HMO Shield Against Suits Can't Cure the Crisis

WASHINGTON — When the Supreme Court decided last month to immunize health plans from damage suits for wrongfully denying coverage, industry leaders called the ruling a triumph for consumers. Legal accountability raises costs, health plan administrators insist. Savings from immunity will trickle down, lowering premiums for companies and their workers. Meanwhile, consumer advocates and congressional Democrats are urging legislation to restore the right to sue health insurers for their coverage decisions.

For those who see managed care's new impunity as a travesty, as I do, choosing sides in this dispute is easy. But the industry's claim that damage suits raise costs needs to be treated seriously.

Soaring healthcare spending burdens businesses, strains labor-management relations and pushes more Americans into the ranks of the uninsured. Impunity saves money because rational actors take legal risk into account. Eliminating this risk enables insurers to skimp on coverage without consequences.

Can health plans be held accountable for bad behavior without denying them the tools they need to control costs? Yes, but we need to face up to a problem that neither health plans nor their critics have been inclined to acknowledge.

In their advertising and contracts with patients, almost all health insurers promise to cover "medically necessary" care, as though this term were a clear rule grounded in medical science. But for most of the decisions doctors make, hard science isn't available.

Doctors disagree about how well tests and treatments work and how to balance risks and benefits. Their therapeutic approaches accordingly vary enormously.

A health plan's promise to pay for "medically necessary" care is thus a commitment in search of a meaning. Before the rise of managed care, treating physicians supplied the meaning, and insurers almost always paid for whatever doctors prescribed. Then HMOs began to say no, citing medical-necessity grounds. The stage was set for conflict between plans and physicians over what medical necessity means.

The law has not adjusted to the realities of uncertainty and wide variation in medical practice. In dealing with suits charging wrongful coverage denial, courts adopt the fiction that there are one or a few correct standards of care. As in medical malpractice cases, judges ask juries to choose between standards of care urged by plaintiffs' and defendants' medical experts.