and Robertson completed an actuarial determination of the cost 
of the Texas liability legislation to a Texas-based HMO and set the 
cost at only 34 cents per member per month. A study prepared by William 
M. Mercer, Inc. and the AMA demonstrates that managed care 
accountability legislation would only increase premiums between .5% and 
1.8%.
    In fact, the American Association of Health Plans (AAHP) and the 
Health Insurance Association of America (HIAA) surveyed their HMO 
members in Texas and ``could not find one example'' where the Texas 
patient protection law forced Texas HMOs to raise their premiums or 
provide unneeded and expensive medical services.\17\
---------------------------------------------------------------------------
    \17\ September 28, 1999, Washington Post.
---------------------------------------------------------------------------
    Other representatives of the insurance industry have also publicly 
admitted that holding plans accountable will not significantly drive up 
health care premiums. Jeff Emerson, the former CEO of NYLCare, stated 
in a July 11, 1999, Washington Post article that he is ``. . . not 
going to make the argument that it's going to be a lot of money.'' 
Aetna/USHealthcare spokesman, Walter Cherniak, stated in the same 
Washington Post article that ``we would charge the same premium to a 
customer with the ability to sue as we do those who do not have the 
ability to sue.'' Why? ``Those judgments to date have been a very small 
component of overall health care costs,'' according to Cherniak.
    In fact, the four-year-old Texas law that allows HMOs to be sued 
for their negligent medical decisions has prompted little litigation--
approximately ten lawsuits out of the 4 million Texans in HMOs. Texas 
State Senator David Sibley, a Republican, stated two years after this 
bill was enacted, that ``those horror stories'' raised by the HMO 
industry ``just did not transpire.'' President George W. Bush, who was 
then the Texas Governor, has repeatedly affirmed that he thinks this 
law has worked well in Texas.
    Some opponents of HMO accountability have alleged that employers 
would drop their health benefits if ERISA preemption is removed. In 
many industries, however, companies provide additional incentives to 
attract and keep quality employees or else lose them to competitors, 
and one of the basic corporate benefits is full or partial health care 
coverage. It is therefore very unlikely that companies will eliminate 
health benefits simply because health plans are held accountable for 
the coverage and medical decisions they make.
Tort Reform
    The issue of liability caps has been raised frequently in recent 
discussions of health plan accountability in patient protection 
legislation. Within the context of medical malpractice, the AMA has 
long supported tort reforms, including reasonable caps on damages. In 
recent years, we sought the passage of tort reform legislation, which 
passed the House of Representatives but has consistently failed in the 
Senate. A number of Senators from both parties have opposed reasonable 
limits on non-economic damages.
    When discussing caps in a patients' bill of rights, several issues 
must be addressed. What would be considered ``reasonable'' caps for 
damages? What type of damages would be capped? Would a federal bill 
permit state tort reform laws to remain intact? Would the caps apply 
only to federal causes of action? Would a disparity between state and 
federal caps create undesirable and unnecessary forum-shopping? Would 
caps applicable to health plans also apply to all other health care 
providers?
    The AMA fully recognizes the complexity of these and various other 
issues associated with tort reform, and we believe that tort reform 
must be addressed. With that said, we question whether adequate support 
exists in the Senate to pass meaningful tort reform in the context of 
patient protection legislation. If sufficient votes are not present, we 
would urge Congress to pass an acceptable patient protection bill at 
this time and then continue to push for meaningful tort reform. The AMA 
remains fully committed to both issues, but recognizes that coupling 
them together, could kill both.
Conclusion
    We appreciate the Committee's interest in addressing the issue of 
health plan accountability and the respective state and federal roles. 
As we have indicated, the AMA strongly believes that ERISA must be 
reformed to permit injured patients or their estates to recover against 
negligent health plans. The most sensible solution to this problem 
parallels the traditional roles of the state and federal governments, 
allowing states and their courts to continue to govern the practice of 
medicine while the federal courts adjudicate strictly benefits 
decisions under ERISA. Without this type of ERISA reform, any patient 
protection or health care quality legislation would not fully ensure 
fairness for all patients.
    The AMA understands that several patient protection bills will be 
or are being considered, and we are committed to working with both 
Congress and the President to reach agreement on a bipartisan patient 
protection bill that can be enacted into law this year. We thank the 
Chairman and this entire Subcommittee for the opportunity to discuss 
this critical issue.

                                


    Chairwoman Johnson. Ms. Lichtman.

     STATEMENT OF JUDITH L. LICHTMAN, PRESIDENT, NATIONAL 
                PARTNERSHIP FOR WOMEN & FAMILIES

    Ms. Lichtman. I am Judith Lichtman, President of the 
National Partnership for Women and Families. The national 
partnership is a nonprofit, nonpartisan organization that has 
worked for over 30 years on issues critical to the success and 
health of America's women and our families.
    We are also leading a coalition of more than 300 health 
care and consumer organizations supporting passage of a strong 
patient protection legislation. I appreciate this opportunity 
and would appreciate my longer testimony being inserted into 
the record.
    Over the past decade, our health care system has changed 
considerably, especially in the movement toward managed care. 
Managed care has great potential. It can save money and provide 
better quality care through better coordination of services and 
a strong emphasis on preventive and primary care.
    As the primary consumers of health care and the primary 
health care decisionmakers for their families, women have much 
at stake and much to gain from managed care done right.
    While managed care holds much promise, its potential has 
been overshadowed by fear that concerns about costs will 
compromise quality. It is for this reason that meaningful 
patient protections are needed to restore a sense of trust in 
our system.
    Congress has come a long way in its understanding of 
America's need for patient protections. We are encouraged by 
the view that there is now general agreement on many of the 
patient protections that must be included in a bill. But there 
are still key issues that must be resolved.
    My written testimony highlights a number of those concerns 
regarding the scope of the bill and the patient protections 
that have to be included. Central among these is the issue of 
accountability. What rights would consumers have to ensure that 
health plans can be held accountable? Issues of trust and 
accountability lie at the very heart of this debate, and for 
that reason, we believe that meaningful patient protection 
legislation must include access to a speedy and genuinely 
independent external review and must also include expanded 
legal responsibility.
    Access to timely and independent reviews by a neutral third 
party are critical to assure consumers that there is a fair 
process for resolving disputes with their plan. True 
independence from the plan means that the managed care plan 
cannot select the external review entity.
    It also must ensure that the reviewer has no financial or 
business relationship with the plan, and the external reviewer 
must be free to make its own determinations regarding medical 
necessity and should not be bound by the plan's definitions.
    The process should not contain unnecessary barriers like 
short time frames to bring an appeal, or financial thresholds 
that would keep consumers from exercising their right to 
appeal.
    Finally, the external appeals process should not be used to 
diminish the right to seek judicial recourse. Consumers who 
have already been injured should not be required to complete 
the external review process before seeking review in court. An 
external review's decision should not foreclose a consumer's 
right to judicial remedy.
    The second criteria to achieve real patient protection is 
expanded legal authority. Because of an anomaly in ERISA, 
health plans offered by private employers, unlike any other 
business, are often immune from accountability for their 
actions, even if individuals are hurt as a result.
    If we agree that companies that make tires for our cars or 
toys for our kids should be accountable when people are hurt, 
then why should we treat those who are entrusted with our 
health any differently?
    In the recent case of the Firestone Tire recall, none of us 
challenged the rights of consumers to seek remedy when they 
learned that the cars they were driving were unsafe. In fact, 
central to American sense of fair play is the belief that when 
a company causes injury, they should take responsibility for 
the consequences. Yet, there are far too many examples of 
patients who are left without redress with the tragic results 
of health plans' decisions to delay or deny care.
    As Congress continues to debate these issues on the--in the 
coming months, we will be evaluating new proposals to measure 
whether they meet the needs of women and families.
    We strongly encourage Members of Congress to consider these 
principles and to pass a strong Patients' Bill of Rights 
without delay. The health of women and families hang in the 
balance.
    Thank you. I am happy to answer any questions you may have.
    [The prepared statement of Ms. Lichtman follows:]
 Statement of Judith L. Lichtman, President, National Partnership for 
                            Women & Families
    Good afternoon, Chairwoman Johnson, Congressman Stark, and other 
distinguished members of the Subcommittee. I am Judith L. Lichtman, 
President of the National Partnership for Women and Families. Thank you 
for convening this important hearing and for the opportunity to testify 
today about patient protections in managed care. The National 
Partnership is a nonprofit, nonpartisan organization that uses public 
education and advocacy to promote fairness in the workplace, quality 
health care, and policies that help women and men meet the dual demands 
of work and family. Founded in 1971 as the Women's Legal Defense Fund, 
the National Partnership has grown from a small group of volunteers 
into one of the nation's leading advocates for women and families. We 
are also a leading member of a coalition of more than 300 health care 
and consumer organizations supporting passage of strong patient 
protection legislation. One of the Partnership's key priorities is 
ensuring that American women and their families enrolled in health 
insurance plans, particularly ``managed'' health plans, receive the 
highest quality health care.
    Over the past decade, our health care system has undergone 
unprecedented changes, most notably in the movement towards managed 
care. These changes affect every one of us, and women in particular 
have a tremendous stake in the outcome. Women are the primary consumers 
of health care services in this country, as well as the majority of 
managed care enrollees. They make up the majority of those on Medicare 
and the overwhelming majority of adults on Medicaid--programs that are 
also increasingly turning to managed care. Women are also the primary 
health care decisionmakers for their families--from choosing the family 
health plan to weighing different treatment options, women are the 
primary payers of our health care dollars. As both consumers of care 
and guardians of their families health needs, women's lives are 
dramatically affected by the rise of managed care.
    Women have a real stake in how health care services are delivered 
for other reasons as well. They have unique health care needs that 
include, but are not limited to, their reproductive capacity. Some 
diseases (such as osteoporosis and eating disorders) are more prevalent 
in women, and others (such as heart disease) are too often ignored, 
misdiagnosed, or mistreated. Moreover, women and men with the same 
underlying disease do not always have the same symptoms, nor do they 
have the same risk factors. Cutting-edge research continues to shed 
more light on these gender differences. And finally, differences in 
social roles and behaviors can have significant implications for 
women's health. For example, women, much more than men, are victims of 
domestic violence in our society. To appropriately diagnose and treat 
women, health care professionals--and the health plans that 
increasingly determine the care they provide--need to understand the 
substantial impacts of gender and be specifically trained to provide 
health care to women.
    Managed care has great potential. Its promise is to save money and 
provide better quality care through better coordination of services and 
a strong emphasis on preventive and primary care. Managed care plans 
are also uniquely positioned to educate millions of women and men about 
how to get and stay healthy. Women, especially, stand to benefit from 
managed care done right. A quality managed care plan can make it easier 
for women to learn about and obtain services, such as mammograms, Pap 
smears, and prenatal care, and take advantage of health-promoting 
benefits, from smoking-cessation classes to discounted health club 
memberships. In addition, a good relationship with a well-trained 
primary care provider can give women a chance to get answers to health 
questions that might otherwise go unasked. But providing quality health 
care is about much more than just delivering preventive services.
    Over the past few years, managed care's potential has been eclipsed 
by concerns that for some it may do more harm than good. The American 
people, including American women, have become increasingly worried that 
the legitimate interest in controlling costs could compromise the 
quality of care managed care plans provide. Concerns about emergency 
treatment not being covered, restrictions on direct access to Ob/Gyns 
or pediatricians, and limits on participation in clinical trials on 
breast cancer or other life-threatening illnesses that could save 
women's lives have marred women's experiences of managed care. These 
and other concerns have helped to fuel the groundswell of public 
support for improved patient protections aimed at righting managed 
care's balance between quality and cost. Meaningful patient protections 
must ensure high quality, affordable health care and restore a sense of 
trust and accountability to our system.
    Congress has come a long way in its understanding of Americans' 
need for patient protections in the nearly seven years that these 
issues have been debated. While we are heartened to hear the 
Chairwoman's view that there is now general agreement on many of the 
patient protections that must be included in a bill, there are still 
key unresolved issues that must be addressed to ensure that the bill 
will really help women and families. Central among these issues is the 
issue of accountability: what new rights will consumers have to ensure 
that health plans can be held accountable?
    Issues of trust and accountability lie at the heart of this debate. 
Many consumers have lost trust in their health plan because they fear 
that their health plan will deny them the care they need when they need 
it most. A recent Kaiser Family Foundation survey of managed care 
consumers suggests this concern is grounded in real experiences. Of 
those surveyed, half reported having some problem with their managed 
care plan, a third of which involved either a delay or denial of needed 
care--one in five with problems reported that their difficulties 
resulted in declining health.\1\ As managed care has increasingly 
blurred the distinction between medical and insurance decisions, 
consumers worry that the current system gives too much power over 
medical treatment decisions to those who now have a financial incentive 
to deny care. This sense of mistrust is only deepened by consumers' 
growing awareness that there are few protections in place to hold plans 
accountable for their decisions. This absence of true accountability is 
unacceptable--a parent whose child has been injured by an HMO insurance 
company's decision deserves the same access to remedies as a parent 
whose child has been injured by a defective toy. These are critical 
issues of concern to women and families, and issues that must be 
addressed in any patient protection legislation being considered by 
Congress.
---------------------------------------------------------------------------
    \1\ Kaiser Family Foundation National Survey of Consumer 
Experiences with Health Plans, June 2000.
---------------------------------------------------------------------------
    My testimony today will highlight key considerations relating to 
the need for greater accountability, focusing on external review and 
expanded legal responsibility. I will also briefly discuss two other 
main areas of concern: the scope of the bill and the key patient 
protections that are needed to ensure a strong and enforceable 
patients' rights bill.
External Review
    Independent, external review procedures are an essential component 
to restoring consumers' trust in the health care system. Although 
internal review protections that allow the plan to conduct its own 
timely review of the dispute are also important, a timely independent 
review by a neutral third party outside of the plan is critical to 
assure that an individual will get a fair decision that is based on 
their specific medical needs. External review is now required in 
thirty-five states, making it a firmly established principle of 
business for many health plans and insurers. Experience in the states 
also shows that consumers are not abusing these rights by overusing the 
system. Despite its prevalence in the states, a federal law is still 
needed to ensure that all consumers have access to these important 
protections.
    Strong patient protection legislation must ensure that patients 
have access to a speedy and genuinely independent external review. True 
independence from the plan means that the managed care plan cannot 
select the external review entity. It also means there must be ample 
standards to ensure the reviewer has no financial or business 
relationship with the plan or other parties involved in the appeal that 
could bias the decision. In addition, the external reviewer must be 
free to make its own determinations regarding medical necessity and 
should not be bound by the plan's definitions.
    With respect to the process of bringing an appeal, the external 
review process should be fair and open, without unnecessary barriers 
like short time frames to bring an appeal or financial thresholds that 
could keep consumers from exercising their rights to appeal. Some 
important aspects of the external appeal process deal with the 
relationship between the right of appeal and the right to judicial 
review. While individuals should be required to complete the internal 
and external appeal process before they may seek judicial review, 
consumers who have already been injured should not be required to 
complete the external review process before seeking review in court. 
This is the model that applies for Medicare beneficiaries and is 
consistent with general principles of administrative law, which do not 
require an individual to exhaust administrative remedies when it would 
be futile. In this context, the patient is no longer seeking the 
benefit she was denied, but is seeking redress for her injury, which 
cannot be given through the external review process. Finally, the 
external reviewer's decision should not be given the same weight as a 
judge's opinion, and should not foreclose a consumer's right to a full 
and fair review in court that includes all of the evidentiary rules and 
discovery protections.
    The external review scheme should also build on, not replace, 
states' expertise in this area and allow states flexibility to provide 
a stronger appeal process where they choose. Any federal rights that 
are created should establish a floor, not a ceiling, of protections for 
consumers.
    While these protections are essential to ensuring a fair process 
for resolving benefit disputes with the managed care plan, they do not 
replace the need for additional legal responsibility.
Expanded Legal Responsibility
    Health plans are protected against liability for many of their 
decisions today because of an anomaly in the law that was created by 
the Employee Retirement Income Security Act of 1974 (ERISA). Some 
background on ERISA and its interpretation by the courts is important 
to understand the current legal baseline that Congress will affect with 
any new patient protection legislation.
    When ERISA was passed, it included a provision that preempted state 
laws that ``relate to'' private job-based benefit plans, including 
health plans. In 1987, the Supreme Court issued a landmark decision in 
Pilot Life Insurance Co. v. Dedeaux in which it held that ERISA's 
preemption of state law meant that state law suits that relate to 
private job-based health plans' benefit decisions are barred. 
Individuals seeking redress for a plan's decision could only bring an 
action under ERISA for the benefit that should have been provided--no 
compensation for injuries would be available. Since the mid-1990s, a 
trend in federal caselaw has developed that has carved out an area from 
ERISA's general preemption--cases involving medical malpractice have 
been found not to be preempted by ERISA. These cases established a 
distinction between suits involving the quality of medical care and 
those involving a benefit decision--cases involving medical quality 
issues could now be brought in state court; but those involving a 
benefit decision were still preempted by ERISA.
    Many believe that state law liability has been expanded even 
further under a unanimous decision issued by the Supreme Court last 
year in Pegram v. Herdrich. In their opinion in Pegram, the Supreme 
Court suggested that cases involving a benefit decision that also 
involved a medical treatment issue should be pursued under state law, 
not under ERISA. Under the Court's rationale, only cases that involved 
what the Court referred to as ``pure eligibility'' decisions--decisions 
that involve coverage issues like whether an individual was a member of 
the plan or whether a waiting period under the plan had elapsed--were 
still subject to ERISA's preemption of state suits. This is a major 
shift in the courts' view regarding ERISA preemption and one that could 
greatly expand the types of cases that can now be brought in state 
court. The new legal baseline after the Pegram case allows individuals 
to hold most health plans accountable in state court for decisions 
involving medical treatment issues.
    Although Congress is considering legislation at a time when 
remedies may be greatly expanding, there is still a need for action to 
expand legal accountability. First, it is unclear how federal courts 
will interpret the Court's suggestion in the Pegram decision--settling 
this issue could take many years, depriving individuals of greater 
certainty. Second, it is important to remember that the Court's 
decision did little to address the need for greater remedies for cases 
involving what the Court called a ``pure eligibility decision''--a case 
that only involves the plan's interpretation of its own coverage 
policies. Without addressing this area, individuals will not be able to 
have any redress when their plan makes a mistake regarding enrollment 
or determining whether a benefits is covered, or wrongly interprets a 
waiting period requirements. However, the recent expansion of liability 
also creates a new baseline that Congress must consider in establishing 
new rights. The courts have already established a precedent that allows 
individuals greater access to meaningful remedies--whatever new 
accountability Congress creates should not curtail these rights.
    ERISA's preemption of much state law liability has created a 
situation in which health plans offered by private employers have 
become outliers in our legal system--unlike almost every other business 
entity, they are often immune from accountability for their actions, 
even if individuals are hurt by their actions. Other businesses in the 
health care and other industries are legally accountable for their 
actions as a generally accepted principle of public policy. If we agree 
that companies that make tires for our cars or toys for our kids should 
be accountable when people are hurt, then why should we treat those who 
are entrusted with our health, our most precious commodity, any 
differently? This immunity from suit also further perpetuates an 
imbalance of power between patients and their plans--a real patients' 
bill of rights will tip the balance back to empower patients.
    Real people are hurt by the absence of meaningful accountability. 
Health plan denials can jeopardize the quality of patients' care as 
well as their financial security. In a Kaiser Family Foundation survey 
of consumers' experiences with managed care, those who had experienced 
delays or denials of care suffered tangible harms including a quarter 
reporting physical injuries or lost school or work time, and forty 
percent reporting financial losses. There are also too many examples of 
those who are left without redress after the tragic results of a health 
plan's decision to delay or deny care. The parents who lost their baby 
after their health plan refused to authorize round-the-clock hospital 
monitoring during the mother's high-risk pregnancy despite two doctor's 
recommendations. The man who committed suicide after his health plan 
denied him admission to a health plan's alcohol rehabilitation program, 
despite his desperate need for help and the plan's stated coverage of 
the services. These are the real faces behind the need for health plans 
to be accountable for these decisions, not only to address the inequity 
of these tragic losses, but to deter bad decisions that can lead to 
them.
    The costs of expanding accountability are low. According to 
estimates prepared by the Congressional Budget Office evaluating the 
effect of the Bipartisan Consensus Managed Care Improvement Act (H.R. 
2990), the cost of expanding liability to allow all suits to go to 
state court is minimal--a total increase of one percent of premium for 
job-based health plans per member per month, approximately $2.50 per 
month for the average individual. And practical experience in the 
states where there is now expanded liability shows that there will not 
be a flood of litigation--in Texas, where a bill expanding HMO 
liability was passed four years ago, only nine suits have been brought. 
Even if there is some additional cost, public opinion surveys gauging 
Americans' support for patient protections have consistently shown that 
a majority of Americans are willing to spend a little more to ensure 
they have these strong protections.\2\
---------------------------------------------------------------------------
    \2\ Kaiser Family Foundation Public Opinion Update, February 2000.
---------------------------------------------------------------------------
    In response to charges that this increased cost will cause 
employers to drop coverage, it should be noted that health care costs 
increased last year at a rate from two to three times the estimated 
cost of the entire Bipartisan Consensus Managed Care Improvement Act, 
and census data shows that employer coverage actually increased. In a 
recent survey of employers, when asked what they would do in the face 
of projected increases of up to 12% or more in the coming year, almost 
half said they would either absorb the costs themselves or do nothing--
the other half said they would pass some costs on to consumers.\3\ No 
one responded that they would drop coverage. Another survey of smaller 
employers showed a vast majority of small employers support patient 
protection legislation and a majority would maintain coverage if 
patient protection legislation passed, even if their share of premiums 
rose by as much as $20 per month.\4\
---------------------------------------------------------------------------
    \3\ Actual cost increases for the year 2000 were 8.1%; estimated 
cost increases for the year 2001 are 10-12%--these are respectively two 
and three times the amount of CBO's 4.1% estimated cost increase 
associated with the Bipartisan Consensus Managed Care Improvement Act. 
Mercer/FosterHiggins National Survey of Employer-Sponsored Health Plans 
2000, April 2001.
    \4\ Kaiser-Harvard National Survey of Small Business Executives on 
Health Care, June 1998.
---------------------------------------------------------------------------
    Expanding accountability for managed care consumers is a practical, 
common sense answer that will neither break the bank nor disrupt our 
health care system--the majority of Congress has supported these rights 
in the past and the overwhelming majority of Americans support them as 
well. The time has come for them to be enacted.
Scope
    Any patient protection bill must apply to all Americans with 
private health insurance. This includes those covered by private-sector 
group health plans, individual health plans, and fully-insured state or 
local government plans. Proposals that only cover those in private job-
based plans, or only those that are in self-insured job-based plans do 
not meet the mark--all Americans need and deserve the same protections. 
Some versions of these bills would apply key protections to only those 
in self-insured job-based plans, leaving out as many as seven in ten 
Americans with private health insurance coverage who need and deserve 
the same rights.
    Patient protections should apply a uniform federal floor of 
protection of everyone, regardless of what type of plan covers them. 
The certification of state laws that meet or exceed the Federal minimum 
standard should be determined and enforced by a federal body. States 
should not be provided with loopholes, such as having limited 
penetration of managed care in their state or allegations of premium 
increases, which allow them to easily opt out of the Federal minimum 
standard.
Patient Protections
    In addition to these other components, a strong patient protection 
bill must guarantee a variety of other comprehensive patient 
protections that are essential to women and families. These include 
access to emergency rooms, Ob/Gyns, prescription drugs, clinical 
trials, pediatricians and other medical specialists including those 
outside of the network if the network providers are not adequate. 
Patient protection legislation must also assure that medical judgments 
are made by medical experts, patients with a special medical condition 
receive continuity of care, patients have a choice of a full range of 
health providers, and patients are provided with full and 
understandable information about their health plan. Health care 
professionals must be protected against retaliation when they advocate 
on behalf of patients' needs or to improve health care quality. And 
``gag clauses'' that prevent medical professionals from providing 
patients with full information about their treatment should also be 
barred.
    As Congress continues to debate these issues in the coming months, 
we will be evaluating new proposals to measure whether they meet the 
needs of women and families. We strongly encourage members of Congress 
to consider these principles and to pass a strong patients bill of 
rights without delay--the health of women and families hang in the 
balance. Thank you--I am happy to answer any questions you might have.

