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FACTSHEET

Texas Liability Model Shows Success

Texas Senate Bill 386 became law on September 1, 1997 to provide patient protection by assuring that managed care companies are responsible for their health care treatment decisions.

The landmark legislation holds HMOs and insurers accountable when they delay and deny medically necessary treatment.
  • The language in SB386 allows all patients to recover damages against HMOs that "exercised influence or control which result in the failure to exercise ordinary care."
  • The remedies available under SB386 skirt ERISA's preemption by providing damages for quality of care violations- which Courts have upheld as within the states province- instead of damages for bad faith and other coverage disputes which are clearly preempted by ERISA. This provides patients with a direct cause of action against an injurious HMO.
The Texas liability law has not resulted in substantial cost increases. When Texas passed HMO liability legislation, the managed care industry claimed the new law would cost over a billion dollars. The industry claimed that giving patients the right to sue their HMO would cause premiums to skyrocket and employers to drop coverage. Real life experience has proven otherwise.
  • The Texas Department of Insurance reported that between September 1997 and March 1998 the increase in total spending per member per month of full service HMOs was only 0.1%.1
  • SB386 author, Texas State Senator David Sibley, a doctor and Republican, recounts the effects of the liability law in a June 1998 letter to California legislators, "An actuarial analysis by Milliman and Robertson for a Texas HMO was performed on the impact of the bill
    after it became law, the cost was estimated to be a mere 34 cents per member per month (about 0.3 percent)."2
The Texas liability law has not resulted in increased litigation. The insurance industry also threatened rampant litigation upon passage of the Texas liability law.
  • In his June 1998 letter, Senator Sibley continues, "The law became effective on September 1, 1997 and since then not a single case has been filed."3
  • Carol Cropper writes in The New York Times, "What lessons does Texas offer? The short answer is that the spotty early evidence does not support a lot of the dire warnings on Capitol Hill about a landslide of litigation. In fact, lawyers in Texas say that not one suit has been filed so far, and there have been fewer appeals of insurance rulings than expected. Still, decisions in fully half of those appeals have gone against the insurers."4
The Texas experience shows that deterrence, not litigation, is the product of holding HMOs to state-based liability standards.
  • Senator Sibley writes, "When asked about the impact, Texas physicians say they have not heard of any litigation but believe they are now receiving more attention from managed care reviewers when requesting necessary medical care for patients."5
  • The Texas Department of Insurance "forecast as many as 4,400 appeals the first year [after the law was passed]. But by Sept. 4, just more than a year after the law took effect, there had been only 218."6
  • Dr. Phil Berry, a Dallas orthopedic surgeon, claimed insurers are now more responsive and give swifter approvals. "We have seen a much better attitude on the part of H.M.O.'s now as to recommendations we make for patients," he said. "They seem to be more willing to pay for what we ask for."7
The Texas liability law is upheld in Court. On September 18, 1998, U.S. District Court Judge Vanessa D. Gilmore upheld the law after Aetna had challenged that it was preempted by ERISA.
  • The Court ruled that HMOs, like doctors, can be sued in state court for quality of care violations, which, unlike coverage disputes, are not preempted by ERISA. The Court wrote, "In this case, the Act addresses the quality of benefits actually provided. ERISA 'simply says nothing about the quality of benefits received.' Dukes, 57F.3d at 3576...the Court concludes that the Act does not constitute an improper imposition of state law liability on the enumerated entities."8
  • By contrast, the Court struck down the independent review process as preempted by ERISA - because it deals with determinations of coverage disputes. The review process is the HMO industry's alternative to liability.



1 "In Texas, a Laboratory Test on the Effects of Suing H.M.O.'s", New York Times, Carol Marie Cropper, September 13, 1998, Section 3, pg.1.
2 Texas State Senator David Sibley letter to California legislators in support of AB2436 HMO liability bill, June 24, 1998, pg.1.
3 Sibley letter, pg.1.
4 "In Texas, a Laboratory Test on the Effects of Suing H.M.O.'s", New York Times, Carol Marie Cropper, September 13, 1998, Section 3, pg.1.
5 Texas State Senator David Sibley letter to California legislators in support of AB2436 HMO liability bill, June 24, 1998, pg.1.
6 Carol Marie Cropper, Section 3, pg.1.
7 Carol Marie Cropper, Section 3, pg.1.
8 Corporate Health Insurance Inc, et al. v. The Texas Department of Insurance, et al., US Dist. H-97-2072, September 18, 1998.




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