KMS C.S.S.B. 386 75(R) BILL ANALYSIS INSURANCE C.S.S.B. 386 By: Sibley (Smithee) 4-9-97 Committee Report (Substituted) BACKGROUND Currently, Texas law prohibits the corporate practice of medicine. This prevents managed care organizations from being held legally accountable when making health care treatment decisions which affect the quality of the diagnosis, care and treatment of an enrollee of a health care plan. This bill will require health benefit plans and managed care entities to exercise ordinary care when making health care treatment decisions and will hold those entities liable for damages for harm to an insured or enrollee proximately caused by the health care entity's failure to exercise ordinary care. PURPOSE As substituted, C.S.S.B. 386 requires health benefit plans and managed care entities to exercise ordinary care when making health care treatment decisions and holds those entities liable for damages for harm to an insured or enrollee proximately caused by the health care entity's failure to exercise ordinary care. RULEMAKING AUTHORITY This bill does grant additional rulemaking authority to the Insurance Commissioner under SECTION 8 of the bill (Subchapter E, Chapter 21, Article 21.58C). This authority is referenced in SECTION 4 of the bill (Article 21.58A Section 8 of Insurance Code). SECTION BY SECTION ANALYSIS SECTION 1. Amends Title 4, Civil Practice and Remedies Code, by adding Chapter 88, as follows: CHAPTER 88. HEALTH CARE LIABILITY Sec. 88.001. DEFINITIONS. Defines "appropriate and medically necessary," "enrollee," "health care plan," "health care provider," "health care treatment decision," "health insurance carrier," "health maintenance organization," "managed care entity," "physician," and "ordinary care." Sec. 88.002. APPLICATION. (a) Provides that a health insurance carrier, health maintenance organization, or other managed care entity for a health care plan has the duty to exercise ordinary care when making health care treatment decisions and is liable for damages for harm to an insured or enrollee proximately caused by its failure to exercise such ordinary care. (b) Provides that a health insurance carrier, health maintenance organization, or other managed care entity for a health care plan is also liable for damages for harm to an insured or enrollee proximately caused by the health care treatment decisions made by its employees, agents, ostensible agents, or representatives who are acting on its behalf and over whom it has the right to exercise influence or control, or has actually exercised influence or control. (c) Provides that the standards in Subsections (a) and (b) create no obligation on the part of the health insurance carrier, health maintenance organization, or other managed care entity to provide to an insured or enrollee treatment which is not covered by the health care plan of the entity. (d) Prohibits a health insurance carrier, health maintenance organization, or other managed care entity from removing a physician or health care provider from its plan for advocating on behalf of an enrollee for appropriate and medically necessary health care for the enrollee. (e) Prohibits a health insurance carrier, health maintenance organization, or other managed care entity from entering into a contract with a physician, hospital, or other health care provider or pharmaceutical company which includes an indemnification or hold harmless clause for the acts or conduct of the health insurance carrier, health maintenance organization, or other managed care entity. Provides that any such indemnification or hold harmless clause in an existing contract is hereby declared void. (f) Provides that nothing in any law of this state prohibiting a health insurance carrier, health maintenance organization, or other managed care entity from practicing medicine or being licensed to practice medicine may be asserted as a defense by such health insurance carrier, health maintenance organization, or other managed care entity in an action brought against it pursuant to this section or any other law. (g) Prohibits a finding that a physician or other health care provider is an employee, agent, ostensible agent of certain health care entities from being based solely on proof that such person's name appears in a listing of approved physicians or health care providers made available to insureds or enrollees under a health care plan in an action against a health insurance carrier, health maintenance organization, or managed care entity. (h) This chapter doesn't apply to workers' compensation coverage as defined by Section 401.011, Labor Code. Sec. 88.003. LIMITATIONS ON CAUSE OF ACTION (a) A cause of action may not be brought against a (under this chapter) health insurance carrier, health maintenance organization, or other manage care entity that is required to comply with the utilization review requirements unless the affected insured, enrollee, or representative has exhausted the appeals and review applicable under the utilization requirements, gives written notice of the claim, and agrees to submit to a review by an independent review organization. (b) Notice must be delivered or mailed the health insurance carrier, health maintenance