                                


    Chairwoman Johnson. Mr. Toohey.

STATEMENT OF MICHAEL J. TOOHEY, DIRECTOR, GOVERNMENT RELATIONS, 
    ASHLAND, INC., ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                         MANUFACTURERS

    Mr. Toohey. Good afternoon, Madam Chairman, and Members of 
the Committee. My name is Michael Toohey and I am director of 
government relations for Ashland, Incorporated. I am pleased to 
appear on behalf of the National Association of Manufacturers. 
Though I usually wear a government relations cap, I am here 
also to tell you that I am a perfect example of the great 
success of employer-provided health care.
    In 1994, I was diagnosed with leukemia. My employer said go 
wherever you need to go, do whatever you need to do, don't 
worry about anything. And I am here to tell you Ashland stood 
by me when I didn't have many people standing with me. I never 
had to worry about one thing, not about the costs.
    Bone marrow transplantation was not totally accepted at 
that time as a treatment for leukemia, and Ashland didn't even 
have a problem with qualifying me, or any of our other 
employees.
    The good news is it worked. My trial lawyer sister was my 
donor, and I have been symptom free ever since, but I have been 
in the hospital five times for pneumonia. I had two cataract 
procedures as a consequence of chemotherapy treatment. Ashland 
has stood up and every time been there for me.
    I am very concerned that we may lose this benefit if we 
open up employer-provided insurance to litigation costs, and I 
would urge you to tread lightly as you consider new 
legislation. Above all else, please don't make it more 
difficult for employers to continue to provide the excellent 
health care that they do to so many Americans.
    A good managed care reform bill will provide the additional 
protections and ensure procedural fairness that are needed, but 
don't add to the costs of employers in trying to solve the 
problem of a Patients' Bill of Rights.
    We believe that H.R. 526, the Bipartisan Patient Protection 
Act, does not achieve, even closely, our tenet of what a good 
managed care reform bill is. Indeed, by exposing employers 
directly to Federal and State health care liability, and 
indirectly to the downstream costs of Federal and State HMO and 
insurer liability, the Ganske-Dingell bill and similar 
legislative initiatives will greatly increase health coverage 
costs and inflate the roles of uninsured Americans because 
people like me will not be able to obtain insurance, except 
through my employer. And if the costs go up significantly to 
defend themselves, they simply will not continue to provide 
this voluntary benefit.
    Expanded health care liability helps no one. Not one of the 
bills, in our view, shields the health care purchaser, whether 
employer or individual, from the increased costs of coverage 
due to HMO or insurer liability. And in NAM's view, there is no 
good or acceptable expanded health care liability.
    We, too, would like to see this issue go off Congress' 
agenda, Mr. Stark. However, the NAM is unwilling to gamble the 
future of an employer-based health care system which provides 
coverage for 172 million Americans. We hope you will join us in 
first protecting what works well today, employer-sponsored 
health care.
    Chairwoman Johnson. Thank you, very much, Mr. Toohey.
    [The prepared statement of Mr. Toohey follows:]
    Statement of Michael J. Toohey, Director, Government Relations, 
 Ashland, Inc., on behalf of the National Association of Manufacturers
    Madam Chairwoman, my name is Michael J. Toohey and I am director of 
government relations for Ashland, Inc. I am pleased to appear before 
you today on behalf of our more than 14,000 fellow members of the 
National Association of Manufacturers. I would like to commend you for 
beginning the subcommittee's consideration of patients' rights 
legislation with a focus on our existing health care system, both in 
terms of what works and what needs improvement.
    Though I usually wear a governmental affairs cap, I am here to 
testify as a beneficiary of Ashland's health plan, without which, I 
might not be alive today. Let me tell you a little of my story.
    In April of 1994, I went to the doctor to check on a persistent 
cough. I was diagnosed with CML, which is a chronic form of leukemia. 
My life expectancy at that point was six years.
    Fortunately for me, I work for Ashland, which voluntarily sponsors 
a health plan. With their support, I entered the Fred Hutchinson Center 
in Seattle, one of the top leukemia research facilities in the country. 
I underwent a bone marrow transplant and have been symptom-free ever 
since. I owe my life to Ashland's health plan.
    I would be in big trouble if that health plan ever disappears. 
Given my history, I probably could not afford coverage in the 
individual health insurance marketplace, even if I were to find someone 
willing to offer it to me. The coverage that Ashland provides me is 
irreplaceable, just as it is for the 172 million Americans who receive 
their health coverage through the workplace. I hope you will tread 
lightly as you consider new legislation and, above all else, don't make 
it more difficult for Ashland to provide my coverage. It is already 
hard enough.
    The cost of health coverage for the NAM's 14,000 members (including 
10,000 small and mid-sized manufacturers) is once again increasing at a 
double-digit rate (12-13% on average). In light of this renewed health 
care inflation, the NAM urges Congress to be wary of adding additional 
costs to health coverage costs. We can't afford to price both employers 
and employees out of health coverage.
    A good managed-care reform bill will provide additional protections 
and ensure procedural fairness to beneficiaries without adding much in 
the way of additional costs. H.R. 526, the so-called ``Bipartisan 
Patient Protection Act'' introduced in the House by Reps. Ganske and 
Dingell does not come even remotely close to meeting this definition. 
Indeed, by exposing employers directly to federal and state health care 
liability and indirectly to the downstream costs of federal and state 
HMO and insurer liability, the Ganske-Dingell bill (and similar bills) 
will greatly increase health coverage costs and, consequently, will 
inflate the rolls of uninsured Americans.
    Expanded health care liability helps no one but the trial bar. 
Ganske-Dingell and similar bills purport to shield employers from 
liability, but, in fact, they all still ensnare employers in potential 
health care liability through clever drafting (e.g., ``discretionary 
authority'' and the definition of ``direct participation''). Employers 
will be forced to bear the time and expense of litigating over the 
extent of their participation and authority exercised over the disputed 
benefit determination.
    Further, not one of these bills shields the health care purchaser--
whether employer or individual--from the increased cost of coverage due 
to HMO or insurer liability. Even the Texas Health Care Liability Act--
which clearly and unambiguously says one may not sue an employer-
sponsor of a health plan--fails to protect employers from the 
downstream cost of HMO and insurer liability. In the NAM's view, there 
is no good or acceptable expanded health care liability.
    We, too, would like to see this issue off Congress' agenda. 
However, the NAM is unwilling to gamble the future of the employer-
based health care system--which provides coverage to more than 172 
million Americans. We hope you will join us in first protecting what 
works best in health care today: employer-sponsored health coverage.
Health Plan Accountability
    A persistent myth in this debate holds that HMOs and other health 
insurers can only be held accountable by the threat of health care 
liability. The NAM strongly disputes this unfounded conclusion. The 
best means to health care accountability, in our view, lies in a well-
structured independent external review procedure that binds both the 
plan and the beneficiary. A quick, timely review--first internally by 
the plan and then by independent physicians in the external review 
procedure--will help ensure that patients receive what they desire 
most: good quality health care on a timely basis.
    Health care liability punishes both good and bad actors--almost 
without distinction--and will threaten coverage for the 172 million 
Americans who receive their coverage through the workplace. 
Manufacturers and workers alike will bear the aggregate cost of 
expanded health care liability--a cost we believe has been greatly 
underestimated in the past--which is of great concern in an environment 
of double-digit health care inflation.
    The greater concern is that employers will be forced to defend 
themselves from direct health care liability, an expensive and time-
consuming proposition, at a minimum, and potentially a business-killing 
prospect. Any possible positive effects of health care liability are by 
far outweighed by its negative consequences, which are unnecessary 
given the availability of binding external review to hold health plans 
accountable. The NAM remains strongly opposed to expanded health care 
liability.
Employer Liability
    Another persistent and insidious myth in this debate has been that 
the Ganske-Dingell, the old Dingell-Norwood and other patients' rights 
bills do not expose employers to direct liability. This is simply not 
the case.
    As noted earlier, the Ganske-Dingell bill relies on clever drafting 
to ensnare employers.\1\ The very term ``direct participation''--upon 
which the sponsors rely in arguing that, unless an employer ``directly 
participates'' in the decision to deny benefits, he or she won't be 
liable--is defined as including the ``actual exercise of control'' over 
the decision. Like the earlier ``discretionary authority'' standard, 
the ``direct participation'' standard implicates ERISA's fiduciary 
responsibility duty. At the very least, employers will be forced to 
litigate the extent of their ``direct participation'' or ``actual 
exercise of control.'' The Ganske-Dingell bill, like the Dingell-
Norwood bill before it, exposes employers directly to liability.
---------------------------------------------------------------------------
    \1\ Sec. 302 Availability of Civil Remedies
    Sec. 302(a) creates a new federal cause of action under new 
subsection (n) of Section 502 of ERISA.
    Paragraph (4) of the new subsection (n) is entitled Exclusion of 
Employers and Other Plan Sponsors.
    Paragraph 4(A) Causes of Action Against Employers and Plan Sponsors 
Precluded.--Subject to subparagraph (B), paragraph (1)(A) does not 
authorize a cause of action against an employer or other plan sponsor 
maintaining the plan . . .
    But,
    Paragraph 4(B) Certain Causes of Action Permitted.--
    Notwithstanding subparagraph (A), a cause of action may arise 
against an employer or other plan sponsor . . .
      L(i) . . . to the extent there was direct participation by the 
employer or other plan sponsor (or employee) in the decision of the 
plan under section 102 of the Bipartisan Patient Protection Act of 2001 
upon consideration of a claim for benefits or under section 103 of such 
Act upon review of a denial of a claim for benefits, or
      L(ii) . . . to the extent there was direct participation by the 
employer or other plan sponsor (or employee) in the failure described 
in such clause.
    And
    Paragraph 4(C) Definition of Direct Participation--
      L(i) Direct Participation in Decisions--. . . the term ``direct 
participation'' means . . . the actual making of such decision or the 
actual exercise of control in making such decision or in the conduct 
constituting the failure.
---------------------------------------------------------------------------
Employers and Health Care Liability
    Some have sought to downplay the risk of employer liability, citing 
the lack of employers willing to state publicly their intention to drop 
coverage rather than face expanded health care liability. The danger of 
these proposals isn't only in the number of employers who would drop 
coverage; there is also a real risk that expanded liability would force 
many employers to reduce benefits or increase employees' share of 
coverage costs--strategies already well under consideration due to the 
present double-digit health care inflation. A worker who cannot afford 
the coverage his employer offers is just as uninsured as a worker whose 
employer no longer offers coverage.
    It is no surprise to us that most companies are reluctant to 
publicly state that they will drop coverage. Both employees and 
investors are likely to react adversely to a premature declaration, 
making polls and surveys a valid and safer way to gauge employer 
concern. In our most recent poll of small manufacturers, nearly 60 
percent said they would seriously consider dropping coverage in 
response to expanded liability.\2\ In our view, we can neither afford 
to increase the number of uninsured Americans (43 million) nor reduce 
the number of Americans with employer-sponsored coverage (172 million).
---------------------------------------------------------------------------
    \2\ NAM Survey of Small Manufacturers, February 2001. 58.82 percent 
of respondents said they would ``seriously consider dropping 
coverage.''
---------------------------------------------------------------------------
Additional Patient Protections
    Although there is broad consensus on the subject matter to be 
covered (e.g., external review, pediatricians as primary care 
physicians, direct access to OB/GYNs, emergency room treatment), there 
remains considerable disagreement on the specifics of these proposals. 
Last Congress's conference committee on managed care reform discovered 
this, much to its ultimate frustration. For our part, the NAM urges 
Congress to proceed carefully and with an awareness of the high and 
increasing cost of coverage. The most trivial of mandates becomes 
important if it becomes the straw that breaks the camel's back and 
prices the worker and his family out of coverage.
    We urge your particular attention to the question of what standard 
will govern the external review panel's examination of a disputed 
benefit determination. It makes sense to us that the health plan's 
terms--particularly its definition of medical necessity--should govern. 
After all, the plan's terms are what we design or purchase. Many 
patient protection proposals have taken the position that the review 
should be made de novo, without regard to the plan's terms and 
definitions. In our view, this approach will create as great a 
potential for increased costs as would expanded health care liability. 
The better approach would allow the plan's enumeration of covered 
benefits to govern and would give substantial deference to the plan's 
definition of medical necessity.
Conclusion
    The NAM strongly opposes the Ganske-Dingell bill and similar bills 
that will expand health care liability for employers, HMOs and other 
health insurers. We urge Congress to adopt a more limited patient 
protection bill that relies on binding independent external review to 
resolve disputes over benefit determinations, instead of costly and 
wasteful litigation. President Bush also has indicated he favors a more 
limited approach.
    It is more important than ever that we build on the strength of our 
employer-based health care system to expand coverage, rather than 
expand the rolls of uninsured Americans. I thank the Subcommittee and 
will welcome your questions.

                                


    Chairwoman Johnson. Dr. Zipes.

