Legislative Victories

THE PATIENT PROTECTION ACT OF 1999
By Faith M. Williams

On July 13, 1999, Governor Bob Taft signed into law House Bill 4, "The Patient Protection Act of 1999." The bill establishes new requirements for health insurers and managed care plans operating in Ohio.

The central feature of HB 4 is a requirement that certain claims disputes be sent to "external review" by independent medical experts. And, the law requires that women enrolled in HMOs have "direct access" to participating obstetrician/gynecologists without a referral; extends to traditional health insurers a requirement that they pay claims for emergency medical services based on a "prudent layperson" standard (the same standard that currently must be used by HMOs); and creates new state income tax deductions for certain medical expenses and long-term care insurance premiums.

No Liability Provision
The most widely discussed issue related to HB 4 was whether the bill would impose direct liability on health plans. As originally introduced, HB 4 included a liability provision, creating a statutory cause of action against health plans. The effect of this provision would have been to subject health plans to liability similar to the way that doctors are liable for malpractice. If the plan made a coverage decision that a person claimed adversely affected his health, the plan and, arguably, plan sponsors, could have been sued not only to pay for the medical service, but for damages.

Opponents of a liability provision successfully argued that a medical standard should not be applied to decisions by health plans as to whether to pay for coverage, pursuant to a contract between the insurer and the employer. And, they argued, enactment of a statutory liability provision would result in increased litigation and increased cost for health benefit coverage.

In addition to deleting the liability provision that was included in the original version of the bill, the new law specifically states that nothing in the bill creates a cause of action against an employer that provides health benefits through an HMO or health insurer. Of course, Ohio common law already allows a health insurer to be sued for certain misdeeds and, under ERISA, plan enrollees can sue to force a plan to pay benefits promised by contract.

Who does the bill affect?
Before discussing what Ohio's new law requires, it is important to understand which types of health benefits plans are affected by the law. Of course, all individual health insurance policies, and other plans not subject to ERISA must comply with Ohio's insurance laws. As for ERISA plans, if challenged, most provisions of HB 4 probably would be preempted by ERISA, But, for two reasons, it is likely that the requirements of the new law will be applied to virtually all health insurance and HMO contracts in Ohio.

First, although ERISA generally preempts state laws that try to regulate the administration of a health benefit plan, a court only reaches this conclusion if someone challenges a state law. It seems fairly unlikely that an employer or insurer will challenge HB 4, to prevent application of the law to ERISA plans. The major component of HB 4 -- the external review mechanism -- is designed to help everyone involved in the plan have greater confidence that coverage decisions are based on sound medical knowledge and practices. We think that employers have a strong interest in making sure that their employees get coverage for the services that will best address their medical problems. The external review system is designed to achieve that goal. (Several other states have external review laws, and none has been directly challenged. The Texas law was found to be preempted, but the suit was brought not to challenge external review, but to try to have the liability provisions that were included in the same bill, preempted. Ironically, the court found that the external review provisions were preempted by ERISA, but the liability provision was not! Even after the court ruling, all major health insurers in Texas are voluntarily complying with the external review requirements.)

The second reason we think that HB 4 will be applied to all health benefit plans in Ohio -- including ERISA plans -- is that insurance companies and HMOs will want to apply these new rules to all of the plans that they offer. For an insurer or HMO to maintain and administer two sets of rules -- one for ERISA plans and another for non-ERISA plans -- would be very expensive for both health plans and those that purchase coverage.

Claims Disputes and External Review
When an enrollee has a dispute with an insurer or HMO regarding coverage, the enrollee should appeal that claim through the plan's internal appeals process. HB 4 requires that an HMO must make a decision through its internal appeals process within 60 days. If there is still a dispute, HB 4 sets up a two-part mechanism to resolve the dispute.

If the dispute relates to an exclusion or other provision in the contract, and does not involve a medical issue, the enrollee should appeal to the Ohio Department of Insurance. But beginning on April 1, 2000, most of these claims disputes that involve a medical issue will be subject to the new external review process. External reviews will be conducted by Independent Review Organizations ("IROs") accredited by the Ohio Department of Insurance. To be accredited, the IRO must have the appropriate professional staff to perform the review, and can have no organizational or financial connection with the health plan or the enrollee's physician.

