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A Texas House panel will examine whether Texas Attorney General John Cornyn overstepped his authority in crafting an agreement with the state’s largest health maintenance organization that could impact other managed care entities. Rep. John Smithee, chairman of the House Insurance Committee and a partner in Amarillo’s Templeton, Smithee, Hayes, Fields, Young & Heinrich, says the concern is whether Cornyn infringed on the legislature’s right to make law when he developed the agreement with Aetna U.S. Healthcare. “Can a settlement agreement change existing law or make new law?” Smithee asks. That issue will be one of the topics of discussion when the House committee meets on Sept. 18 in Austin. Smithee, a Republican, says Cornyn has been invited to testify at that hearing. “It does not make new state law,” Linda Eads, deputy attorney general for litigation, says of the agreement. “It’s a settlement of a lawsuit.” Cornyn announced the agreement with Aetna in April to settle a suit filed by his predecessor, Dan Morales, in 1998. The suit alleged that Aetna unlawfully compensated physicians who limited medical care to patients and penalized physicians who refused to do so. It also alleged that Aetna deceived consumers by not fully informing them what they got when they bought an HMO health insurance policy. “We made Aetna promise to behave themselves in certain ways that would make sure that consumers are not deceived and that Aetna’s financial practices don’t lead to reducing the care people get when they go to a doctor under an HMO plan,” Eads says. While the agreement is good for only two years and will be up for reconsideration in the summer of 2002, Aetna is making a commitment to change the way it does various things, an official with the HMO says. “Aetna is not looking at this as a temporary change that will go away,” says Dr. Allan Chernov of Dallas, the company’s regional medical director. The agreement does not settle suits that Morales filed against NYLCare Health Plans, Humana Health Plan of Texas, and Pacificare Health Systems, but Cornyn is seeking similar agreements with those HMOs. Eads says the Office of the Attorney General is asking the other companies to settle on the same terms as Aetna did, but each agreement will be different to allow for differences in the way each HMO operates. However, she says the companies must change the way they use financial incentives for physicians to assure that patients don’t receive less care and clearly state what treatments are covered under a plan. None of the other three companies has agreed to settle with the OAG, Eads says. BROAD DEFINITION A provision in the Aetna agreement that some lawmakers find troubling would allow the company to look at whether a service is cost-effective when determining if the care recommended by a physician is medically necessary. “Cornyn decided what the definition is in Texas for medical necessity without public input, without legislative input,” says Rep. Craig Eiland, a Galveston lawyer and vice chairman of the insurance committee. Kim Ross, lobbyist for the Texas Medical Association, says everything else in the agreement hinges on how medical necessity is defined. The definition in the agreement gives “Aetna God-like power to override the physician’s decision” with the imprimatur of the attorney general, he says. Chernov says the attorney general was concerned that the definition be broad enough to make sure people were not denied coverage. The definition is similar to one Aetna has used in its plans, he says. “As far as we know, there is no court or law anywhere that requires medically necessary coverage decisions to be made by the provider [the physician treating the patient] instead of the health plan,” Chernov says. The agreement also requires Aetna to make determinations that are consistent with the applicable standard of care. That requirement means the HMO must adhere to the standard of care, or it can be held liable for any harm done to a patient, says Dr. Paul Bronston of Los Angeles, chairman of the ethics committee of the American College of Medical Quality. “To me that means medically necessary equals the standard of care and vice versa. That’s the bottom line,” Bronston says, noting that he is speaking as an individual physician and not on behalf of the entity he chairs. Ross says TMA supports the House committee’s decision to hold a hearing on the matter to get all the issues out in the open. “I think it is a very healthy development,” he says. Tom Mayo, associate professor at the Southern Methodist University School of Law, says TMA and other stakeholders have voiced concerns about the lack of openness in the settlement process. The problem with trying to make settlement negotiations open, he says, is that they become more like a legislative hearing. “That’s not the way you settle litigation,” he says. Mayo, who specializes in health care law, says the suit was an attempt by Morales to bring major reforms to the managed care industry and that Cornyn clearly has the authority to settle a suit brought by his predecessor. “I don’t question that he [Cornyn] has the right to settle lawsuits. What I’m questioning is this lawsuit attempting to set a standard for everybody,” says Eiland, a Democrat who first raised concerns about the agreement in a July 12 letter to Cornyn. He says the agreement could affect managed care groups that were not involved in the suit. “It is my belief that you have exceeded your authority to enforce and interpret the laws and have engaged in legislating,” Eiland told Cornyn in the letter. Eiland says Cornyn and Aetna seem to have agreed to use the attorney general’s power to force every other health plan in Texas to operate like Aetna. “What Cornyn committed to do essentially is to legislate this agreement on all health plans in Texas,” he says. When he announced the agreement at an April 11 news conference, Cornyn said it would serve as a model for all Texas health plans to follow. Eads says that if the OAG has proof that an HMO is engaging in deceptive practices, the attorney general is obligated to take action. There is no plan to impose the agreement on companies that haven’t been sued, she says. Jerry Patterson, a former state senator and immediate past executive director of the Texas Association of Health Plans, says Cornyn had “good intentions” in reaching the agreement. “You can find some good things in here that are pro-consumer, but there are many questions, and it’s a good thing they’re having a hearing on this,” says Patterson, who is starting a new career as a consultant to HMOs. Patterson says HMOs are being asked to make costly changes in their operations, even though lawmakers could make major changes that affect the industry when they meet next year. “The legislature, in a heart beat, can change it all,” he says. One of the provisions in the agreement that concerns Patterson addresses Aetna’s downstream provider networks — such as independent physician associations that contract with the HMO to provide medical care to its members. Patterson says the IPAs will be required to take out reinsurance or set up hefty financial reserves to cover any losses. “That’s making law that the legislature specifically decided not to do,” he says. Patterson says the legislature passed a bill in 1999 that imposed some reforms on the downstream risk-takers. But lawmakers specifically excluded financial solvency provisions from the bill and “punted” that issue to the session in 2001, he says. Eads says the agreement requires Aetna to ask IPAs to assure that financial arrangements with doctors in their network are actuarially sound and to disclose what incentives they offer the doctors. Aetna must notify the OAG if an IPA refuses to do that, she says. “That doesn’t mean anything other than that we get notification and knowledge about IPAs that might be out there deceiving consumers,” Eads says. If consumers are being duped, she says, the OAG will have to file a lawsuit to do anything about it.

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