   STATEMENT OF DOUGLAS P. ZIPES, M.D., PRESIDENT, AMERICAN 
   COLLEGE OF CARDIOLOGY, AND PROFESSOR OF MEDICINE, INDIANA 
UNIVERSITY SCHOOL OF MEDICINE, ON BEHALF OF THE PATIENT ACCESS 
                           COALITION

    Dr. Zipes. Madam Chairman and distinguished Members of the 
Subcommittee, I am here today on behalf of the Patient Access 
Coalition, a national organization representing nearly 70 
organizations. Collectively, the Coalition's Member 
organizations represent more than 1 million patients, 300,000 
doctors, and 300,000 nonphysician providers across the country.
    I am a practicing cardiovascular specialist and 
Distinguished Professor of Medicine at Indiana University 
School of Medicine, and I also serve as president of the 
American College of Cardiology.
    The Coalition was formed in 1993 in the context of 
congressional debate over comprehensive health system reform to 
ensure that any resulting legislation would contain the 
guarantee that every patient would be able to choose the kind 
of medical treatments and services they needed.
    The Coalition was the first national organization of 
patient and provider groups to call for Federal patient 
protection legislation, and for nearly 8 years we have stood 
united in our concern that the focus of health care in this 
country must be on patients and quality of their medical care.
    Throughout the years, the Coalition has not deviated from 
its strongly held belief that all patients in managed care 
plans must have health care choice and access and that health 
plans must be held accountable. That is why we believe that all 
patients should be guaranteed basic protections from health 
plan practices that could negatively affect medical outcomes.
    Two of the Coalition's chief principles are patient access 
to a point-of-service option and timely access to specialty 
care. Patients must be allowed treatment by their health care 
provider of their choice.
    A point-of-service option at the time of enrollment is the 
ultimate patient protection against poorly managed health care 
plans. This choice could be offered with no additional cost to 
the employer.
    Direct access to specialty care is essential for patients 
in both emergency and nonemergency situations for patients with 
chronic and temporary conditions, as well as those with 
unexpected acute care episodes. Specialty care must be 
available for the full duration of the occurrence and must not 
be limited by the number of visits.
    Furthermore, any routine costs incurred for items and 
services furnished in connection with participation in clinical 
trials must be covered by the health plan.
    In addition to ensuring choice and access, barriers that 
impede access and put patients at risk must be eliminated. Any 
legislation must include a ban on health plan financial 
incentives and gag clauses and require full disclosure of 
health plan information to patients.
    The patient protections of access and choice that I have 
outlined have limited value unless the managed care plan is 
held accountable for its actions.
    One of the most consistent complaints against managed care 
plans is that when the providers or patients appeal a decision, 
health plans are slow to act. Because decisions about patients' 
care can be a matter of life and death, managed care plan foot 
dragging can have profound consequences.
    To protect patients and give them a meaningful right to 
appeal, sound and timely internal and external appeal processes 
are critical. In the case of external appeals, the review must 
be de novo and genuinely independent, and the review panel's 
decision must be binding on the health plan.
    The external reviewers must have clinical expertise in the 
area in which the review is being conducted, and the findings 
of the external reviewers must not be constrained by the health 
plan's definition of medical necessity.
    Decisions on urgent or emergency cases must be made within 
the expedited time period. These enhanced internal and external 
review processes will assist consumers in obtaining access to 
appropriate services in a timely fashion, thus maximizing the 
likelihood of positive health outcomes.
    These principles, if incorporated into Federal legislation 
in a meaningful way, will go a long way toward protecting 
patients in managed care plans and ensuring that patients get 
the care they pay for and deserve.
    Most importantly, and without exception, these protections 
must be guaranteed to all patients in managed care plans to the 
extent that they are not already enforced through stronger 
State laws. Medicare and Medicaid beneficiaries, as well as 
Federal employees, already have many of these protections.
    We are aware that the debate on the issue of accountability 
has centered on the patient's ability to bring suit against 
health plans. This debate has been complicated by the many 
variables associated with liability. Because of the 
divisiveness of this issue and the various positions held by 
individual organizations within the Coalition, we have not 
taken a position on liability. However, we strongly believe it 
is time for Congress to finish its work and pass legislation 
this year to make patient protections apply to all managed care 
enrollees.
    Madam Chairwoman, the Patient Access Coalition firmly 
believes that enactment of its patient protection principles 
will ensure that patients will have real choice and timely 
access to quality health care. Our approach is straightforward 
and comprehensive, and places nonintrusive reasonable 
requirements on the health insurance industry.
    We look forward to your leadership and want to work with 
you to see that enactment of these patient protections occurs 
this year.
    I thank you for allowing me the opportunity to speak before 
you and your Subcommittee.
    Chairwoman Johnson. I thank you, and thank you, Dr. Zipes.
    [The prepared statement of Dr. Zipes follows:]
  Statement of Douglas P. Zipes, M.D., President, American College of 
  Cardiology, and Professor of Medicine, Indiana University School of 
          Medicine, on behalf of the Patient Access Coalition
    Madam Chairwoman and members of the subcommittee: I am here today 
on behalf of the Patient Access Coalition--a national organization 
representing nearly 70 organizations dedicated to fighting for the 
enactment of comprehensive and meaningful patient protection 
legislation. Collectively, the Coalition's member organizations 
represent more than one million patients, 300,000 doctors, and 300,000 
non-physician providers across the country. I am a practicing 
cardiovascular specialist and Distinguished Professor of Medicine at 
Indiana University School of Medicine. I also serve as president of the 
American College of Cardiology.
    The Coalition was formed in 1993 in the context of congressional 
debate over comprehensive health system reform to ensure that any 
resulting legislation would contain the guarantee that every patient 
would be able to choose the kind of medical treatments and services 
they needed. The Coalition was the first national organization of 
patient and provider groups to call for federal patient protection 
legislation. And for nearly eight years, we have stood united in our 
concern that the focus of health care in this country must be on 
patients and the quality of their medical care.
    Throughout the years, the Coalition has not deviated from its 
strongly held belief that all patients in managed care plans must have 
health care choice and access, and that health plans must be held 
accountable. This is why we believe that all patients should be 
guaranteed basic protections from health plan practices that could 
negatively affect medical outcomes.
Choice
    Two of the Coalition's chief principles are patient access to a 
point-of-service option and timely access to specialty care. Patients 
must be allowed treatment by the health care provider of their choice. 
A point-of-service option at the time of enrollment is the ultimate 
patient protection against poorly managed health care plans. This 
choice could be offered with no additional cost to the employer.
    Direct access to specialty care is essential for patients in both 
emergency and non-emergency situations, for patients with chronic and 
temporary conditions, as well as those with unexpected acute care 
episodes. Specialty care must be available for the full duration of the 
occurrence and must not be limited by the number of visits. 
Furthermore, any routine costs incurred for items and services 
furnished in connection with participation in clinical trials must be 
covered by the health plan.
Access
    In addition to ensuring choice and access, barriers that impede 
access and put patients at risk must be eliminated. Any legislation 
must include a ban on health plan financial incentives and gag clauses, 
as well as full disclosure of health plan information to patients.
    I want to take a moment to elaborate on what we mean by prohibiting 
financial incentives. Financial incentives should not interfere with 
medical judgement. For instance, health plans must be prohibited from 
establishing arrangements where the gatekeeper has a financial 
incentive not to refer patients. We need to protect patients from 
under-referral for financial gain.
Accountability
    The patient protections of access and choice that I have outlined 
have limited value unless the managed care plan is held accountable for 
its actions. One of the most consistent complaints against managed care 
plans is that, when the providers or patients appeal a decision, health 
plans are slow to act. Because decisions about patients' care can be a 
matter of life and death, managed care plan foot-dragging can have 
profound consequences.
    To protect patients and give them a meaningful right to appeal, 
sound and timely internal and external appeals processes are critical. 
In the case of external appeals, the review must be de novo and 
genuinely independent, and the review panel's decision must be binding 
on the health plan. The external reviewers must have clinical expertise 
in the area in which the review is being conducted, and the findings of 
the external reviewers must not be constrained by the health plan's 
definition of medical necessity. Decisions on urgent/emergency cases 
must be made within an expedited time period. These enhanced internal 
and external review processes will assist consumers in obtaining access 
to appropriate services in a timely fashion, thus maximizing the 
likelihood of positive health outcomes.
    These principles, if incorporated into federal legislation in a 
meaningful way, will go a long way toward protecting patients in 
managed care plans and ensuring that patients get the care they pay for 
and deserve.
    Most importantly and without exception, these protections must be 
guaranteed to all patients in managed care plans to the extent that 
they are not already enforced through stronger state laws.
    In 1996, the Coalition's efforts, working with this committee, led 
to the only set of federal patient protections ever to be signed into 
law. Those patient protections were enacted as part of the Balanced 
Budget Act of 1997 and apply to Medicare and Medicaid beneficiaries 
enrolled in managed care plans. It has been four years since Medicare 
and Medicaid beneficiaries were guaranteed these basic and fundamental 
protections.
    We are aware that the debate on the issue of accountability has 
centered on the patient's ability to bring suit against health plans. 
This debate has been complicated by the many variables associated with 
liability. Because of the divisiveness of this issue, and the various 
positions held by individual organizations within the Coalition, we 
have not taken a position on liability. However, we strongly believe it 
is time for Congress to finish its work and pass legislation this year 
to make basic patient protections apply to all managed care enrollees.
    Madam Chairwoman, the Patient Access Coalition firmly believes that 
enactment of its patient protection principles will ensure that 
patients have real choice and timely access to quality health care. Our 
approach is straightforward and comprehensive and places nonintrusive, 
reasonable requirements on the health insurance industry. We look 
forward to your leadership and want to work with you to see that 
enactment of these patient protections occurs this year.
    Madam Chairwoman, I thank you for allowing me the opportunity to 
speak before you and your subcommittee.

[Attachments Are Being Retained In The Committee Files.]

                                