To be eligible for external review, the claim must meet all of the following criteria:

• coverage was denied, reduced, or terminated because the health plan determined that the proposed service is not "medically necessary";
• the proposed service, plus ancillary services and follow-up care, will cost the enrollee more than $500 ;
• the employee has exhausted the health plan's internal appeals process; and
• the request is made within 60 days of the health plan's coverage denial.

The criteria are intended to control the number of claims that will be sent to external review, thereby controlling the cost of the new process. Although no one knows for sure, estimates are that each external review will cost from $500 to $750 -- to be paid by the health plan.

A second key issue in the design of the external review process was the "standard of review" to be used by the Independent Review Organization ("IRO") in reaching its decision. Under HB 4, the IRO must take into account the employee's medical records and other information; scientifically valid medical information, including studies and research performed by agencies of the federal government, and peer-reviewed medical or scientific literature, and national clinical guidelines; and, the IRO must base its decision on the information submitted to it, and must consider safety, efficacy, appropriateness, and cost effectiveness. Because the external review process will consider cost effectiveness, in a situation in which a doctor and the health plan are recommending different treatment for an employee, if the IRO determines that both treatments would have equally beneficial medical results for the employee, the plan is only required to cover the less costly treatment.

Finally, the bill's external review process cannot require a health plan to pay for benefits not covered under the contract between the employer and the health plan. In other words, the external review can't force a plan to cover services that are specifically excluded by the contract. And, even when a benefit is determined to be medically necessary by the IRO, utilization review and other cost-management procedures in the contract will be applied. So, for example, while the IRO may require a plan to cover an operation, the plan's normal copayments, including any differential for using a non-network doctor or hospital, can be charged.

Other Requirements of HB 4
HB 4 requires HMOs to allow female enrollees to obtain health care services from a participating obstetrician or gynecologist without a referral. Traditional health insurance plans already permit this type of "direct access."

HMOs also must have a 24-hour-a-day, toll-free telephone number for information regarding how health care services may be obtained, and a toll free number that, during normal business hours, provides access to information on the coverage available under the enrollee's plan and information on the plan's internal and external review processes.

HB 4 requires health insurers to cover all emergency services obtained by person, if a "prudent layperson" in the same situation would have thought that emergency treatment was required. This standard already applies to HMOs.

The new law also requires health insurers to comply with the external review procedure for experimental treatments for people in life-threatening situations. This external review process has applied to HMOs since October 1998.

Data Reporting by IROs
The new law requires IROs to report a substantial amount of information on an annual basis to the Superintendent of Insurance. Among the information to be reported by the IROs is the number and results of external reviews conducted; the costs associated with external reviews; the average time required to conduct a review; and a summary of the diagnoses, drugs, services, and procedures that were reviewed. This information will be compiled and published annually, and reported to the Governor and leaders of the General Assembly.

State Tax Incentives
The bill makes three changes to Ohio's tax laws regarding health and long-term care insurance. These changes take effect for the 1999 tax year.

• Any individual may deduct from adjusted gross income amounts spent for federally qualified long-term care insurance premiums, to the extent that those amounts are not otherwise deducted in computing federal adjusted gross income, or as a medical expense.
• An individual who is not covered under an employer-sponsored health plan may deduct the amount spent on health insurance premiums. (Current law permits only self-employed persons to take this deduction.)
• An individual may deduct unreimbursed amounts spent for medical care, to the extent that those amounts exceed 7.5 percent of annual adjusted gross income.

One final note: The U.S. Congress continues to consider federal legislation to regulate health insurance and managed care, including requiring external review of claims disputes. At this writing, it is unclear whether any bill will be enacted. If such a law is passed, it is also unclear what effect, if any, it will have on state laws such as Ohio's HB 4.

Faith M. Williams, an attorney with Bricker & Eckler LLP, practices in the firm's Insurance Law and Government Relations Departments. Ms. Williams may be contacted at fwill@be.bricker.com.

*The $500 threshold does not apply to a disputed claim that relates to a life-threatening or other very serious medical condition.