organization, or other manage care entity against whom the action is made not later than the 30th day before the date the claim is filed. (c) Requires a claim must be submitted to a independent review organization if the health insurance carrier, health maintenance organization, or other manage care entity against whom the claim is made request the review not later than the 14th day after the notice date under Subsection (a)(2)(A). If the health insurance carrier, health maintenance organization, or other manage care entity does not request the review within the period specified the affected insured, enrollee, or representative is not required to submit the claim to independent review before maintaining the action. (d) Provides for an action to be dismissed, but permits a court to require the parties to submit to an independent review, mediation, or other nonbinding alternative dispute resolution which may abate the action for a period not to exceed 30 days. Such orders of the court shall be the sole remedy available to a party complaining of an enrollee's failure to comply. Provides restrictions on use of evidence from IRO, mediation, or alternative dispute resolution in cause of action between parties. (e) Provides for lack of compliance if the enrollee has filed a pleading alleging a harm has already occurred because of the conduct of a health insurance carrier, health maintenance organization, or other manage care entity whose conduct is liable under Section 88.002(b). Establishes a review would not be beneficial to an enrollee, unless a court by motion finds after a pleading was not made in good faith, and permits a court to enter an order. (f) Provides for an applicable statute of limitations to file a claim against a managed care entity. The limitations period is tolled until the later of the 30th day after the insured, enrollee, or representative has exhausted the process of appeals and review or the 40th day after the date of notice. (g) This section does not prohibit an insured or enrollee from pursuing other remedies, including injunctive relief, and declaratory judgement if the requirement of exhausting the appeal process and review places the insured's or enrollee's health in serious jeopardy. SECTION 2. Amends Section 6, Article 21.58A, Insurance Code, by amending Subsection (b) and adding Subsection (c) to read as follows: (b) Requires written notification no later than the 30th day after the date the utilization agent receives the appeal. If appeal the appeal is denied, written notification must be clear and concise statement of the clinical basis, the specialty of the physician making the denial, and the appealing party right's to seek a review by an independent review organization. (c) Any circumstance determined to be life-threatening condition, the enrollee is entitled to an immediate appeal to an independent review organization and is not required to comply with the procedures for an internal review. Defines "life-threatening condition". SECTION 3. Amends Article 21.58A, Insurance Code, by adding Section 6A to read as follows: Sec. 6A: INDEPENDENT REVIEW OF ADVERSE DETERMINATIONS Requires a utilization review agent to permit any party appealing of an adverse determination to seek review of that determination by an independent review organization (IRO) under Article 21.58C of this code. Provides for an appropriate IRO not later than the 3rd business day after the utilization review agent receives a request for a review of any medical records, documents used by the plan in making the determination, written notification described by Section 6(b)(5), any supporting information, a list of each physician or health care provider who has provided care to the enrollee and may have relevant records, comply with the IRO's determination with the respect to the medical necessity, and pay for the independent review. SECTION 4. Amends Section 8, Article 21.58A, Insurance Code by adding Subsection (f) to reads as follows: (f) Confidential information in the custody of a utilization review agent may be provided to an IRO subjected to the rules and standards adopted by the commissioner under Article 21.58C of this code. SECTION 5. Amends Section 9(a)(3), Texas Health Maintenance Organization Act (Article 20A.09, Vernon's Texas Insurance Code) to read as follows: Requires a health maintenance organization (HMO) to provide an enrollee a clear and understandable description of the HMO's method of resolving complaints including the enrollee's right to appeal denials of an adverse determination to an IRO and the procedure to make an appeal. SECTION 6. Amends Section 12, Texas Health Maintenance Organization Act (Article 20A.09, Vernon's Texas Insurance Code) to read as follows: Art. 20A.12. COMPLAINT SYSTEM Requires that every health maintenance organization establish both an oral and written complaint system. A corrective change giving the commissioner the ability to examine the complaint system. SECTION 7. Amends the Texas Health Maintenance Organization Act (Article 20A, Vernon's Texas Insurance Code) by adding Section 12A to read as follows: Sec. 12A. REVIEW OF ADVERSE DETERMINATIONS Requires the complaint system must include an enrollee's