    Chairwoman Johnson. As one who believes that the goal of 
this legislation should be to return control of health care to 
physicians, I absolutely agree with you that the board must be 
independent and the decision must be binding. And I appreciate 
your comments about the definition of medical necessity.
    The benefits that are laid out, the rights that are laid 
out in this bill, access to an obstetrician, a pediatrician, to 
a specialist, access to a point-of-service plan, so no American 
can be in a plan that didn't offer them some choice of 
physician, those things are extremely important in my mind, as 
is a consistent national appeals process that can turn around 
appeals promptly, rapidly, actually reducing the need to go to 
court. Most of the examples Ms. Arkin gave in her written 
testimony were cases that never would have become malpractice 
cases or cases against the plans if we had had a timely appeals 
process in place.
    If we were able--if we are not able to get agreement on the 
issues of suit because of the complex impact on employer 
participation, as well as costs, would it be worth it to pass 
the patient protections and the national appeals right with a 
mandatory binding decision by the physician panel?
    Dr. Zipes. That is addressed to me?
    Chairwoman Johnson. Yes.
    Dr. Zipes. The Coalition, as I said, has taken no stance on 
liability. We feel that the patient protection items are of the 
utmost and extreme importance. We have in the past supported 
these items in the bills that had and did not have liability 
clauses, and conceivably that could happen again. But most 
importantly to us, the patient protection provisions must come 
forward and be approved.
    Chairwoman Johnson. Yes.
    Mr. Toohey, it is a special pleasure to welcome you here. 
For my colleagues and the Subcommittee, I would tell you that 
Mr. Toohey was the staff director to the House Public Works and 
Transportation Committee when I was a freshman Member of 
Congress, and taught me a lot I know about the legislative 
process.
    And I bring that up because he has long experience in 
legislating and in watching the impact of laws that we pass.
    You now have had a lot of experience in the private sector. 
And I wonder what your judgment is--would be as to the impact 
of a Patients' Bill of Rights that included a right to sue, 
recognizing that there is no way to fully protect employers 
from exposure to suit under ERISA, no matter how carefully we 
try.
    Mr. Toohey. I think it would be devastating. And the reason 
it would be devastating is because publicly held companies like 
mine would face the dilemma of rising costs to defend 
themselves in litigation. And shareholders are saying why are 
you providing a voluntary benefit that costs so much?
    We, at Ashland, for example, last year spent $80 million 
for 52,000 people's health care. That is $1.10 a share. We made 
$4 a share. And so when you promise the shareholders a return, 
you have got to control your costs.
    Chairwoman Johnson. So you're reducing the----
    Mr. Toohey. Litigation doesn't add one dime to medical 
treatment.
    Chairwoman Johnson. It is--I do want to correct the record, 
as I understand it, Mr. Stark, that CBO has now said that the 
liability provisions will increase costs 8 percent, not 1 
percent, and the Barrett's Group also has come to that 
conclusion.
    Mr. Stark. .8.
    Chairwoman Johnson. .8 percent as opposed to 1 percent.
    Mr. Stark. So it is less?
    Chairwoman Johnson. But it is a lot more than their 
original estimate which was 1.1 percent. We are talking about 1 
percent versus 8 percent. I was right to begin with.
    Mr. Stark. No; .8, Madam Chair. It is less.
    Chairwoman Johnson. Sorry, .8. But it is----
    Mr. Stark. It is a 10th of a percent less, down.
    Chairwoman Johnson. The Barrett's Group has under their 
studies found that it would increase costs anywhere from 2.7 to 
8.6 percent, which would increase the number of uninsured, 
without question at all. A survey by the Chamber of Commerce 
indicates that 65 percent of employers would terminate their 
health plans if liability expansion is enacted.
    In that regard, Dr. Corlin, I just want to ask you whether 
or not you would support a change in the language from the 
suit--the exposure to suit by someone who directly participates 
in employee's health care, to limiting that exposure to suit to 
a ``dedicated decisionmaker,'' because the language ``directly 
participates'' can be far more inclusive than a dedicated 
decisionmaker.
    If we are going to try to narrow the liability and control 
the costs, we believe and many Members believe that we can 
achieve this goal in part by narrowing the right to sue to the 
right to sue the dedicated decisionmaker, and that that would 
in some degree insulate the employer.
    Dr. Corlin. Mrs. Johnson, it has never been our intention 
to hold accountable and make eligible to be sued an employer 
whose total involvement is to pay the premium and provide the 
plan. The only circumstances--and these are virtually unheard 
of--where employers would be liable would be in cases where the 
employer was directly involved in making the decision that 
denied or affected the medical care.
    Our concern is the decisions that are made--affecting care, 
which are made virtually every--in every circumstance by the 
health plan.
    If there is some specific language that we can participate 
with you to develop to make that point more clear, we are 
absolutely willing to do so. It is not our intent that 
employers who just pay the premium should be accountable.
    And if I may, I am thrilled with Mr. Toohey's description 
of the excellent results of his medical care. It rings a 
particular ring with me, since in that same year, 1994, one of 
my partner's wives also developed acute leukemia, and she had a 
bone marrow transplant, and she is today cured and doing well.
    But I think he makes the case better than I could, the 
issue--he made the statement that in 1994, bone marrow 
transplant was not fully accepted, yet his employer said go 
anywhere and get it. Imagine the circumstance of where would we 
be and where would he be, if instead a health plan had said, 
that still is experimental, we are not going to approve it, and 
held it up for 12 or 18 months. I don't think we would have the 
same hearing with the same participants. And that is the 
circumstance which is all too real that we are concerned about.
    Chairwoman Johnson. I appreciate that. It is also true that 
if we had a timely appeals process and the panel of physicians 
ruled that it was medically necessary, they would have gotten 
the right that Mr. Toohey got, and that is I think what is 
important to remember. We are talking about patients' rights 
and physician control.
    And a strong appeals process guarantees physician control 
of a medical process, whereas if you don't have exhaustion you 
do end up having lawyer control of what should be a medical 
process.
    So let me yield--because my time is expired, and I also am 
controlled by the clock, let me recognize Mr. Stark. I have no 
time.
    Mr. Stark. Thank you, Madam Chair. Mr. Toohey, I am going 
to ask you some questions because you seem to be the only 
witness who is against this bill. And the--I want to find a 
little about Ashland here.
    You said that you spent 80 million bucks last year to 
provide insurance to 52,000 people. You got about 25- or 26,000 
employees, so I assume you are adding in there families and----
    Mr. Toohey. Retirees and families.
    Mr. Stark. That would have meant that it would have cost 
you $12 a year, according to the CBO estimate of your costs 
going up to eight-tenths of a percent, to cover the added costs 
of this liability portion of the bill which is at issue.
    Mr. Toohey. I wish I could foresee the future as well as 
they do.
    Mr. Stark. I am just telling you that is their estimate. I 
just want to get it into focus here, because it is interesting 
that you mention $80 million.
    Now, that is the same amount that Ashland has been charged 
with in the Lockheed litigation where there were five trials 
involving 130 plaintiffs, and these were verdicts against 
Ashland, including 75 million of that 80 was punitive damages 
for personal injuries resulting from chemicals sold to Lockheed 
and inadequately labeled by Ashland.
    Now, it is interesting also that you got insurance--44 
insurance companies who are going to pick up that 80 million 
bucks. So that ain't going to put Ashland out of business, is 
it, paying $80 million for hurting 130 people? You are going to 
survive that one, aren't you?
    Mr. Toohey. We are not the only defendant in that case. And 
that case is on appeal. And----
    Mr. Stark. You are going to survive it, aren't you?
    Mr. Toohey. I don't know, sir. You are asking me to 
speculate.
    Mr. Stark. Your report to the SEC says it is not going to 
cost you anything. I hope you are not telling the straight 
skinny to the SEC. That is not considered good taste. Also in 
1998----
    Chairwoman Johnson. If they appeal it and win it, however, 
it is evidence of frivolous suits pushing up costs.
    Mr. Stark. The U.S. Department of Justice and the EPA 
announced that Ashland had agreed to spend more than $32.5 
million to settle allegations of illegal discharge of 
pollutants and various violations at your refineries in 
Kentucky, Minnesota and Ohio. Now, that $32 million would 
cost--in 1 year, I guess, it would cost about $1,200 per 
employee. That isn't going to force Ashland to quit paying for 
health insurance or close up shop, is it?
    Mr. Toohey. It hasn't yet.
    Mr. Stark. And one would think that a company like Ashland 
that takes that good care of its employees wouldn't really miss 
12 bucks a person per year. Do you think? If they can spend $32 
million for environmental infractions, and if they can spend 
$80 million for improperly labeling chemicals that only hurt 
130 people, wouldn't you think that a company that has the 
interests of all mankind at heart, as Ashland obviously does, 
would be able to find that 12 bucks a year to take care of 
their employees?
    Mr. Toohey. Congressman, your premise is built around a CBO 
gaze into the future, but in one of the testimonies presented 
today in the written record, there is discussion of one case in 
California where the award was $126 million. That is more than 
we spent on health care.
    Mr. Stark. That is chump change to guys who are polluting 
and mislabeling chemicals. That wouldn't even--if that were 
right, Ashland could swallow that one, could they?
    Mr. Toohey. That is an unfair characterization----
    Mr. Stark. Look, I am just--it is not my characterization. 
These are SEC reports, Ashland's own statements about what is 
going to happen, and I presume that if you can insure yourself 
against the loss because of environmental infractions or 
because of improper labeling and the liability thereto, you 
could also insure yourself against any--if I am wrong, and if 
the CBO is wrong--the CBO is run by the Republicans now, I want 
to point out, not me, and if they are saying that it is only 
going to cost you 8/10 of a percent increase in your premium--
let's say they are wrong by an order of 10. Let's say it is 
going to cost you----
    Mr. Toohey. I don't think it is fair to risk 127 million 
people's employer-provided health care on a CBO report which 
may say this or may say that when we don't even know what----
    Mr. Stark. What kind of a risk do you take when you 
mislabel chemicals or dump stuff into the water? Is that a fair 
risk?
    Mr. Toohey. Those events occurred during World War II----
    Mr. Stark. Those events occurred during 1998.
    Mr. Toohey. I understand.
    Chairwoman Johnson. Mr. McCrery.
    Mr. McCrery. Thank you.
    I am tempted to get into a discussion with my good friend 
from California about the tort system, but I won't. We will do 
that privately maybe, but suffice it to say that the goal of 
the tort system shouldn't be to put companies out of business. 
Companies do commit errors, and we have a judicial system that 
is designed to compensate victims, but the goal should not be 
to force companies out of business.
    Mr. Toohey, is Ashland self-insured?
    Mr. Toohey. Yes, it is.
    Mr. McCrery. For health insurance?
    Mr. Toohey. Yes, sir.
    Mr. McCrery. So you don't have any insurance companies 
involved?
    Mr. Toohey. No. What we do is we have a contract with Blue 
Cross/Blue Shield to manage our program, and then we have an 
employee review panel that handles the few reviews and appeals 
that we get under this plan. So we are involved, in other 
words.
    Mr. McCrery. The employer exemption, then, that Dr. Corlin 
speaks about would not apply to Ashland.
    Mr. Toohey. Or most other employers----
    Mr. McCrery. There are a great many large companies that 
are self-insured, at least to some extent, and therefore are 
directly involved in the decisions. So I think the employer 
exemption really is not much cover for very many employers, and 
when good lawyers get ahold of it, I suspect it won't be much 
good to anybody. So we really ought to talk about the cost to 
the employer community, whether it is .8 percent or 8 percent. 
There is going to be some cost increase, and employers will 
bear that cost, either directly or indirectly.
    Dr. Corlin, last year when we were debating the Patient's 
Bill of Rights, the AMA was adamant in opposing attaching 
medical malpractice reform to the Patients' Bill of Rights, 
because it was said by the AMA President Clinton would veto the 
bill if medical malpractice were attached, and that you all 
were interested in making law, not making a point. This year we 
have a President who I suspect would sign a bill with medical 
malpractice reform attached to it. What is the AMA's position 
this year on medical malpractice reform?
    Dr. Corlin. Thank you. If I may--thank you, Mr. McCrery. If 
I may, I will give a bit of an expanded answer first.
    Mr. McCrery. Sure.
    Dr. Corlin. I have spent most of my time as an officer of a 
medical association and got my start in 1975 fighting the good 
lady to my right on tort reform issues. I was instrumental in 
dealing with MICRA and, in almost every year since then, in 
defending MICRA. It is an issue that is close to my heart.
    It has been our belief, and, at the moment, the analysis 
continues to be our belief, that no matter how much we want 
tort reform at the Federal level, which we sincerely do, that 
the act to both get this bill to the President's desk and get 
it signed as a combined two-step process, it was our opinion 
last year that that would not be possible if tort reform were 
attached to it.
    It is our opinion this year that that would be the same 
circumstance. I would love very much to give you a different 
answer.
    I find the whole issue ironic, not in your question, which 
is very valid and sincere, but in this issue being raised in 
this context, and the reason is we now have the health plans 
coming forth and saying, oh, we can't do this, that or the 
other thing because we don't have tort reform. Yet 5 years ago 
when the medical association was here before this very body 
seeking Federal tort reform, which we got passed through this 
House, and we are approximately four votes short of getting 
passed through the Senate, we turned to the American 
Association of Health Plans and to their executive director and 
said, please help us get tort reform. It will help us all. They 
ignored us. She refused, didn't even bring the issue to her 
board, and no help was coming, and we lost the opportunity to 
get tort reform, which, had we had it, would have taken that .8 
percent probably down to .3 percent.
    So the short answer to your question is we would maintain 
our present position. We are always open to reevaluating it in 
discussions. We want still to get this bill through two Houses 
of Congress and get it signed by the President. We would love 
to have tort reform. If putting tort reform in----
    Mr. McCrery. So if I might----
    Dr. Corlin. Excuse me?
    Mr. McCrery. I think I get your point. And my time has 
expired, but I sure do want to ask you a few more questions 
when we get the second round.
    Chairwoman Johnson. Mr. Johnson?
    Mr. Johnson OF TEXAS. Thank you, Madam Chairman.
    Dr. Corlin, you state that patients should exhaust 
administrative remedies before going to court, and then state, 
if patients alleged irreparable harm, or if the patient dies, 
their estate should be able to go straight to court. Under this 
standard a patient, under my view, must only allege harm and 
then could circumvent the entire appeals process, which is 
based on medical experts making medical decisions. If a patient 
has already died, what harm does it do to require independent 
medical experts to examine a case and the medical circumstances 
that surround it before you throw it into court, you know, when 
you have people that have no medical training at all? Can you 
answer that?
    Dr. Corlin. Yes. Thank you for raising that issue, and I 
think this issue, probably more than any other, is the one that 
we would very much value some private discussion to get this 
issue clarified. I think that there is some confusion about it. 
I think it can be readily clarified to both our satisfactions.
    The concern if a patient has died obviously has to do with 
urgent needs that the family may have, given the circumstances. 
I think that if we were able to assure a very significantly 
expedited appeals process, that might resolve that problem. We 
need to recognize that proof of a claim has to start with 
allegation of a claim. We also need to recognize the opposite 
side, that every damage that is alleged is not real. We fully 
recognize that.
    But that damage can be--can occur on more than one 
occasion. There can be consequences to the remaining family 
after a death, and in all probability, I think of all of the 
points of difference, at least from our perspective, this is 
the one that probably could be most readily resolved with some 
language change.
    Mr. Johnson OF TEXAS. OK. Also, you say that 
approximately--in about 20 of your 22-page testimony, you 
focused on liability for health plans. Can you explain why the 
premiere physician group, which you represent, would focus 
nearly all your attention on litigation and none on appropriate 
patient care, the primary intended result, I would think, of a 
Patients' Bill of Rights? And could you also tell me how many 
Members of AMA there were 10 years ago, and what is your 
Membership today?
    Dr. Corlin. OK. Our membership now is down somewhat from 10 
years ago. We are 290 something thousand now. To be honest with 
you, Mr. Johnson, I don't know the exact number of what it was 
10 years ago.
    With regard to the issue of the emphasis placed in the 
testimony on health plan liability as opposed to quality of 
care issues, health plan liability is, in our view at least, 
one of the major items, if not the major item, on which we have 
to have some closure for legislation to move. So we 
concentrated on that as representing the major open issue. 
Nobody wants to hold health plans accountable for things that 
they are not responsible for; but similarly, I don't want to 
see physicians or hospitals or other people in the health care 
delivery system be held accountable for things that they are 
not responsible for. I believe that people should be held 
accountable and responsible for the decisions that they make, 
and we have an anomaly in that our health care delivery system 
has changed to the point that the insurers are no longer simply 
premium collectors and claims processors, but they are involved 
in the decision-making stream of health care, and they are the 
only people involved in that entire stream who are immune from 
liability for the consequences of their actions.
    Mr. Johnson OF TEXAS. OK. In your proposal, Expanding 
Health Care Insurance, you endorse the concept of health marts, 
I believe.
    Dr. Corlin. I am sorry, sir. I didn't hear you.
    Mr. Johnson OF TEXAS. In your proposal, Expanding Health 
Care Insurance, the AMA proposal for reform, you endorse health 
marts, I believe. Health marts create an alternative in 
insurance plans and exempt those plans from State regulations; 
is that true?
    Dr. Corlin. Well, we do endorse voluntary health marts as 
buying cooperatives. With regard to--my understanding and view 
of that is that they would not be the health plans themselves, 
but would be an organization similar to the FEHBP whereby 
Federal employees are given a choice of being able to select 
what plan they wish, and within the choices offered by the 
health mart would be each and every one of the plans that were 
approved by a mechanism at least broadly similar to that 
whereby plans get approved for the FEHBP.
    Mr. Johnson OF TEXAS. Yeah. But under those conditions, you 
allow them to have Federal patient protection standards, and 
yet, on the one hand, you ask for State jurisdiction. On the 
other hand, you are saying you like Federal jurisdiction. I 
mean, I am a little confused, but our time is up.
    Dr. Corlin. May I respond, Madam Chairman?
    Chairwoman Johnson. Very briefly.
    Dr. Corlin. OK. Yes. We recognize that there are two types 
of decisions to be made. One are medical necessity-type 
decisions, which we believe should remain in State courts. The 
other are coverage-type decisions under ERISA so that we are 
separating out the two types of decisions, one which we would 
wish to have handled in State court, one which we would wish to 
have handled in Federal court, but it would not be a 
circumstance that for any given type they would have a choice 
of one or the other. One type goes one place; one type goes the 
other place.
    Mr. Johnson OF TEXAS. Thank you.
    Dr. Corlin. Thank you.
    Chairwoman Johnson. Ms. Thurman.
    Mrs. Thurman. Thank you, Madam Chairman, and thank you all 
for joining us today and discussing the different views here. 
It has been somewhat enlightening, and I appreciate that.
    Mr. Toohey, let me ask you just a question. Are you 
familiar with the article that was written on April 12th, 2001, 
in the Washington Post that had done some interviews with some 
of the signatories on who was in favor of or against the 
Patients' Bill of Rights and the way that you have expressed it 
for the employer-based part of it?
    Mr. Toohey. No, I am not aware of that article.
    Mrs. Thurman. Well, just so you will know, basically what 
they have said is that they have not found any of those 
companies who have said that they would actually drop those 
plans, I mean, basically is the gist of the article. So, I 
mean, I don't want to use scare tactics, because I think all of 
us are really trying. Just the idea of the Patients' Bill of 
Rights in itself is such a good piece of legislation in helping 
the health care in this country, so to say that, I think, is 
misleading at best.
    Second, you know, I also find it interesting, and I don't 
know where your company or what has happened, but, you know, 
you talked about the CBO and what could happen in the future, 
but, yet, you know, we are sitting here passing tax packages 
based on CBO numbers in the next 10 years, too. So, you know, 
if we are not right here, then we may not be right in the 
other. So maybe we ought to slow down on all of it.
    So I don't know where you all were on that, but I would 
just suggest we need to be careful how we flip numbers out here 
on both sides of the aisle, because if it is not good for one, 
it shouldn't be good for the other. So I would just caution.
    Let me ask you a question, because we have heard of, Mr. 
Toohey, and we have understood--or Dr. Corlin or Dr. Zipes. 
Tell me, can you give me examples where we needed this law to 
have a hammer behind it? Because if you can't, I will.
    Ms. Arkin. Well, included in my written testimony are 
several cases that I actually litigated. Because they were 
either private insurance, government employees or Medicare 
insurance, they weren't subjected to ERISA limitations. These 
people could get relief. The problem is that other cases--and I 
see dozens of them in a month. Other people are just as 
severely hurt, just as badly damaged, and they don't have 
recourse. The types of cases are the same, whether it is the 
government employee or not a government employee, and the 
circumstances often--several of the cases I have disclosed in 
my testimony: Mr. Levy, who needed a tumor removed from his 
lung, and it was too close to his heart, he had to have that 
surgery immediately. He couldn't even wait for a review process 
any longer. He went through the internal review process of the 
plan, and that took over a week, and the doctor told him his 
tumor was going to double in size in 30 days. He couldn't wait 
any longer. He had to go ahead. He had to--he had to save his 
own life, and he couldn't wait for the plan or an external 
review process or a court to make that happen for him. He had 
to take care of the problem, and then he had to go and try and 
get the financial aspect of it fixed. He had to sue later 
because he was forced to take care of his own life.
    The same thing with the lady I have identified as Mrs. R. 
She had a bleeding tumor in her bladder that the health plan 
refused to deal with. She had to go get it fixed. She had to 
save her own life. The external review process couldn't help 
her. The external review possess is designed to get people 
their care. If that is its goal--and that is a spectacular 
goal--it can't help people who can't wait that long. It can't 
help people who die in the meantime, like Mrs. A. She needed--
she--she had 3 hours to get to the right kind of care, and no 
review process is fast enough for that, and she died. Going 
through review process after she died wasn't going to help her, 
wasn't going to help her family. It wasn't going to get her the 
care she needed, and it wasn't going to compensate her family 
for the damages that you wanted.
    Mrs. Thurman. And, Dr. Corlin, what happens to doctors who 
are in these networks where--where, in fact, they have been 
denied--you have recommended or somebody has recommended care, 
they have been denied, and they die because they didn't get it? 
Do you become responsible for that? Who becomes responsible for 
that?
    Dr. Corlin. The existing tort process winds up with 
everybody else getting sued except for the insurance plan.
    Mrs. Thurman. Who might have been the person making the 
decision?
    Dr. Corlin. That is correct. And there were--there have 
been cases that have been--the Pappas case in Philadelphia is 
one such case. A gentleman who had an abscess near his spinal 
cord and needed specifically to go to one hospital in 
Philadelphia where they had this particular service and this 
particular neurosurgical expertise available, and the plan had 
to contract with another hospital a couple of miles away. Now, 
the couple miles is not the point, but the point is that the 
care was denied, and the gentleman was rendered a quadriplegic, 
when, had he gotten timely service, he might have--might well 
have avoided that.
    And the most significant part of that, in addition to the 
individual tragedy to one family, is that there can't be a 
specific timeframe put on an expedited review. In some cases, 
an expedited review taking 60 days would be fine. In some 
cases, an expedited review would have to be done in 7 days. In 
some cases, an expedited review has to be done in minutes, 
depending on the specifics of the medical indication involved, 
and those are the concerns that we have.
    Mrs. Thurman. Thank you.
    Chairwoman Johnson. Dr. Corlin, are you aware that our bill 
requires--allows only 72 hours for an expedited review? That 
would have solved most of the problems that all three of you 
have pointed to.
    One of the things that has to be remembered as we consider 
this bill is that an expedited review is fast and free, maybe 
$25. Going to court is expensive and long. Now, when you say 
there will be very few cases, do you think about that every--
the fact that every State, at least Connecticut does and I 
believe most States, have panels that malpractice cases have to 
go to--go through in order to be allowed to go forward? There 
is no such provision in the Patients' Bill of Rights. So every 
case that wanted to be brought could be brought, and that is 
why I bring you back briefly to clarify your answer to Mr. 
Johnson.
    This issue of exhaustion of the appeals process is 
extremely important, because if you don't exhaust it, you don't 
get four physicians' opinion on the record. Now, if you want--
if you are a trial lawyer, you probably don't want those three 
physicians on the panel, their position on the record. But if 
you want physicians to regain control of our health care 
system, you want the physician's opinion, the caring physician, 
the physician for the patient. You want his physician to be--
excuse me, his recommendation for care to be reviewed by 
physicians, and you want the physician opinion on the record, 
and you want it binding. If you can have a binding position, a 
binding decision in 72 hours by physicians reviewing a 
physician, aren't you better off, and isn't the fact that that 
will serve everyone, not just those who can find themselves in 
a position to go to court, isn't that good?
    Dr. Corlin. Ms. Johnson, I thought I said earlier--I meant 
to say in response to Mr. Johnson's question to me, yes, I 
think this is something that with discussion we can resolve the 
