Lawsuit Fever Killing HMOsCommentary by Pete du Pont
April 10, 2001
In 1992, presidential candidate Bill Clinton promised to reform our health care system. Managed care, primarily Health Maintenance Organizations (HMOs), would hold down costs. Competition among HMOs would hold up quality.
The plan, ultimately designed by now-Senator Hillary Clinton, was rejected - first by Congress, then by the voters. But the goals were largely achieved anyway. Today 82 percent of employees who get health insurance from an employer, are in some form of managed care. Yet polls show people are not particularly happy with the results.
Following the winds of public opinion, health reformers in Washington have begun to condemn the abuses of managed care as vigorously as they once promoted its promises. This has led to a shift in focus from attempting to provide insurance for those who lack it, to reforming the insurance that people already have.
This push comes in the form of the so-called Patients' Bill of Rights. The goal of the legislation is to allow patients to sue their HMO if they are denied a desired treatment, not only for the denied benefit, but for the economic losses and non-economic damages as well, including making HMOs subject to punitive damages. In effect, the legislation would turn what are essentially contract issues, into tort cases. Also at stake is whether employers, who currently enjoy the protection of the Employee Retirement Income Security Act (ERISA) to be subject to tort liability.
Opponents of the lawsuit as a first resort provision assert that such action would drive up insurance costs, adding fuel to an already blazing fire of uninsured - now at over 43 million. In fact, this is already happening. Late in 1999, some of the nation's most prominent personal injury lawyers began to group millions of Americans into representative classes and used them as a vehicle for filing massive lawsuits. To date, approximately 33 class actions against HMOs have been filed, most in federal court.
In addition to alleged violations of ERISA, the HMOs are being charged with violations of the Racketeering Influenced and Corrupt Organizations Act (RICO), which was originally created to fight the mob.
Why sue them under RICO? Under RICO, defendants are forced to pay treble damages, which are similar to punitive damages - whatever the jury decides gets tripled. So to the trial lawyers, it's a quick way to win a fortune - or to force a large quick settlement. The RICO complaints allege the HMOs have organized a conspiracy to misrepresent their policies.
As for the complaint under ERISA, which governs the relationship between HMOs and workers who obtain health coverage from their employer, the argument is that any effort to cut costs is directly contrary to an HMO's responsibility to act in the best interests of its customers - this despite the fact that HMOs were created precisely for the purpose of controlling costs. If successful, The Wall Street Journal estimates that up to 88 percent of people who receive employer-provided insurance stand to lose it.
It's clear that these suits are part of a pattern on the part of our nation's trial lawyers for targeting, attacking, and wearing down an industry - a pattern that began with big tobacco and the firearm industry, and is now squarely focused on the HMOs. It will only get worse if the Patients' Bill of Rights ever becomes law. But unlike cigarettes or guns, these suits stand to make health insurance - which even proponents of the suits claim to be a desired commodity - more costly.
Companies targeted by these suits must invest time, money and other resources in fighting them, costs that will simply be passed on to consumers. A 1998 Barents Group analysis estimated that the liability provision alone would increase health insurance costs by between 2.7 and 8.6 percent. This is important because according to a study in the Journal of Health Economics, every ten percent increase in the cost of insurance creates a three to four percent decrease in the number of people who choose to purchase it.
Further, according to a 1999 survey of 600 large U.S. employers, many employers say that they'd have to cut health benefits for fear they could be named as defendants in lawsuits against the HMOs.
Put simply these class action suits, plus the Patients' Bill of Rights, equals more people without coverage. Rather than protecting patients from HMOs, we need to protect them from trial lawyers and their allies in Congress.