right to appeal an adverse determination to an IRO, procedures to appeal, an immediate review to IRO when an enrollee has a life-threatening condition, and applies to an HMO (Article 21.58A, Insurance Code) as if the HMO were a utilization review agent. Defines "adverse determination", "independent review organization", and "life-threatening condition". SECTION 8. Amends Subchapter E, Chapter 21, Insurance Code by adding Article 21.58C to read as follows: ARTICLE 21.58C STANDARDS FOR INDEPENDENT REVIEW ORGANIZATIONS Sec. 1: Defines "life-threatening condition", "payor". Sec. 2: (a) The commissioner shall promulgate standards and rules for the certification, selection, and operation of the independent review organizations(IRO); the suspension and revocation of certification; annually designate each IRO which meets the standard; charge payors fees to fund the IRO, provide ongoing oversight of the IRO to ensure compliance. (b) Establishes standards for IROs such as timely response, confidentiality of medical records, qualifications and independence of health care providers, and fairness of procedures. (c) Requires IROs to meet specific time lines in making determinations. (d) An IRO must submit an certification application in a form required by the commissioner. Provides for certification application requirements. (e) Requires an IRO to annually submit information required by Subsection (d) of this section. Requires an IRO to submit any material changes in the information included in the application to the commissioner. (f) An IRO may not be a subsidiary of a payor, trade or professional association of payors. (g) An IRO is not liable from damages arising from the determination made by the organization. Provides an exception by an act or omission of the IRO made in bad faith or gross negligence. SECTION 9. Chapter 88, Civil Practice and Remedies Code applies only to causes of action that accrues before the effective date of this Act. An action that accrues before the effective date of this Act is governed by the law applicable to the action immediately before the effective date of this Act. SECTION 10. Sections 2-4 and 6-8 of this Act applies only to an adverse determination of a utilization review agent or health maintenance organization made on or after the effective date of this Act. Sections 5-9 applies only to an evidence of coverage that is delivered, issued for delivery, or renewed on or after January 1, 1998. SECTION 11. Effective date: September 1, 1997. SECTION 12. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Several sections were added to the bill: Added sections set limits on causes of actions including the need to exhaust the review process as set by HMO's or other managed care entity. If the carrier is not subject to a Utilization review process then the limitations are not implemented. A claim must be submitted to the HMO, insurance carrier or other managed care entity not later than the 30th day prior to the filing of a cause of action. A claim must be submitted to the Independent Review Organization (IRO) not later than the 14th day after receipt of the notice to file a cause of action. This can delay the cause of action for only 30 days. If an appeal is denied, notice of this determination must be provided within 30 days after the utilization review agent receives notice of the appeal. The notice must be in clear and concise language and must include basis of the denial, specialty of the reviewing physician and notice of the right to independent review. An enrollee may receive an immediate independent review if the problem falls under the definition of a "life-threatening condition" as set by definition in SECTION 2. An utilization review agent shall provide appropriate records including medical records, documents used in making the determination and a list of physicians or health care providers who may have information relevant to the appeal. The utilization review agent shall comply with the findings of the independent review as well as pay for the review. Confidential information shall be provided to an independent review organization subject to rules provided by the commissioner. SECTION 7 provides for a review of adverse determinations. The complaint system must provide notification of an enrollee's right to appeal, procedures for the appeal, and right to immediate review under a life threatening situation. Provisions of article 21.58A apply to an HMO as if it were a utilization review agent. Adds definition of "independent review organization" and "life threatening condition." SECTION 8 sets standards for an Independent Review Organization (IRO). Allows the commissioner to adopt rules for certification, designation, and oversight of IRO's. Determinations by an IRO must be done within 15 days after receiving the necessary information to make a determination, or 20 days after receiving a request for a determination, unless the situation involves a life threatening situation. An IRO may not be a subsidiary of, controlled by, a payor or trade or professional association of payors. An IRO is not liable for damages arising from a determination, unless the determination is in bad faith or a result of gross negligence.