concerns about exhaustion of remedies, probably more easily 
than anything else. And----
    Chairwoman Johnson. Specifically, though, to my question, 
you did mention some aspects of this, but this issue of the 
patient alleging, you know, alleging is not a high standard, 
and that would stop the appeals process and eliminate the 
requirement to exhaust. Don't you think that is not in 
physicians' interests or patients' interests?
    Dr. Corlin. I think we can come to agreement on that. I am 
not prepared to read the specific language today, but----
    Chairwoman Johnson. Appreciate that, and I don't expect you 
to.
    Dr. Corlin. But with recognition of some concerns, I agree 
with you, usually 72 hours is enough. We could probably fashion 
language we are both comfortable with to cover those 
circumstances, and there are few where medically 72 hours would 
be too long. We can deal with that very easily, I am sure.
    But I would like, if I may, Madam Chair, to put it in one 
bit of perspective. In Texas where this law has been in effect 
for 3 or 3\1/2\ years, there have only been a total to--what we 
have been able to find--10 lawsuits filed in that entire time. 
Now, one----
    Chairwoman Johnson. I have another question for you, sir. I 
don't want to go into----
    Dr. Corlin. One may be too many, but 10 lawsuits in 3\1/2\ 
years in a jurisdiction the size of Texas is not a, if you will 
pardon----
    Chairwoman Johnson. I know that the new law takes a while 
to get the regulations on the books and that the Texas law 
schools now have pages and pages of courses in how to sue 
health plans. When that law was first passed, there was no 
educating of lawyers in how to do this. So you will, without 
question, see an increase in the number of suits.
    But let me bring you back to the Ganske-Dingell bill which 
will permit an agent of a health plan to be sued--the agent to 
be sued for failing to exercise ordinary care.
    Now, who is the agent? The agent is anyone who is making a 
claims decision or is performing a duty under the terms and 
contract of the plan. Physicians are performing a duty under 
the terms and contracts of the plans. They are not only 
performing a duty toward the patient, but they are carrying out 
typical contract-related administrative duties. So physicians 
will be liable as well as others under the very broad language 
of the Ganske-Dingell bill, and I hope this is also something 
that you would be willing to discuss with us, as our language 
about who can be sued is very much narrower, only the dedicated 
decisionmaker, so that the plan is held accountable, but not 
for administrative issues or for carrying out typical 
responsibilities under a plan. But there is very broad language 
about agent, that the agent can be sued for failing to exercise 
ordinary care, and that an agent is anyone who makes a claims-
related decision--a claims decision related to eligibility, 
coverage or cost-sharing, or in performing a duty under the 
terms and contracts of the plan.
    So it is very broad, and don't believe for a minute that 
physicians aren't going to be defined as being someone who is 
performing duties under the terms and contracts--terms of the 
duties of the--conditions of the contract.
    So my time is expired, but I did want to get that on the 
record, because this is the nature of my concern. This is what 
gets back to Mr. Toohey's concern. Any small employer in their 
right mind cannot expose themselves to being an agent. And if 
you look at employers' concerns about liability in general, 
small employers can't run the risk. They just need to know it 
would be possible, and they are out of there.
    Ms. Arkin. Madam Chair, would it be possible for me to 
address that issue?
    Chairwoman Johnson. Sorry.
    Mr. Camp. I am sorry.
    Mr. Camp. Thank you, Madam Chairman, and my first question 
was going to be along the lines of the comment you made that I 
do think if we can agree on a final decisionmaker exposure as 
opposed to just a--someone who--an employer who just 
participates in their employees' health care should be liable 
might be a direction we can go. But my question is for you, 
Doctor.
    Last year there was a significant push on the antitrust 
legislation, even though there was no Senate bill introduced. 
There was virtually no chance of any legislation passing the 
Senate or even going to the President for signature, and so 
even--and so even there there was a significant push by the AMA 
on behalf of that legislation, and I am having trouble 
reconciling your view that because tort reform is unlikely to 
be enacted, that there shouldn't be an effort made here in the 
House on that legislation. Can you help me with that paradox?
    Dr. Corlin. The difference between the two, at least in our 
view, is that with regard to antitrust reform, that was an 
issue in and of itself, and we either could or couldn't get it. 
We obviously were able to get it through one House of Congress. 
We could not achieve any measure of success at all in the other 
House of Congress. The assessment with regard to issues of tort 
reform were not just could or couldn't we get it by itself, but 
what was the assessment as to attempting to get it as part of 
the Patients' Bill of Rights, and how would it affect the 
ability to get that Patients' Bill of Rights. It was the 
collateral effect on the other legislation.
    You know, if you were to ask me, do you want PBR, I would 
say, absolutely. If you were to say, do you want tort reform, 
absolutely; and if we were of the belief that we could get them 
together, we would attempt to do that. The best information we 
have been given to this point is that trying to link the two of 
them would hurt the more achievable one at the present time. I 
don't like that answer any more, I suspect, than you do, but we 
have been told that that is the reality of the--of the issues 
as we find them.
    Mr. Camp. All right. Ms. Arkin, under the bifurcated 
Federal-State liability approach in H.R. 526, what would 
prevent a plaintiff from suing simultaneously in State and 
Federal court alleging the same denial, alleging, you know, 
failure on both the medical and nonmedical areas?
    Ms. Arkin. Theoretically when a health plan denies a claim, 
the health--the health plan actually bets to control which end 
of the spectrum the patient is going to go. If the health plan 
denies a claim because it is not medically necessary, because 
it is experimental, under the statute's own definitions it has 
to go to State court. The problem is health plans often give 
several grounds for denial, and they may include administrative 
reasons for denying the plan. You have put the patient on the 
horns of a dilemma when the health plan does that. So the 
health plan--or the patient is then forced to try to decide, do 
I go to State court because they have denied on experimental 
grounds, and do I also have to go to Federal court because they 
have denied on administrative grounds? The control of that 
issue is not in the hands of the patient. It is in the hands of 
the health plan and the way the health plan frames the denial.
    If a patient gets a denial based only on experimental or 
medical necessity grounds and sues in Federal court, their very 
first motion that is going to be made by the health plan is a 
dismissal, because it is not appropriately a Federal case, and 
the plaintiff--the patient will then have to go back to State 
court. The patient doesn't control that.
    Mr. Camp. All right. I have one other quick question for 
Mr. Toohey. First of all, thank you for testifying and 
representing the employer and employees that you represent. And 
I know that it has been brought up by another member of this 
panel the number of unrelated cases against your employer, and 
I think those are topics for another hearing in another 
committee.
    But my question to you is, do you believe employers should 
be held liable for providing health benefits to employees?
    Mr. Toohey. No, I do not.
    Mr. Camp. And why not?
    Mr. Toohey. That is a voluntary benefit. We are not 
required to provide it.
    Mr. Camp. All right. Thank you.
    Thank you, Madam Chairman.
    Chairwoman Johnson. Thank you.
    I had started a second round of questioning, and then Mr. 
Camp arrived for his first round, and before the Chairman 
leaves, he would like to ask a few questions. Mr. Thomas.
    Chairman Thomas. Thank you very much, Madam Chairman.
    I just want to clarify a couple of points so that I can 
understand the positions that are currently being advocated. 
Dr. Corlin, you earlier, in response to a question, indicated 
that you had at one time been urging health plans, I believe, 
to support the idea of med mal, and they weren't willing to do 
it. Now, it was noted that you are sitting next to the trial 
lawyers, and you are very comfortable with the trial lawyers' 
position.
    Dr. Corlin. That, sir, is an alphabetical coincidence.
    Chairman Thomas. I understand that, but the health plans 
are consistent, and the trial lawyers are consistent. So I just 
think it underscoring the fact that politics sometime make 
strange bedfellows, because you are the only ones that have 
shifted in terms of the position. And I understand your 
argument about wanting med mal, but not being interested in 
trying to figure out a way to bring it about.
    In response to a question about the size of your 
membership--and I have got two physician groups here, so I do 
want to clarify who is speaking for whom--you indicated that 
the current membership of AMA is somewhere below 300,000?
    Dr. Corlin. 290-something thousand.
    Chairman Thomas. Yeah. And you didn't know for sure how 
much it was 10 years ago?
    Dr. Corlin. No. It was slightly larger. I don't know what 
the number was.
    Chairman Thomas. So it has gone down over the last decade, 
but you are somewhere under 300,000.
    Dr. Zipes, no one has asked you a question, so I will ask 
you a question. You represent the Patient Access Coalition. Is 
that all physicians, or is it made up of other groups?
    Dr. Zipes. It is made up of multiple groups, and the list 
is part of my submission.
    Chairman Thomas. Thank you. I will double-check that.
    How many physicians are in the group?
    Dr. Zipes. Approximately 300,000.
    Chairman Thomas. So you are approximately larger than the 
American Medical Association in terms of the number of doctors 
you represent?
    Dr. Zipes. I don't know how many they have, but we have 
approximately 300,000.
    Chairman Thomas. They are south of 300,000.
    Dr. Zipes. And we are larger.
    Chairman Thomas. The point I want to make is that I read 
your testimony, and I saw all of the usual concerns about 
patients and getting coverage. The point was made--I examined 
the AMA's testimony, and it was 20 of 22 pages on an unfettered 
attempt to garner unlimited liability against a particular 
group, which I find somewhat interesting in terms of the thrust 
of the testimony.
    I guess I would tell you, Dr. Corlin, that you might think 
about the idea that unlimited liability on employers is 
probably as unacceptable to some people as malpractice is to 
others, and that if you will examine how far we came in the 
conference last year on very timely internal and very 
meaningful external appeal, that if, in fact, that structure 
was supported, ultimately leaving a court remedy, but with all 
of the particulars that have been discussed, we wouldn't have 
to turn to Texas as an example of how few cases got to court. 
We would have, in fact, a Federal program with limited 
liability in defined circumstances for employers who choose to 
be participants.
    The difficulty is, if you read legislation that has been 
proffered, most recently on the Senate side, the McCain-Kennedy 
language, it has all kinds of loopholes in which employers will 
still be held liable.
    So in terms of additional discussions that we need to have, 
what you need to do is to go back to whoever informed you that 
med mal didn't have a chance to go into this product, because 
from my perspective, the obvious political solution that would 
be a winner would be limited liability on health plans and 
employers under a review procedure, which is pretty close to 
what we have got, including limited liability in terms of the 
medical professionals as well. That would be a coalition that 
would move legislation fairly rapidly. The AMA is currently 
standing in the doorway opposed to it on record in terms of 
malpractice reform.
    My time is running out. Ms. Lichtman, I would like to ask 
you a question about your testimony. Let me ask her first, and 
then you can respond. I have noticed you have consumed a lot of 
Members' clocks, so you can answer as soon as I ask Ms. 
Lichtman.
    On page 4 of your testimony, top paragraph, quote, 
consumers who have already been injured should not be required 
to complete the external review process before seeking review 
in court. This is the model that applies for Medicare 
beneficiaries.
    Ms. Lichtman. That is right. I am not sure I understand 
what your question is. The model of already injured persons not 
having to exhaust a remedy which at that point is totally 
meaningless is a system that is already in place.
    Chairman Thomas. So you are not saying Medicare 
beneficiaries have a right to go to court?
    Ms. Lichtman. No. I am saying that they don't have to 
exhaust remedies that for them at that point are meaningless if 
they have already been injured.
    Chairman Thomas. Well, that agent--but you are not saying, 
then, that they have a right to go to court? You are not saying 
that.
    Ms. Lichtman. I actually wasn't speaking to that in that 
sentence, and so I was not saying that there.
    Chairman Thomas. Okay. But they don't have a right----
    Ms. Lichtman. I wasn't----
    Chairman Thomas. To go to court.
    Ms. Lichtman. Asserting that they do.
    Chairman Thomas. And that would be a question, as the 
Chairman indicated, the timeliness of review under extreme 
circumstances and a panel of doctors on the external review. We 
are not looking at a particular bill. There is no bill in front 
of us, but there is a matrix to the solution, and, Doctor, I 
would ask you to go back to whoever it is that told you that 
med mal is an absolute no-go in resolving the concern, because 
if you are looking for some additional political bedfellows to 
support you on limited liability, they are going to be 
available if you folks are interested in moving a package which 
includes med mal and the limited liability. But if you are 
seeking the liability in your testimony, that increases the 
chances of not making the law this year. That is my personal 
observation. So do you want to respond?
    Dr. Corlin. Yes, if I may.
    The AMA has been consistent in its positions with regard to 
tort reform. Trying to characterize what we are doing now as 
affiliating with the trial lawyers on this issue is incorrect. 
We are not attempting to hold the employer community liable, 
and indeed, the language in the bill would make----
    Chairman Thomas. Which bill? You keep saying the bill. 
There is no bill.
    Dr. Corlin. Language which we have proffered would indicate 
that employers who simply pay the premium and choose a plan and 
are not involved in the decision-making process regarding 
health plans are not liable and are not to be held liable.
    What we object to is the people who are not here today who 
actually have surrogate defenders, which is the health plans. 
Health plans are both good and bad, as are doctors, hospitals, 
Congressmen, businesses and everybody else. The good health 
plans are wonderful. Bad health plans make decisions that hurt 
patients, and they do it with impunity. We want them to not be 
able to do that. That is what we are here for.
    Chairman Thomas. I understand that, and what I am doing is 
telling you there is an area for compromise in which we have 
limited liability in that regard with a very good internal/
external review and that we can include med mal. Do you want to 
participate in that endeavor?
    Dr. Corlin. We certainly will participate in that 
discussion, absolutely.
    Chairman Thomas. Endeavor and discussion are two different 
things.
    Dr. Corlin. We will----
    Chairman Thomas. I understand. I understand what you are 
saying. You want to discuss. We want to make law.
    Dr. Corlin. We want to see law made, too.
    Chairman Thomas. OK.
    Dr. Corlin. I am not here today with the total authority, 
number one, to make the decision.
    Chairman Thomas. I understand that.
    Dr. Corlin. Nor am I here with the background and 
experience that our staff in Washington have. I would like 
nothing better than to be able to be told after I go back to 
1101 Vermont and said, yes, we absolutely agree that everything 
that Chairman Thomas said is the way it will go, and if we 
adopt that position, we can get a bill, I will be back here 
waving the flag for that tomorrow, but I have got to go back to 
the people who have done the analysis for us, as I am sure you 
understand.
    Chairman Thomas. Dr. Corlin, let me suggest that one of the 
reasons the AMA has gone down in membership may very well be 
the fact that you never mentioned going to your rank and file, 
but rather you decided to go to the professionals who have made 
a history of not necessarily representing the rank and file. 
Because I have got a fellow over here who has got more members 
than you do who has said liability is not that great a concern, 
focusing on patient protections ought to be the primary goal. 
So perhaps you might want to go beyond that Vermont address and 
take a look at your rank and file in terms of where they are 
for med mal and where they are for moving a resolution of this 
sooner rather than later.
    Thank you, Madam Chair.
    Dr. Corlin. We go to our rank and file twice a year on this 
topic, Mr. Thomas.
    Chairwoman Johnson. Thank you, Mr. Chairman.
    Mr. Stark.
    Mr. Stark. Well, I am under the impression that at least 
this Member has been referring to the Ganske-Dingell or 
Dingell-Ganske bill, which is a reintroduced iteration of the 
Norwood bill, and the current one has maybe 110 to 150 
cosponsors or whatever they have got, and that is the bill.
    Chairman Thomas. Do you want, briefly--do you know how many 
Republicans or cosponsors of that bill?
    Mr. Stark. I guess a half a dozen. How many?
    Mrs. Thurman. In the Senate?
    Chairman Thomas. No, no. The House.
    Mrs. Thurman. In the Senate, for your information, there 
are five.
    Chairman Thomas. And I think there are two over here, 
Ganske being one of them.
    Mr. Stark. My guess would be half a dozen, but I am not 
aware. In any event, it is a bill that is similar in many 
respects, although it has been compromised to move toward the 
Republican position that got 60 Republicans or thereabouts to 
vote when it passed the House.
    Now, be that as it may, it is a bill that has passed here 
and has been in the conference meetings a bill of discussion.
    It was my understanding that the witnesses were advised 
that we wanted to talk about the liability issues today. Is 
that correct?
    Ms. Lichtman. Yes.
    Mr. Stark. Is there any witness who had any other--that was 
the thrust of the testimony today; was it not? So for those of 
you who have been--suggested that you are not doing your duty 
by not talking about liability, that is why I thought I was 
here, and I would presume that that is why the witnesses were 
here, which is a good topic.
    Now, I want to apologize to Mr. Toohey for--Mr. Toohey 
actually is here representing the National Association of 
Manufacturers, and Ashland Inc. probably would have given him 
the week off if they thought I was going to bring up all this 
past history about him.
    But you do mention, Mr. Toohey, and I don't know the 
numbers, but I have a hunch when you talk about the fact that 
health insurance ought to be voluntary, I think as a practical 
matter--and I am going to just guess, and you may know better 
than I do, or somebody else may have the numbers, but I am 
going to bet that half of the people who have--who have 
employee insurance or get it from their employers get it as a 
result of bargain plans through their union. Does that sound 
about right to you? I don't know. Maybe it is only a third, but 
it is a large percentage of those----
    Mr. Toohey. I honestly think it is less, but I don't know 
the answer.
    Mr. Stark. Okay. And is it also standard reason that where 
a union has negotiated or contractually gets health insurance, 
that it would be the rare company that would not provide it to 
its nonunion employees? That would make good sense from labor 
relations, bargaining and just from good human resources; would 
it not?
    Mr. Toohey. Well, sure.
    Mr. Stark. So that the voluntariness of health insurance, 
absent a short supply of employees, as we have today--right now 
probably every business in the country is--wouldn't think about 
cutting back on their health insurance, just because it is hard 
to find good employees, but in a----
    Mr. Toohey. If I could answer?
    Mr. Stark. Sure.
    Mr. Toohey. The question I was answering over here, I 
thought, was that should employers be sued for providing health 
care, but why would you want to sue somebody for providing a 
voluntary benefit?
    Mr. Stark. Mr. Toohey, you are getting right to the point. 
If you could--if you were assured by your company's attorney 
that the company could not be sued, would you have objection 
then to the liability provisions in this bill?
    Mr. Toohey. Yes, I would.
    Mr. Stark. Why?
    Mr. Toohey. Because you have to realize----
    Mr. Stark. Wait a minute. If the company could not be sued, 
if you could be guaranteed that, why would you then object to 
the idea of your--of the liability provisions?
    Mr. Toohey. Well, at the end of the day, it is the 
corporation that is going to pay the costs, and so if the plan 
is sued----
    Mr. Stark. Under any circumstances, if the company weren't 
liable, you would still oppose the bill?
    Mr. Toohey. We are opposed to employer liability, and when 
you provide this voluntary benefit and you get sued for it, no 
matter who is the manager of it, whether it is----
    Mr. Stark. Whoa, whoa, whoa. Let's talk about this perfect 
world. I am just saying that if you could be assured that your 
company could not be sued, then would you object to the bill?
    Mr. Toohey. Yes, in its current form.
    Mr. Stark. That is what I thought. Thank you.
    Chairwoman Johnson. Mr. McCrery.
    Mr. McCrery. Well, Mr. Stark, if I were the CEO of Ashland 
Inc. or some company, any company, and my lawyer came to me and 
said, you can't be sued, I would fire the lawyer.
    Mr. Stark. That is probably why you are not a CEO of a 
large company.
    Mr. McCrery. Well, but I am a lawyer, and I have a 
confession to make. I was with a plaintiffs' firm. I practiced 
plaintiffs' law, and I was also on the other law practicing on 
the defense side. So I have been on both sides, so I know a 
little bit about the practical nature of our judicial system. 
And the fact is that if you write a law that says you can't be 
sued, you can still be sued. Somebody can name you in a 
lawsuit, a lawyer--a good lawyer will name you in the lawsuit, 
even though he may know eventually you are going to get thrown 
out of the lawsuit. That means you are going to have to hire a 
lawyer, and you are going to have to go to court to get thrown 
out of court. That is going to cost you money.
    Mr. Stark. That is where we are now.
    Mr. McCrery. That is where we are now.
    Mr. Stark. So what is new?
    Mr. McCrery. Nothing yet. That is what we are talking 
about, what might be new. What might be new is that you won't 
get thrown out of court, but you will not only be faced with 
the cost of going to court, but you will be faced with damages. 
And it is a legitimate discussion.
    Look, I am proud of being at one time a plaintiffs' 
attorney. I defend plaintiffs' attorneys with some of my 
friends occasionally in the medical profession and in the 
business world. Plaintiffs' attorneys, by and large, like 
doctors by and large, are honorable people doing a good job for 
their patients or clients, and they play an important role in 
this Nation and in our judicial system and in getting 
compensation for people who are damaged because of somebody 
else's negligence or wrongful actions.
    So I happen to think that ERISA is in need of reform. I 
think ERISA is not--does not provide sufficient remedies. 
There. I have said it. But the very reason that the AMA has 
steadfastly been for medical malpractice reform, and they still 
are, even though I am disappointed that they are not out front 
pushing for medical malpractice reform to be attached to this 
bill so that we can have uniform liability across the health 
care system, and I am very disappointed in that, and I think 
you are wrong, and I think you should be, but you have 
steadfastly been for medical malpractice reform. And before I 
give my opinion as to why you are, let me ask you, Dr. Corlin, 
why is the AMA for medical malpractice reform?
    Dr. Corlin. We are for medical malpractice reform because 
we have seen the consequences of what happens when it gets 
enacted and what happens when it doesn't get enacted, and we 
are in a circumstance where in the absence of medical 
malpractice reform, the circumstance amounts to an unfunded 
mandate. Premiums drive people out of practice. They do not 
provide anything in the way of added patient safety. Well, we 
are here today, Mr. McCrery--and I----
    Mr. McCrery. No, no, no, no. I don't want to get you----
    Dr. Corlin. All right.
    Mr. McCrery. I want you to answer my question. Are you 
through answering my question about why you are for medical 
malpractice reform?
    Dr. Corlin. Yes.
    Mr. McCrery. So you are--if I can restate, you are for 
medical malpractice reform because you have seen systems which 
have it and systems which don't, and in those systems which 
don't have reform, doctors are worried about the costs that are 
imposed upon them, and it drives some of them out of practice. 
Is that----
    Dr. Corlin. Well, it is not just physicians. The costs go 
up inordinately, and they are passed along to everyone.
    Mr. McCrery. Right.
    Dr. Corlin. Not just doctors, but they are passed along in 
fees by physicians, hospitals----
    Mr. McCrery. Right.
    Dr. Corlin. And everyone else in the health care delivery 
system.
    Mr. McCrery. Right. So what?
    Dr. Corlin. It is a cost that is----
    Mr. McCrery. Why is that bad? Because you have injured 
patients who deserve compensation, unlimited compensation, so 
why is that bad?
    Dr. Corlin. OK. The costs go up out of proportion in 
benefit, number one, and number two, patients are not denied 
compensation in the presence of tort reform. We have never 
advocated a system that would not deny patients----
    Mr. McCrery. I didn't say compensation. I said unlimited 
compensation.
    Dr. Corlin. I made a mistake when I said--we have never 
advocated a system that would deny injured patients 
compensation for their injuries. I never said that.
    Mr. McCrery. But you are for a system which denies 
unlimited compensation for patients who are injured.
    Dr. Corlin. Under circumstances, yes, particularly in the 
noneconomic damages area, which are very, very subjective.
    Mr. McCrery. Right. And why is that, in your opinion, 
necessary in the medical--field of medical practice to have 
those caps on damages and other tort reforms for medical 
malpractice?
    Dr. Corlin. Because in our opinion, the circumstances were 
getting to be so subjective and so irrational that they could 
no longer be sustained, that the cost of maintaining the 
insurance, which is a legal requirement--it is not an option. 
The cost of maintaining the insurance, which is a legal 
requirement, has driven people out of practice and reduced 
access to care in certain areas and increased the costs as 
those costs are passed along to the end users, as are the costs 
of everything that all of us in this panel do.
    Mr. McCrery. Madam Chair, I have further questions, but I 
will give the other Members a chance to ask.
    Chairwoman Johnson. Congresswoman Thurman.
    Mrs. Thurman. Thank you, Madam Chairman.
    Dr. Zipes, we need to clear up some stuff here, because I 
actually looked at your testimony and all the people who are 
actually a member of your coalition, and I have to say to you, 
maybe as a group they have taken this step where they have said 
that they support this year's based on principles. Last year it 
was my understanding--and correct me if I am wrong--but that 
this group also endorsed the bill last year, the Dingell-
Norwood, Norwood-Dingell, whoever, bill. And second, as 
individual groups, there are many, many on this list that have 
come out in support of Dingell-Norwood or whatever it is this 
year. Is that correct?
    Dr. Zipes. As I indicated in my response to the very first 
question that I got from the Madam Chairwoman Johnson, the 
Coalition has supported the provisions of the bills that 
advocate those things that we feel are so important for patient 
protection, whether or not they included issues about 
liability, and we continue to do so.
    Mrs. Thurman. Well, but you could tell me, too, when I look 
at this list that individually there are groups on this list 
who have, in fact, supported, outside of the Patient Access 
Coalition, the Norwood-Dingell bill with the liability standard 
in it?
    Dr. Zipes. Yes, ma'am. As I also testified, there was not 
unanimity among all the members; and, therefore, we felt it 
best to not take a position on liability, but to strongly 
support the patient protection issues.
    Mrs. Thurman. Thank you. I just needed to clear that up, 
because it seemed to get kind of foggy out there for a minute, 
and I think this Committee wants the best information 
available.
    You know, Mr. McCrery, one of the things that I find 
interesting is that I, quite frankly, on the liability issue 
would like to see the States do what they have been doing, 
because I think Dr. Corlin would tell you that we probably had 
more success--Dr. Zipes would probably tell you that we have 
had more success in dealing with medical malpractice at the 
State level, is that correct, over the years?
    I mean, Ms. Arkin, you could tell me. You have to say yes, 
because we have to get you on the record. For some reason, it 
doesn't do that. Is that----
    Ms. Arkin. That is true. In various States in response to 
specific insurance crises within those States, individual State 
legislators have dealt with it on a State basis, and that is 
the appropriate way to deal with those----
    Mrs. Thurman. As they have, quite frankly, with the 
Patients' Bill of Rights.
    Ms. Arkin. In large respect they have--the States have 
attempted to deal with the ERISA problem through State 
legislation, and it is still an open question if that is going 
to be successful.
    Mrs. Thurman. And that is where we come in as to why we 
have to do that.
    Ms. Arkin. Correct.
    Mrs. Thurman. So what we don't need to be doing up here is 
setting up whole new review panels, doing that. But let me ask 
you all, you know, I have been trying to listen to this 
conversation going on up here, and quite frankly, I was really 
taken back by--a little bit by our Chairman Mr. Thomas, that it 
is this way or no way. Quite frankly, I don't consider that to 
be compromised, and I certainly don't see that as kind of--I 
take offense of somebody trying to cram something down my 
throat, and I wish he was here to hear me say that, but I was 
somewhat taken back when, in fact, last year this was passed--
or in 1999 this was passed on the floor of the House with a 
majority of both Democrats and Republicans, sent over to the 
Senate, sat in conference, many times motions to the Committee 
to get this bill out. So to say that this is only the way 
something can happen I think is a little misleading to the 
public.
    And the other thing I would say is, who have we forgotten 
in this? What is this all about? This is about patients who are 
all only asking for access to their health care, and if, in 
fact, they go through an internal and an external process, that 
they have some remedy. I would say to my colleagues, in every 
bill that has been introduced into this Legislature over the 
last several years, there has been some remedy or some tried to 
get to a remedy. Some have imposed civil fines. I mean, there 
has been a multitude of ways to do this, but the bottom line 
is--so I don't know what we are stuck on--that this liability 
issue, no matter what we look at, or if you like it or don't 
like it or are just opposed to it, the fact of the matter is 
there is a remedy in every bill to hold them accountable.
    Now, why, I ask the question, would we back off from a 
system that every other person has the opportunity to--I think 
Mrs. Lichtman said that. If you have a toy that is broken, you 
go to the manufacturer, and you have liability. If you are 
responsible, why would you abrogate that responsibility? And my 
time is up.
    Chairwoman Johnson. I think it is significant that the 
system that States have adopted for malpractice liability is 
really quite different, and very few States have adopted 
liability in the Patients' Bill of Rights situation because of 
the complexity of setting up that and the fine line between 
malpractice and suing of the employer. So we do want to be sure 
that people have appropriate rights, and particularly that 
patients have rights to medical care, and physicians are in 
charge of that decision.
    Mr. McCrery. Excuse me. Dave had----
    Mr. Camp. Thank you, Madam Chairman.
    I would just say to my colleague from Florida one of the 
problems that we have had is the exposure of employers to 
lawsuits simply because they have a health plan, and I think 
that is one of the real troubling aspects of this. We have a 
system--and Mr. McCrery touched on this--where everybody can 
sue anybody about anything. That is our legal system. And so it 
is the exposure, and in the business world the employers--and 
small business and large--cannot take the risk.
    And last, multistate employers, particularly looking at 50 
different standards in 50 States, they are looking for 
uniformity, something that will be ultimately administered. But 
my question is this for Ms. Arkin: The Rand Corporation study 
that happened--and their studies said that between half and 
two-thirds of medical malpractice claims are brought with no 
apparent indication of negligence, and, in other words, the 
current medical malpractice system demonstrates that just 
because the correct decision was made, it doesn't mean you are 
going to avoid a lawsuit. So given that statistic, I would ask 
your comment on the expansion of liability and whether that 
would serve as an effective deterrent for alleged wrongful 
behavior or negligent behavior, and would that promote better 
decisionmaking?
    Ms. Arkin. Well, first, obviously, I take issue with the 
Rand study. I don't believe it is correct, and the Institute--
--
    Mr. Camp. Do you have any reason why you don't believe it 
is correct?
    Ms. Arkin. The Institute of Medicine study has determined 
that medical malpractice does result in massive injuries, 
massive deaths, and that something needs to be done about the 
system.
    And if you look at the Institute of Medicine study, they 
are very adamant that there are systems corrections that can be 
made that will eliminate malpractice, and they actually 
advocate liability as one of the tools to help control 
malpractice.
    Additionally, I want this Committee to understand that the 
trial lawyers do not want to impose liability on employers, 
where the employer simply goes out and buys a plan, small 
employers, large employers. An employer that doesn't involve 
itself in the decisionmaking process should not be liable.
    If they just go and buy a plan for their employees, and the 
plan is making the medical decisions, it is the plan that 
should be held liable, not the employer.
    Mr. Camp. Right. I saw Dr. Corlin shaking his head at part 
of your answer. I don't want to cut you off, but I think the 
point also is--on that broad principle, we probably have 
consensus--the issue is in the real world, that won't 
necessarily mean that there is protection. But I wanted to get 
Dr. Corlin's comment as well before my time ran out.
    Dr. Corlin. The Institute of Medicine study dealt with the 
issue of medical errors. And I would characterize them as 
medical errors, not malpractice. There has been a great deal of 
data, a lot of it carried in several articles of the New 
England Journal, that indicates even those cases where there 
are settlements and/or judgments on retrospective review, only 
between 1 in 4 or 1 in 5 involve negligence as opposed to other 
items. So that is that particular issue.
    Mr. Camp, with regard to the second thing that you asked, 
it is nobody's attempt, and, you know, if we have the trial 
lawyers and the AMA agreeing with each other, well, we both are 
going to have to live with that, but neither one of us is 
interested in creating one penny of liability to the employer 
who buys and selects and pays for a plan, even if it is through 
a TPA and they are--in effect they are self-insured and they 
are not involved in the decisionmaking process with regard to 
medical decisions.
    We ask, please, for the Committee's help in coming up with 
some language that will achieve that goal, because that is our 
decision. What we are concerned about are the actions of the 
health plans, not the actions of the employers who in good 
faith provide money to pay for health insurance for their 
employees. They are not our target. We want to exempt them as 
much as they want to be exempted.
    Mr. Camp. I appreciate that, and I appreciate the sincerity 
of your comment there. I am not taking issue with that. I think 
beyond the people in this room, the system is such that the 
lawsuits would occur whether they are successful or not; but 
just the cost of defending, and the risk, the exposure of those 
lawsuits, to test that legal principle that we might all agree 
on and we might put in an iron-clad way in a bill, in fact just 
putting the language there, I think as others have committed, 
would invite the litigation.
    It is not just whether you would prevail in the litigation, 
it is whether you would be subjected to the litigation that is 
a problem. And, again, you know, I think there have been some 
instances where certainly wrongs have been righted in our legal 
system.
    But the idea that expanding the circle of lawsuits would 
bring a higher level of patient care I think is an issue. 
Obviously, the way that we have tried to work on this is to try 
to find a way for immediate and internal and external 
independent review and fines in civil matters.
    Ultimately, if those remedies are exhausted, where we are 
at is, is there going to be an ability to go to court and how 
would that occur? So I appreciate both of your comments. And I 
realize my time is expired. Thank you.
    Ms. Arkin. Well, Madam Chair, I would like to finish my 
response to that question. I never had a chance to give the 
other half of my response.
    Chairwoman Johnson. You may proceed.
    Ms. Arkin. Thank you. I don't believe that any responsible 
attorney is going to sue an employer where it is clear that the 
employer is free from liability. That is not to say that there 
aren't some irresponsible attorneys out there, and Mr. McCrery 
obviously has experience with those.
    But the point is there are facilities, there are remedies 
within our judicial system to take care of those irresponsible 
attorneys, both through State bar disciplinary proceedings, 
malicious prosecution actions, sanctions for a frivolous case; 
but the fear of frivolous actions should not strip people with 
legitimate claims of their right to reap compensation when they 
have been harmed. That is not a good public policy to engage 
in.
    The reality is there aren't going to be a lot of frivolous 
lawsuits. There very well may be meritorious lawsuits until the 
industry comes to realize they can't continue this conduct and 
they have to change their behavior, and that is what lawsuits 
do.
    Mr. Camp. Thank you. Thank you, Madam Chairman.
    Chairwoman Johnson. Would you like--do you have any further 
questions?
    Mr. Stark.
    Mr. Stark. No.
    Chairwoman Johnson. Mr. McCrery.
    Mr. McCrery. Ms. Thurman, my good friend from Florida, I 
don't disagree with anything that you said.
    Mrs. Thurman. I like that.
    Mr. McCrery. So you don't need to talk again. I thought you 
made some excellent points, and I thought I made some of the 
same points. But I was on the conference committee last year, 
and I can tell you that we could have passed a bill and sent it 
to the President real quickly if some had been willing to 
compromise on the issue of liability.
    We certainly could have gotten one on the President's desk 
if some in the Senate would have agreed to the patient--the 
patients' rights section of the bill without liability.
    Mrs. Thurman. Will the gentleman yield?
    Mr. McCrery. Sure.
    Mrs. Thurman. I think we had a lot of those kinds of bills 
last year.
    Mr. McCrery. I know we were on that conference, and I know 
we offered and the offer was rejected. Just so you will know, 
we could have had these patient protections in law.
    Ms. Arkin, you are right, there are some irresponsible 
attorneys out there practicing law, as there are probably 
irresponsible doctors practicing medicine. But there are also 
good attorneys out there who, in good conscience and to avoid 
maybe malpractice suit against them, would name employers if 
there is any question that that employer exercises any control 
over the decision. And particularly with TPA or third-party 
administrators, there is going to be a question. And even if 
you wall off the employer as best as you can, and then you are 
going--I think you are going to have a hard time finding a 
third-party administrator to administer that plan for a small 
employer. They are going to be scared to death of being sued 
because they do exercise control.
    So you know, even with that, I am still willing to 
establish a cause of action under ERISA. I think ERISA, as I 
said, provides an insufficient remedy to patients who are 
injured as a result of decisions, wrongful decisions of health 
plans. That is not at issue.
    But getting back to Dr. Corlin's explanation of why the AMA 
is for medical malpractice reform, the sum and substance of 
your argument, Dr. Corlin, is that unlimited damages in the 
field of medical malpractice is bad for the health care system. 
It inhibits the ability of people to get health care, because 
it discourages physicians from practicing, it runs them out of 
practice. It drives up costs for everybody.
    There is a higher national purpose, which is to make sure 
that the greatest number of people get the best quality of 
health care we can give our society. Therefore, it is 
necessary, even though as a Republican, philosophically I am 
opposed to damages--to caps on damages, limiting lawsuits, I do 
think there is in the field of health care particularly, a 
higher purpose to be served than individual rights to sue for 
unlimited damages.
    You have made the point. The point, Dr. Corlin, and others, 
though, is the same for health plans. If you allow unlimited 
damages against health plans, you will have the same problem. 
You will drive up costs in the health care system. You will 
inhibit employers and health plans and certainly third-party 
administrators from engaging in the delivery of health 
benefits, and it will be bad for our society.
    So why don't we compromise, Ms. Arkin; create a Federal 
cause of action under ERISA, which you want and which the AMA 
wants and Dr. Zipes group probably wants, and put caps on 
damages and other reasonable tort reforms in place for health 
plans--liability of health plans. And then, if we could, also 
for physicians. Yes.
    Mr. Stark. Will you yield for a question, the gentleman 
from Louisiana?
    Mr. McCrery. Sure.
    Mr. Stark. Would it not be possible if this--if it was the 
Ganske-Dingell bill, or some iteration of this liability plan 
in the other bills, and it passed, for the States still to 
impose tort limits on a State-by-State basis?
    Mr. McCrery. That is unclear, but certainly if it is a 
Federal cause of action that we create, it is possible that 
States could not limit the damages under that Federal cause of 
action.
    Mr. Stark. But under any State action, they could?
    Mr. McCrery. Yes, sir. And, in fact, if we don't do--create 
a Federal cause of action, my guess is the courts are going to 
continue to expand access to the justice system for these types 
of cases, and then obviously State tort reforms would affect 
those cases.
    But that should not relieve--even if we knew that States 
could do that, it shouldn't relieve us of our responsibility as 
policymakers to impose the best liability regime we could, in 
the best interests of all of the people, to receive not only 
their individual rights and cause of actions when they are 
injured, but also to receive the highest quality of health care 
for the most people in our society.
    And if we do that, I think there is a balance here that we 
could reach, and I would urge those of you who have seen that 
for years and years to be out front and urge us to do the right 
thing, not the expedient thing, not the thing that you think we 
can do just to get you what you--part of what you want, but be 
for the right thing across the board, and that would be medical 
malpractice reform and liability for health plans under the 
same regime.
    Mrs. Thurman. Madam Chairman----
    Chairwoman Johnson. Mrs. Thurman.
    Mrs. Thurman. I am going to do something very quickly. I 
would just suggest, because it seems like we tried to put the 
doctors and the lawyers altogether in one, I think it is unfair 
to the public and to this record not to recognize that there 
are hundreds of groups out there that in fact are supporting 
the Patients' Bill of Rights. And it is not just doctors and 
lawyers. It is also people like Families USA, it is League of 
Women Voters, Mental Health. I mean, there are a series of 
groups in this country that are supporting this with the 
liability. Thank you.
    Chairwoman Johnson. There are certainly many groups out 
there supporting it. There are also many groups opposing. And I 
will have to say, I have been meeting with the doctors 
throughout my district in small groups. I have been meeting 
with small businessmen. I have not met a small business group 
that isn't literally panicked at the idea of the liability 
provisions in the Dingell-Norwood bill.
    I have gone through with them the liability provisions in 
the Shadegg bill, which is at least drawn more narrowly. At 
least you have to exhaust the appeals process, so you have the 
virtue of four physician opinions on the record, and you can 
only sue if you have been harmed. They are still panicked.
    The law doesn't have to make them liable. It only has to 
make them think they are liable, and then you will see action.
    Now, I am concerned with what has--the statements of both 
Ms. Arkin and Dr. Corlin that you don't want to see employers 
held liable, not a penny of liability. I have sat for a whole 
year, hours and hours and hours of discussion of the bill that 
passed the House. There is no way you can protect employers 
from liability.
    It is only a question of whether we can sort of contain it, 
so that the insurance the company has to buy for the directly 
responsible party can at least be limited. Because under ERISA, 
I as an employer have a fiduciary responsibility, so that means 
that any plaintiff could argue that the discretionary acts of 
the insurance company or the third-party administrator could be 
imputed to me, the employer, as acts of an agent.
    This contention would have solid common law basis and is 
commonplace in personal injury litigation. What we do here is 
not in isolation. So what I say to my small employers is, it is 
true, I can't totally protect you.
    I have never heard, and I have sat for many hours with 
lawyers on both sides of this issue, not one of them when you 
really get down to it will claim that under the fiduciary rules 
of ERISA, you can totally protect the employer. That is why we 
came up with the designated decisionmaker. Because as I read to 
you, the language in the bills allows even the physicians to be 
an agent.
    The language in the bills allows even just an allegation to 
stop the exhaustion of the appeals process. The physicians will 
not have control of this system, not if a mere allegation turns 
control over to the lawyers.
    So really, folks, if you don't want to hold lawyers liable, 
you have got to be much more serious about the language of this 
bill. And, in fact, if you want to provide physician-control of 
health care, you have to guarantee physician decisions on the 
record.
    Let me just say, 40 cents, remember 40 cents of every 
dollar paid to litigate is paid to victims, 40 cents. The rest 
goes to the costs of the process, the lawyers, the courts, and 
everybody else.
    Second, 80 percent of all medical malpractice suits--and 
remember, we are talking medical malpractice, we are not 
talking exactly the same, but it is very similar and that is 
what employers are afraid of, they will be held accountable for 
medical decisions over which they not only have no control, but 
no knowledge.
    Eighty percent of all medical malpractice claims did not 
involve a negligent adverse event.
    So if we narrow this bill to those patients that are 
harmed, we help--we eliminate all of those suits that are not 
about medical harm. That is a good thing. That will reduce 
costs. That will prevent an explosion of litigation, the costs 
of which we have seen drive up health care premiums through the 
physician sector.
    The average costs to defend a provider--and remember, you 
see, you don't have to be liable under this bill. The suit can 
be brought anyway. The suit can be brought against the 
employer, and then he has to prove that he was not directly 
involved.
    The costs of that kind of suit is roughly $20,000. A suit 
was just heard in Texas on March 1st, and not only did it cost 
$20,000 to defend, but it was so outrageous--I am not a lawyer 
so I have to hustle around here for the wording--it was 
dismissed with prejudice. In other words, it was such an 
outrageous suit, it was so clear that the plan did not provide 
the benefit, that the judge dismissed it without any right to 
ever bring it again in any venue.
    Now, to maintain that there won't be suits under this bill, 
that they won't be frivolous, that they won't be without 
medical harm or without medical costs, is simply to fly in the 
absolute face of experience. Now----
    Ms. Arkin. That is not what I said, Madam Chairman.
    Chairwoman Johnson. Because I believe in this so 
passionately, does that mean that I don't think patients ought 
to have a right to sue? No. I think that patients who are 
harmed by a negligent decision by an insurer that denies them 
medically necessary care ought to be held accountable.
    And under every example you have given in your testimony, 
Ms. Arkin, our 72-hour appeals process would have gotten them 
the care they needed and they would have been whole medically, 
without any one expenditure for a trial lawyer.
    Ms. Arkin. Well, that is not true, Your Honor.
    Chairwoman Johnson. We will talk about that afterward, 
because you must not understand our appeals process, but I am 
shocked at your insensitivity to the breadth of the language in 
these bills. What it will do----
    Ms. Arkin. Ms. Artery had to have transport to a medical 
center within 3 hours or she would have died and did die from 
her heart attack. External review couldn't help her.
    Chairwoman Johnson. No, the emergency room provisions under 
the patients' rights would have.
    Ms. Arkin. No, she was already dead. It wasn't going to 
help her.
    Chairwoman Johnson. The minute she came into the emergency 
room, that would have been taken care of. She would have had to 
have all stabilizing care and so on and so forth. They could 
not have ignored her and they could not have not treated her.
    Ms. Arkin. That is not true, ma'am.
    Mr. McCrery. Will the Chairlady yield?
    Chairwoman Johnson. I would be happy to yield.
    Mr. McCrery. I think both of you are right. I think for the 
few cases in which someone is injured prior to availing 
themselves of the review, we could create a liability for that. 
That is not a problem.
    I think it is a reasonable thing to do. So I think--I don't 
think there is a problem there.
    Mrs. Thurman. Madam Chairman, could I ask a question? In 
the case that you were citing, was it the judge said that the 
benefit was not covered, so it was over a benefit or a 
procedure?
    Chairwoman Johnson. It was so clearly not covered by the 
plan----
    Mrs. Thurman. So it was actually on the benefit part of it, 
not necessarily whether there was any problem with the service 
delivery?
    Chairwoman Johnson. That is right. But you see, under--one 
of the things that is hardest about writing this legislation is 
to prevent suit over----
    Mrs. Thurman. That is if you were harmed. That is if you 
were harmed, not necessarily because of what is in the benefit 
plan.
    Chairwoman Johnson. No. There are two different issues, 
though. One is how do you prevent suit over things that are 
clearly not covered, and that is harder to do in legal language 
than you might think.
    And the second thing is that if it is covered, then you 
still should be able to sue if you suffered medical--you should 
be able to sue if you suffered medical harm.
    Mrs. Thurman. Just to take that, if that could be--Mr. 
Toohey there says his plan had decided, or the company--because 
I understood you to say that Ashland, because I guess they are 
self-insured, actually, made that determination, but if they 
had said no----
    Mr. Toohey. It was already a covered benefit under our 
plan.
    Mrs. Thurman. If it had not been a covered benefit.
    Mr. Toohey. Then our employee review panel could have 
covered it, yeah.
    Mrs. Thurman. Could have covered it?
    Dr. Corlin. Madam Chairman----
    Chairwoman Johnson. I'm sorry, we do have to wind this up. 
We've got a lot of healthy differences of opinion, and those 
are the kinds of things that have to be worked out.
    But I did really want to get on the record that these 
statements that are flying--because this happens in the House, 
too--about protecting employers, and I have many colleagues of 
mine stand up and say, I don't want to have employers sued.
    Let me tell you, there is not a bill that is going to open 
ERISA that will protect all employers, you cannot do it under 
the fiduciary concept. But you can control it. You can--there 
are things you can do to reduce the liability--the 
vulnerability to suit and make it responsible.
    There are broad differences in language between the 
Dingell-Norwood bill or the Dingell-Ganske bill and the Goss-
Shadegg bill on these specific issues about employer liability 
and about who has the right to sue. If we could narrow those 
down, we have some hope of passing the whole bill and some hope 
of controlling costs.
    Health care costs are rising at 8 to 10 percent a year. 
Employers are going to be struggling with those costs. If we 
are not careful about what we do here, we will move our health 
insurance system the same direction we have already moved the 
pension system, from a defined benefit plan to a defined 
contribution plan.
    If you talk to retirees, this is not a happy circumstance. 
If you talk to health people who in the future will have the 
$5,000 to buy a plan, but won't be able to--the employer won't 
provide it, which you would see he has no liability, it is a 
no-brainer. So that is the relevant fear is that we will hurt 
employees who currently have coverage.
    Now, I want to get--to return the system to the control of 
doctors; that is why exhaustion is essential, no matter what 
the circumstances. It doesn't mean that you can't get the care 
earlier, but still you need the panel's decision on the record.
    These are the kinds of things we will have to talk about in 
more detail, and I thank the panel for their tolerance and the 
Members for their interest, it is rare that we have.
    Ms. Lichtman. May I--one point of personal privilege? In my 
answer to Chairman Thomas, I wanted to make clear that indeed 
in a ninth circuit case called Artery versus Aetna, I have been 
advised that indeed Medicare recipients do have a right for a 
judicial remedy. And I didn't want to leave the incorrect 
impression, even though my testimony was not talking about 
that, I didn't want to leave the suggestion that there wasn't.
    Chairwoman Johnson. I appreciate that on the record.
    I thank the panel. The hearing is adjourned.
    [Whereupon, at 4:21 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
            Statement of American Psychological Association
    Madame Chairwoman and members of the subcommittee, the American 
Psychological Association (APA) writes to clarify our understanding of 
the position of the Patient Access Coalition on the subject of legal 
accountability. The APA alone represents within the Coalition more than 
half of the individuals who are non-physician providers, and we have 
served on the Coalition's steering committee for many years. In this 
capacity, we feel it necessary to clarify that the Coalition has never 
taken any position on the issue of legal accountability other than 
neutrality.
    We believe that the Coalition's testimony will be misinterpreted as 
the Coalition is critical of liability and could live without it. This 
is not the position of the Coalition. The position of the Coalition is, 
and has always been, neutral on the subject of legal accountability due 
to the differing opinions of our member organizations and their 
different priorities.
    In fact, many individual members of the Coalition--including the 
APA--do indeed strongly support the inclusion of liability protection 
in the Patients' Bill of Rights. We believe that reform must embody 
both internal and external appeals rights to ensure that patients are 
able to obtain quality and timely health care. The vast majority of 
disputes between managed health plans and patients should be resolved 
without the need for judicial intervention through a strong, 
independent external appeals process.
    Although a strong and independent appeals process is essential, it 
will not always suffice. Even under an expedited appeals process, such 
as a 72-hour deadline, patients can sustain injuries that warrant 
appropriate compensation. Consider the following scenarios where an 
appeals process alone would not prevent the negligent denial or 
delivery of treatment:

          A patient is admitted to a community hospital complaining of 
        paralysis and numbness in his extremities. The hospital 
        concludes that the gravity of the patient's neurological 
        condition is beyond the scope of the hospital's expertise, 
        necessitating his immediate transfer to an academic hospital, 
        which the hospital promptly arranges. The health plan, however, 
        denies authorization for transfer to the selected hospital and 
        instead recommends three others that are part of the health 
        plan's network. By the time one of the health plan's hospitals 
        accepts the patient three hours later, the patient has 
        sustained permanent quadriplegia.
          A patient with major depression is actively threatening 
        suicide. Her treating psychologist recommends immediate 
        hospitalization, which the managed care plan denies and 
        continues to deny after an internal appeal. The psychologist 
        immediately requests expedited external review of the managed 
        care plan's denial. While the review is pending, the patient 
        kills herself, leaving behind a surviving spouse and two 
        children.

    The incidents described above can and do occur in real life. 
Consequently, we believe that reform must include the ability of a 
patient injured as a result of negligence by a health plan to seek 
redress for his or her injuries in a court of law. We also believe that 
the deterrent effect of health plan legal accountability will lead to 
better, more appropriate care up front, thus reducing the possibility 
of lawsuits.

                                


                     National Council on Disability
                                  Washington, DC 20004-1107
                                                     April 25, 2001
The Honorable Nancy L. Johnson
Chairwoman, Subcommittee On Health, House Ways and Means Committee
U.S. House Of Representatives
Washington, DC 20515

    Dear Madam Chairwoman:

    On behalf of the National Council on Disability (NCD), I want to 
thank you for your leadership in issues related to care-giving and 
health care reform and for the April 24, 2001 hearing on these issues. 
Your work to ensure an equitable system of health care in this nation 
is essential for many of our nation's citizens, particularly people 
with disabilities who need either short or long-term care.
    NCD is an independent federal agency mandated to make 
recommendations to the President and Congress on issues affecting 54 
million Americans with disabilities. In keeping with our mission to 
advise the President and Congress on public policy that affects people 
with disabilities, NCD has taken an interest in the ability of 
Americans with disabilities to fully participate in and equally benefit 
from a comprehensive health care bill, including one that address 
patients' rights. I want to inform you of our activities and to offer 
our expertise to you and your staff as you move forward with your work 
on this all-important issue.
    NCD requests that the attached statement be entered into the 
Committee record of testimony. It outlines ten key principles on 
equitable health care and background information from our studies and 
reports over the past eight years, as evidence of consumers' and 
advocates' support for the enactment of comprehensive and enforceable 
legislation that also protects patients' rights. We hope that the 
information will be useful to you and your colleagues on the Health 
Subcommittee. Further, we would offer the expertise of the members of 
NCD and would welcome the opportunity to meet with you and your staff 
at some time in the near future to further explore ways that our 
leadership can be of assistance to you as you move forward with 
legislative inquiry and proposals that impact all Americans, including 
people with disabilities.

            Sincerely,
                                               Marca Bristo
                                                        Chairperson
Enclosure
                      Patients' Rights Principles
    Scope: A patients' bill of rights should cover all 161 million 
Americans with private insurance.
    Access to Specialists: All patients, especially patients with 
disabilities and chronic conditions, should have timely access to 
specialty physicians, providers, and facilities.
    Point-of-Service Option: Health plans that only cover services if 
they are obtained through a closed network of providers should be 
required to offer enrollees a ``point-of-service option'' at the time 
of enrollment which includes reasonable cost sharing.
    Continuity of Care for Patients with Ongoing, Chronic Conditions: 
In order to minimize disruption in service, consumers should have the 
right to an appropriate transitional period (such as 90 days) from the 
date of a provider's termination from a network plan, with limited 
exceptions. This transitional period should be further extended to 
include enrollees with terminal illnesses, pregnancies, or those who 
are receiving institutional or inpatient care at the time of the change 
in providers.
    Timely and Accurate Comparative Information: All patients, 
particularly persons with disabilities, should have access to accurate, 
easily understandable information to assist them in making informed 
decisions about their health plans, professionals, and facilities.
    Right to Participate in Treatment Decisions and to Refuse 
Treatment: Patients should be fully informed about treatment options, 
told about risks and benefits, and participate to the maximum extent 
possible in decisions that impact their mental and physical health 
care. Patients should have the right to refuse treatment.
    Elimination of ``Gag Clauses'': Physicians and other health care 
professionals must not be restricted from advising a patient on his or 
her health care options, regardless of whether the patients' health 
plan covers such treatment or the treatment is expensive. Financial 
incentives designed to limit communication between the patient and 
provider should also be prohibited.
    Access to Clinical Trials: Patients with disabilities and chronic 
illnesses should have access to the full range, and all phases of, 
federally approved clinical trials. Any routine patient costs incurred 
for items and services furnished in connection with participation in a 
clinical trial should be covered by the health plan.
    Strong Grievance Procedures: All consumers, including persons with 
disabilities, should have access to a fair, unbiased, and timely 
internal appeals process as well as an independent external appeals 
mechanism to address health plan grievances and to help govern 
decisions about medically necessary treatments. Health plan liability 
provisions should strike a balance between holding plans accountable 
for the medical decisions they make and not creating significant 
increases in insurance premiums.
    Emergency Room Protections: Patients should have a right to visit 
the closest emergency room in an emergency situation, according to the 
``prudent layperson'' standard, without prior plan authorization.
    Drug Formularies: Health plans should be required to disclose to 
providers and beneficiaries formulary restrictions and provide 
exceptions when a non-formulary drug alternative is medically 
indicated. In addition, plans should include physicians and pharmacists 
in the development of drug formularies.
         Position Paper on Patients' Bill of Rights Legislation
                             March 30, 2001
Introduction
    The National Council on Disability (``NCD'') is an independent 
federal agency that advises the President and Congress on issues 
affecting 54 million Americans with mental and physical disabilities. 
NCD's overall purpose is to promote policies, programs, practices, and 
procedures that guarantee equal opportunity for all individuals with 
disabilities, regardless of the nature or severity of the disability; 
and to empower individuals with disabilities to achieve economic self-
sufficiency, independent living, inclusion, and integration into all 
aspects of society.
    NCD has been engaged in the issue of improving access to and the 
quality of health care for people with disabilities for many years. NCD 
has prepared several reports in the past that address these important 
issues. These reports include:

   Sharing the Risk and Ensuring Independence: A Disability 
        Perspective on Access to Health Insurance and Health-Related 
        Services. March 4, 1993. This report identifies the major 
        issues of access to health insurance and health-related 
        services for people with disabilities.
   Making Health Care Reform Work for Americans with 
        Disabilities. July 26, 1994. This report summarizes the 
        identified health care priorities of over 130 witnesses and 
        hundreds of participants in five ``town meetings'' held by NCD 
        during March and April of 1994.
   Achieving Independence: The Challenge for the 21st Century. 
        July 26, 1996. Achieving Independence is the follow-up report 
        to NCD's 1986 report Toward Independence. It offers an 
        assessment of the nation's progress in achieving equal 
        opportunity and empowerment for people with disabilities in the 
        last decade.
   From Privilege to Rights: People Labeled with Psychiatric 
        Disabilities Speak for Themselves. January 20, 2000. In this 
        report, NCD develops ten core recommendations for improving the 
        care of people with psychiatric disabilities.
   National Disability Policy: A Progress Report. May 15, 2000. 
        This report is a series of public policy recommendations 
        designed to advance the inclusion, empowerment, and 
        independence of people with disabilities.

    As part of its health care agenda, NCD has long supported the 
enactment of a comprehensive and enforceable patients' bill of rights. 
As far back as 1996, NCD argued that ``all managed care plans, 
including those that service only privately insured persons, should be 
required to meet federal standards to ensure access to specialty care, 
adequate grievance and appeals procedures . . . and equitable 
utilization review criteria.'' Achieving Independence (July 1996). 
People with disabilities and chronic illnesses are often high users of 
health care services and devices and, as such, are a litmus test for 
assessing the effectiveness of patient rights legislation. In other 
words, if a patient's bill of rights protects people with disabilities, 
it is bound to adequately protect the rights of all health care 
consumers.
    NCD has identified the aspects of a patients' bill of rights that 
are most important to people with disabilities and chronic illnesses. 
NCD does not endorse any specific legislation. Rather, NCD supports any 
approach that meets the principles that are identified and described in 
this document. It is our hope that members of Congress and their staff, 
other federal and state policymakers, and people with disabilities view 
this position paper as a valuable tool as Congress continues to debate 
this important issue.
NCD Managed Care Reform Principles
Scope of Application of the Law
    People with disabilities and chronic conditions have historically 
faced major hurdles in obtaining and maintaining private health 
insurance. However, NCD's 1993 report Perspectives on Access to Health 
Insurance and Health-Related Services, found that while private health 
insurance is difficult to obtain and keep for many in the disability 
community, particularly in the individual insurance market, it is still 
the major source of coverage for people with disabilities.
    A patients' bill of rights, therefore, should cover all 161 million 
individuals with private health insurance in order to ensure that its 
protections apply to all people with disabilities. Application of the 
patients' bill of rights to all privately insured persons will have the 
added benefit of establishing a uniform set of protections on which all 
privately insured Americans can rely, regardless of their employer or 
the state laws in which they reside. This includes the 48 million 
Americans who receive group health coverage from their employers who 
self-insure as well as the additional 113 million Americans whose group 
or individual health coverage is subject to state law.
Timely Access to Specialty Care
    The health care needs of people with disabilities and chronic 
conditions are best met when the focus is on maintenance of function, 
rather than on acute or post-episodic care. People with disabilities 
often require ongoing access to specialist physicians, specialty 
facilities, and other specialty health care providers to maintain the 
functional ability required to be independent, participating members of 
society. In addition, the debilitating impact of many primary and 
secondary disabilities could be reduced or even avoided if specialty 
services and supports were available to people with disabilities on a 
routine basis.
    NCD recognized in its 1996 report Achieving Independence: The 
Challenge for the 21st Century the importance of federal 
standards to ensure access to specialty care for people with 
disabilities in managed care health plans. In fact, improving access to 
specialty care is the highest priority for the disability community in 
the patients' bill of rights. NCD reiterates its belief that all 
patients, especially individuals with disabilities, should have timely 
access to specialized medical services if they need them. Health plans 
should ensure that the specialist is appropriate to the specific 
condition of the patient. If an appropriate specialist is not available 
within a plan's network of providers, the plan should be required to 
refer the patient to an appropriate specialist outside the provider 
network for no additional cost to the patient.
Point-of-Service Option
    NCD's 1994 report ``Making Health Care Reform Work for Americans 
with Disabilities'' detailed the challenge people with disabilities 
face when seeking appropriate medical care. Many adults with 
disabilities and parents of children with disabilities have testified 
that it takes them years to locate medical professionals who are 
competent in treating a particular disability. Any ``closed panel'' 
managed care plan should be required to offer a ``point-of service 
option'' to all enrollees, thereby permitting a person with a 
disability or chronic condition to access the patient's specialist of 
choice with reasonable cost sharing. The availability of a point-of-
service option is especially important to people with disabilities and 
chronic illnesses, since the specialized medical care they require is 
often not available within the existing network of a plan's providers.
Continuity of Care
    All health plans should be required to ensure the continuity of 
care for patients with ongoing, chronic conditions. This can be 
achieved by permitting an enrollee to continue to visit his or her 
network of providers for a reasonable period of time after a health 
plan discontinues operations in a particular geographic region or 
disrupts its provider network in other ways. In order to minimize the 
impact of these disruptions, consumers should have a right to an 
appropriate transitional period (such as 90 days) from the date of a 
provider's termination from a network plan, except in cases where a 
provider is placing patients in harm's way through poor quality care. 
This transitional period should be further extended for enrollees with 
terminal illnesses, pregnancies, or those who are receiving 
institutional or inpatient care, through death, birth and discharge 
respectively.
Standing Referrals
    Finally, consumers with complex or chronic conditions who require 
frequent specialty care should have the right to ``standing referrals'' 
without having to continually return to their primary care physician to 
secure approval. Standing referrals can be made as part of a treatment 
plan developed by the specialist, primary care provider and patient, 
and approved by the health plan. Timely, and in some cases, direct 
access to specialty care will help foster higher quality, more 
efficient, and cost-effective health care of people with disabilities 
and chronic conditions.
Timely and Accurate Comparative Information
    In a market-based health care system, reliable and useful 
information is critical to effective decision-making. NCD strongly 
believes that all health care consumers, particularly people with 
disabilities, must have access to accurate, easily understood 
information to assist them in making informed decisions about their 
health plans, professionals, and facilities. All consumer-directed 
information should be available in alternative formats that meet the 
accessibility and communication needs of people with disabilities so 
that they are able to fully participate in this decision-making 
process. Health plans and providers should be required to disclose 
whether their facilities and operations are in compliance with the 
Americans with Disabilities Act of 1990.
    Health plans and providers should be required to provide certain 
information upon enrollment and additional information upon request of 
the plan enrollee. Plans should provide information such as covered 
benefits and exclusions, lifetime and annual limitations in benefits 
and cost sharing requirements. Health care providers and facilities 
should provide information including experience rates in treating 
specific illnesses or injuries and accreditation status. Health care 
professionals should provide information including education and board-
certification status. Health plans should also be required to disclose 
to providers and consumers drug formulary restrictions as well as 
exceptions when a non-formulary drug alternative is medically 
indicated. In addition, plans should include physicians and pharmacists 
in the development of drug formularies.
Right to Participate in Treatment Decisions and to Refuse Treatment
    NCD believes that all patients should be respected and afforded the 
opportunity to fully participate in decisions related to their health 
care or the care of a person under their legal guardianship. Patients 
should be provided with easily understood information on all 
appropriate treatment options and should be told about the risks and 
benefits of each treatment, including mental health services. All 
patients should also have the right to refuse treatment. Finally, 
health plans should establish specific policies assisting people with 
sensory, mental and other disabilities in order to maximize the degree 
to which they are active participants in the decisions related to their 
health care, including training health care providers to be aware of 
how to communicate with people with developmental, psychiatric and 
sensory disabilities.
    Elimination of ``Gag Clauses'': NCD believes that health plans 
should be explicitly prohibited from restricting patient-provider 
communications in any manner. Providers should be allowed to inform 
patients of all medical options, not just the least expensive, without 
retribution from the plan. In addition, financial incentives designed 
to restrict patient-provider communications should be prohibited. 
Providers should also be permitted to advocate on behalf of their 
patients, without retribution from the health plan.
Emergency Room Protections
    Like all health care consumers, people with disabilities and 
chronic illnesses are in need of emergency room services on occasion. 
NCD supports a patients' bill of rights that gives patients the right 
to visit the closest emergency room in an emergency situation, 
according to the ``prudent layperson'' standard. In other words, if a 
``prudent layperson'' without medical training believes that he or she 
is experiencing an emergency medical condition and visits an emergency 
room, the health plan should be required to pay for this care. Prior 
authorization for emergency room care under the prudent layperson 
standard should be prohibited and the patient should pay no more for an 
out-of-network emergency room visit than if the emergency provider were 
in the plan's network. Emergency room patient protections should extend 
to crisis intervention and emergency mental health services provided to 
people with acute mental illness.
Access to Clinical Trials
    The Medicare program recently announced that it would pay for the 
routine costs associated with a beneficiary's participation in a 
clinical trial. ``Routine'' costs include items and services that 
Medicare would normally pay for, such as room and board during a 
hospital stay and health care services to treat the side effects and 
complications of the clinical trial regimen.
    NCD believes that this benefit should be extended to all patients 
who are covered by private insurance. Patients with chronic illnesses 
must have access to the full range, and all phases of, federally 
approved clinical trials. Therefore, individuals with life-threatening 
or serious illnesses for which no standard treatment is available 
should be allowed to participate in clinical trials. Any routine 
patient care costs incurred in connection with participation in the 
clinical trial should be covered by the health plan.
Strong Grievance Procedures
    All patients, including people with disabilities, should have 
access to a fair and timely internal appeals process as well as an 
independent, unbiased external appeals mechanism to address health plan 
grievances and to help govern decisions about medically necessary 
treatments. Health plans should be held responsible for providing 
patients with timely, understandable notice of decisions to deny, 
reduce, or terminate treatment and the reasons for these decisions. All 
information about the grievance process should also be made available 
in alternative formats so that effective communication with enrollees 
with disabilities is ensured. NCD also believes that patients should 
have access to a binding independent external review process after they 
have exhausted the plan's internal appeals processes, except in cases 
of urgently needed care.
Health Plan Liability
    NCD is aware that the health plan liability issue has confounded 
Congress for several years and has led to an unacceptable delay in 
enacting a comprehensive and enforceable patients' bill of rights. On 
the other hand, as stated in its recent Progress Reports, NCD believes 
that without adequate remedies, there will be no meaningful patient 
rights. Health plans should be held accountable for the medical 
decisions they make, especially when those decisions harm patients or 
lead to the patient's death. However, the remedies within the patients' 
bill of rights should instill accountability in the system without 
leading to sharp spikes in the cost of health insurance, thereby 
increasing the number of uninsured Americans. Therefore, NCD will 
support any thoughtful, balanced approach to health plan liability that 
holds plans accountable for medical decisions without excessively 
driving up plan costs.
Patient Rights that Require Additional Attention
    There are a number of issues that impact the disability community 
significantly but have not been included in the patient rights debate 
to date for a variety of reasons. While NCD is very interested in 
seeing a patients' bill of rights signed into law at the earliest 
possible opportunity, the following issues are of such great importance 
to the disability community that NCD will continue to work for their 
inclusion in the short and long term:
Benefits/Medical Necessity Definition
    One of the greatest threats to the quality of health care of people 
with disabilities is the restrictive trend in the breadth of most 
health plans' benefit packages. This trend can be seen in two primary 
ways: The imposition of limitations and exclusions in benefits and the 
way in which the term ``medical necessity'' is defined by the health 
plan. All of the major patients' rights bills completely omit this 
important issue. NCD believes that any definition of ``medical 
necessity'' should include the concept of not only improving, but 
maintaining the functional capacity of the patient, taking into account 
consumer choice, consumer lifestyle, and the long-term effectiveness of 
the intervention, service, or device under consideration.
    In addition, Medicare and Medicaid provide for in-home services 
critical for people with disabilities, such as physical, occupational, 
and speech/language therapy, as well as home health aides. Such 
coverage is often absent or inadequate in private health insurance. 
Also, most private health plans do not provide coverage for assistive 
technologies, which are crucial in helping people with disabilities 
return to work, improve their functional abilities, and live more 
active and independent lives. Finally, private health plans should be 
no more restrictive of mental health benefits than they are for 
physical health benefits. Private health plans should include these 
kinds of benefits for them to be truly responsive to the needs of all 
people with disabilities.
Privacy and Confidentiality of Medical Records
    NCD believes that patients should be able to communicate with their 
health care providers in confidence and should have the confidentiality 
of their individually identifiable health care information protected. 
Patients should have unfettered access to their own medical records and 
be able to request amendments to their records to correct mistakes.
ADA Application to Health Plans
    NCD believes that health plans and providers with rare exception 
are subject to Title III of the Americans with Disabilities Act 
(``ADA''), including the requirement to provide reasonable 
modifications to their policies, practices, and procedures under Title 
III of the ADA. In addition, private health plans and providers that 
receive Medicare and Medicaid funds for the treatment of these 
beneficiaries are required to meet the nondiscrimination provisions of 
the Rehabilitation Act of 1973, which apply to federal contractors and 
recipients of federal funds. Full implementation of these laws by 
health plans and providers could significantly improve access to and 
quality of health care for people with disabilities and chronic 
illnesses.

                                


Statement of Thomas W. Self, San Diego, California; Linda P. Self, San 
        Diego, California; Miles J. Zaremski, Chicago, Illinois
    Dear Members of the Subcommittee on Health of the Committee on Ways 
and Means:
    We hope that our remarks will be able to be part of your record of 
the hearing that will occur on patient protections in managed care, 
scheduled for April 24, 2001. While we have endeavored to communicate 
with several of you, either by letter, phone or by in person 
conferences with you or your staff over the last several months, we 
feel our individual, yet collective, wisdom on the underpinnings of 
this area before you is critical and important. Two of us have a unique 
experience not shared by other health care providers in our country. 
The other has considerable expertise based on experience and writings 
on managed care liability, what our courts have done with ERISA 
preemption, and what is likely to be done in the future by our judicial 
system. [One final introductory remark: while this letter comes from 
the three of us, we refer to each of us in the third person.]
    Our plea is not as Democrats, Republicans or members of other 
political parties. Our plea comes to you as a physician, a nurse and a 
lawyer. Our plea comes to you as people who are deeply and passionately 
concerned about the quality and delivery of health care for our 
patients, all patients, and the legal and legislative efforts to do the 
right thing--insure fairness and accountability for patients by those 
delivering health care.
    To quote a famous line from a motion picture of some years back, 
the battle cry of patients is, ``We are mad as hell and we are not 
going to take it anymore!'' Patients and providers alike should not be 
subject to the grave inequities foisted upon them by what managed care 
has done to the delivery of health care. Linda and Tom Self are 
fitting, and perhaps, unfortunately, unique examples of what has to 
occur before managed care moguls will listen.
    As a doctor who ran afoul of managed care and was actually fired 
for spending ``too much time'' with his patients, Dr. Self is unique in 
that he fought back against the medical group that fired him and won a 
three month court battle. This jury victory is the first of its kind in 
the nation, and was profiled by ABC's ``20/20'' on August 6, 1999.
    Dr. Self's experience, where managed care profit motives 
infiltrated and contaminated the professional ethics of his medical 
group, shows clearly the murky and often brutal influences wielded by 
HMOs which have only profit, not quality of care, as their goal. In 
this scenario, patients become ``cost units'' and doctor is pitted 
against doctor, undermining the very foundation of medicine and 
throwing to the winds the Hippocratic axiom, ``first of all do no 
harm.''
    With the art and science of medicine controlled by managed care 
forces, it is not surprising that the number of patient casualties 
continues to soar. The ability of a clerk with no medical training, in 
the employ of a payor thousands of miles away, to overrule the medical 
decisions of a trained physician is allowed in no other profession, but 
is the standard of practice under managed care! Futhermore, this type 
of employee and also the managed care entity which acts as the 
puppeteer behind the clerk are completely immune from any 
accountability when their faulty medical decisions cause patient harm. 
Amazingly, that this situation is allowed to continue is also unique to 
the medical profession. This is unfair and inequitable!
    As an experienced diagnostician with a reputation of being thorough 
and careful, Dr. Self was criticized and ultimately fired under managed 
care as a physician who ordered ``too many costly tests'' and as a 
``provider'' who ``does not understand how managed care works.'' Sadly, 
this situation continues nationwide as more and more experienced 
doctors are unjustly censored, dropped from managed care plans or fired 
from medical groups anxious to conform to managed care dictates, 
leaving their needy patients feeling confused, frightened and 
abandoned.
    This pillage and waste of medical resources (under the yoke of 
managed care which destroys the very quality and continuity so 
necessary for a positive outcome from medical treatment) is running 
rampant in America. Dr. Self and his wife have put their lives and 
their careers on the line to combat the wrongs caused by the health 
care delivery system called managed care. Now, representing, in 
microcosm, all health care providers, they turn to you as lawmakers, 
representing all past, present and future patients, to stop the horror 
and carnage by the HMOs by voting for S. 283 (McCain-Kennedy Bill) and 
restoring quality, decency and humanity to health care for the American 
people.
    Linda Self, a registered nurse, is, like her husband, a healer. 
Always active in charitable activities, Linda returned to nursing full 
time 4 years ago to work with her husband when he was fired. After 
being away from nursing for many years, she realized that her 
compassion and love for the art of healing was now even stronger, 
especially after raising two children, one of whom had a serious 
illness. Devoted to caring for children with chronic diseases and 
giving support to their families, she was shocked and unprepared for 
the massive de-emphasis on patient care that had been fostered by the 
health plans. Linda realized that her commitment to people had not 
changed nor had the needs of sick children--what had changed, and 
changed for the worse, was the indifference to patient suffering held 
by the managed care system. Linda realized that in order to care for 
sick patients and their families in the 90's, there is, and was going 
to be, a constant battle with the managed care bureaucracy involving 
patient referrals, treatment authorizations and, above all, the daily 
need to appeal treatment plans denied patients by their health plans.
    As if in microcosm to what other private medical practitioners 
face, this office ``busy work,'' in addition to the requirements of 
providing necessary medical support to sick patients, has created 
enormous frustrations among health care providers as well as increasing 
the costs of running a practice. Conversely, the reimbursements from 
the health plans have steadily diminished, regardless of the severity 
of the patient's illness or the increased amount of physician and 
nursing time expended.
    Also, in her dual role as nurse and office administrator, Linda 
works daily to insure that patients receive the appropriate medical 
care they need and deserve without suffering the indignity and 
humiliation of having their health plans ignore, delay, or deny health 
care that is not only medically necessary, but for which the patient 
has already paid insurance premiums. This endless paper shuffle 
mandated by managed care with its cost cutting mentality further 
decreases the amount of time that a nurse can devote to patient care. 
This dilemma has driven competent and caring paraprofessionals from the 
medical field in droves, thereby further weakening the overall quality 
of medical care needed by patients nationwide. The resulting upswing in 
poorly trained, undedicated office personnel hired to replace the 
nursing flight has created a hemorrhage in medical care delivery which, 
if not stopped, will hasten the demise of American medicine as far as 
any vestige of quality of care which still remains.
    Meanwhile, Linda has continued to fight side by side with her 
husband, not only during their lengthy legal battle and during a three 
month trial, but to preserve the quality of their practice against the 
current tide of managed care. Her recent experiences with managed care 
atrocities have been etched in her memory and will be forever carried 
as emotional scars. Linda fervently believes that no physician or nurse 
should ever be faced with the ordeal that she and her husband have had 
to endure to insure quality of care for patients.
    Patients must not be considered as commodities to be bartered by 
HMOs; payors must be held fully and judicially accountable wherever 
their pressures on physicians to curtail tests, delay or deny treatment 
plans, or by clogging the wheels of medicine with mountains of 
paperwork cause patient harm. Therefore, Linda Self, speaking as a 
mother, a patient, and a nurse brings her experiences to your 
Subcommittee (through this Statement) and adds her plea to those of Dr. 
Self and Mr. Zaremski to bring dignity and salvation to the practice of 
medicine. Those in your Subcommittee, listen, as we have done for 
years, to the voices of the grass roots populace when they cry out for 
help and relief from a medical system that harms, not heals.
    Additionally, the three of us have seen and heard the disingenuous 
of opponents of what patients really need and which is embodied in the 
McCain-Kennedy bill as introduced earlier this year. We have heard that 
lifting the ERISA preemption will cause employers to terminate health 
plans for their employees, that lifting this so-called shield will 
cause premiums to increase and that trial lawyer will gain an avenue to 
sue. To all of this, and with all the passion we can muster, we bellow, 
``absolutely not!''
    First, the ERISA law that was enacted in 1974 had nothing to do 
with shielding managed care plans from accountability for their medical 
decision-making process. There has never been anything in the 
legislative history on ERISA having to do with this subject. Further, 
the ERISA preemption was court created, and those same courts are 
peeling away at an ever rapidly pace, on a case-by-case basis, what was 
never intended in the first place by the ERISA law.
    Next, allowing for accountability by health plans to patients, as 
contained in S. 283, provides for real equity in distributing 
responsibility to all those persons and entities involved in the 
medical decision-making process.
    As for increased litigation, the status quo of what plans know 
their exposure to be now will not change in any significant way. Please 
know that our courts are continually eroding the ability of health 
plans to escape exposure by finding valid legal theories known as 
ageny, breach of fiduciary duties, even using the Americans With 
Disability Act.
    Also, realize that S. 283 provides for accountability and 
responsibility of health plans in state court according to state laws. 
This jurisdiction is where this area of responsibility and 
accountability for health plans should reside. For example, if your 
state has caps on the amount of money that an injured person could 
receive, such as in California, then those caps would equally apply to 
exposures faced by health plans.
    And if the Texas state statute on holding HMOs responsible is any 
example, fears of increased litigation are totally without any basis in 
fact. In three plus years, there have been a handful of cases filed 
against health plans in that state. Also, nine states have now passed 
legislation recently, providing that HMOs can be held accountable for 
their medical decision-making. Moreover, the U.S. Supreme Court, with 
its Travelers Insurance Company and Herdrich cases, opines the 
proposition that medical professional liability cases, like ones plans 
are involved in, belong in state court.
    In conclusion, we implore each and every one of you to do the right 
thing. Consider your conscience and critically think about each and 
every American who has been, or will be, a patient in our health care 
delivery system. Remember that a person's health is unlike anything 
that can be bought, traded, negotiated or sold. Don't hold hostage 
human sickness and injury to a ``bottom line'' mentality. Or, as a 
colleague in medicine wrote Dr. Self after his jury verdict, ``The 
rewards of being a doctor are largely measured in identifying what is 
best for the patient and then having to do what one believes is correct 
and best for the patient.'' Finally, recall a quotation by Margaret 
Mead; ``Never doubt that a small group of dedicated people can change 
the world. Indeed, it is the only thing that ever has.'' In supporting 
a bill like S. 283, each one of you will heed this message, and, 
conversely, insure that the tendrils of greed in managed care will not 
be able to find fertile soil in which to take root and grow.
    Thank you for allowing this statement to be presented to your 
Subcommittee.

                                


                              Highland Park, Illinois 60035
                                                     April 23, 2001
The Honorable Nancy L. Johnson (R-Ct.)
Chairwoman, Subcommittee on Health
Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Attn.: Allison Giles

Re: April 24, 2001 hearing on Patient Protections in Managed Care

    Dear Chairwoman Johnson:

    Please take that which follows as a written statement I would like 
to be included for the printed record of the hearing. Thank you.
    On your website's ADVISORY page, Chairwoman Johnson is quoted as 
being encouraged by the principles President Bush put forth to guide 
legislators in order to enact a real patients bill of rights. One of 
the those principles was to have patients go to federal court after an 
independent medical review, and should include appropriate employer 
protection with caps on damages.
    While not an attorney who represents injured patients, I am someone 
who has tolled for 28 years in the health care law field. I also am an 
author, lecturer, law school teacher, and leader/participant within 
medicolegal organizations. I have also studied and researched issues 
within patient rights legislation for a couple of years now, 
particularly the liability features; consequently, I believe I come to 
you with sufficient credentials to say what I am about to state.
    With all due respect to our President, his ``principle'' of having 
disputes involving health plans resolved in a federal forum is fanciful 
thinking, a waste of millions of taxpayer dollars, and not in touch 
with judicial reality at all. Let me articulate.
    Cases in which health plans would be involved are of one of three 
types: those strictly involving a plan benefit, i.e. whether the 
contract that an enrollee has covers a procedure or treatment or not; 
(2) whether the issue is ``mixed,'' that is, whether there are 
questions of eligibility and medical treatment decisions; and (3) 
whether the issue involves solely medical decision making in which the 
plan participated. The first of these three options is easy to resolve: 
its adjudication remains in federal court, as it has since the ERISA 
law was enacted back in 1974. The other two types of accountability 
belong in state court according to state law. Why? Because the United 
States Supreme Court has provided nearly explicit statements to this 
effect. In both the Travelers Insurance Co. and Herdrich decisions, the 
high court has stated, respectively, that ERISA does not preempt state 
law that regulates the provision of adequate medical treatment, and 
that an HMO's mixed eligibility and treatment decision implicates a 
state law for medical malpractice, not an ERISA cause of action for 
fiduciary breach.
    And, on April 2, 2001, the Pennsylvania Supreme Court came down 
with its decision in Pappas v. Asbel, 2001 Pa. Lexis 687. This is the 
first state supreme court that has decided health plan liability in 
light of the Herdrich and Travelers decisions. The Pennsylvania court 
held that a ``mixed'' case as presented by the facts there was not 
preempted by ERISA.
    Next, how could any person in Congress condone litigating a 
noncoverage matter against a health plan in federal court, knowing that 
such cases belong in state court (per what the Supreme Court has 
already stated), but also realizing that everyone else involved in the 
very same medical decision-making process as the plan, like the 
hospital, doctor and nurse, for example, remains culpable in state 
court according to state law. Do you really want to ``tie up'' precious 
federal judicial resources when state courts have been adjudicating 
these type matters for at least a couple of centuries and when state 
courts will still be needed to adjudicate claims against the doctors, 
hospitals, nurses, and so forth. The ``principle'' that President Bush 
has announced about a federal forum would also mean that for every 
occurrence involving a health plan and medical decision-making, there 
would have to be two suits, not just one!
    Finally, from what I have read in the press about employer 
liability, the thought of the ``boy crying wolf'' comes to mind. If 
anyone reads the language in the pending bill in the Senate, the 
employer group is cloaked with almost absolute immunity--the only 
exception is when that employer makes medical decisions just like a 
plan would . . . or even a physician. Moreover, from my review of the 
legal literature/cases, there is not one reported legal case in which 
an employer has been held liable for medical malpractice.
    Thank you for listening. I trust the Subcommittee will find that 
which is contained herein informative and useful to what it ultimately 
decides to do.

            Sincerely,
                                          Miles J. Zaremski

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