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AUSTIN, Texas -- Aetna U.S. Healthcare is trying to save part of the Texas managed care liability law it challenged in court.

When U.S. District Court Judge Vanessa Gilmore upheld the 1-year-old Texas statute permitting patients to sue health maintenance organizations for malpractice, she also struck down the part of the law creating an independent review process for treatment denials.

Ruling in Aetna U.S. Healthcare vs. the Texas Department of Insurance, the judge said the state's external appeals program violates the federal Employee Retirement Income Security Act of 1974.

The statute called for the creation of an independent review organization. It is run by the state Insurance Department and reviews any case in which a person was denied coverage or has a complaint regarding the care.

Now Aetna -- the HMO that brought the lawsuit challenging the state's groundbreaking right-to-sue law in the first place -- apparently has changed sides and is working with the Texas attorney general and insurance regulators to try to restore the independent review process.

"It is unfortunate that the IRO process wound up being coupled with health plan liability rather than as an alternative to it," David F. Simon, Aetna's chief legal officer, wrote in a letter last week to Texas Insurance Commissioner Elton Bomer and Attorney General Dan Morales.

"Because of our philosophical agreement on the salutary purposes served by external review, I hope we can work together to help craft a revised external review mechanism which would likely pass ERISA muster," he said.

"One possibility may be non-binding external review; experience has shown that advisory external review accomplishes the same objective as binding review because, among other things, a health plan not following a reasonable advisory opinion runs significant risks in the court of public opinion as well as the usual civil venues," Mr. Simon wrote.

But before any solution worked out by the parties can be implemented, "it would have to be formalized with a motion before the court," explained Texas Assistant Attorney General David Mattax. He said he was preparing such a motion late last week.

Until Judge Gilmore rules on Mr. Mattax's motion, however, the Insurance Department will continue processing review requests using its existing format, Mr. Mattax said. The ruling did not order the dismantling of the review board.

Since the IRO process began last November, 253 cases have been reviewed. Of those, 224 reviews have been completed, with 114 rulings in favor of the HMO and 110 in favor of the patient.

"The independent review process is really an interim step before you go to court," pointed out Lisa McGiffert, a senior policy analyst with Consumers Union in Austin, Texas. "It's a very important process to help people who are denied care."

The managed care industry had been anxiously awaiting Judge Gilmore's ruling because Texas was the first state to allow patients to sue their health plans for damages under state law if they are hurt as a result of treatment denials or delays. A similar law removing HMOs' immunity from malpractice lawsuits recently was enacted in Missouri.

In the Texas decision, Judge Gilmore said: "A suit brought under the Act may challenge the quality of benefits actually received." However, the law doesn't permit damages for denial of benefits or the mishandling of a claim.

"So if a plan denies benefits, that's a benefit decision pre-empted under ERISA. But if it authorizes care and the care is less than adequate quality, that's a malpractice issue," interpreted Stephanie Kanwit, a partner specializing in ERISA law at the Groom Law Group in Washington.

"It also may end up impacting what happens in Congress," observed Ms. Kanwit, referring to federal legislation now being considered.

Henry Saveth, an attorney with benefit consultant William M. Mercer Inc. in Washington, predicts that because the decision validates the prevailing public view that HMOs have a " 'Get out of jail free card'. . . . This will come up in more states."

Consumer and doctors' groups, especially the American Medical Assn., have pushed for federal right-to-sue legislation as part of HMO reform legislation.

Ms. Kanwit also pointed out that any law -- whether federal or state -- that permits malpractice suits against managed care organizations "indirectly makes employers liable," because whenever there's a huge jury verdict against an HMO or insurer "the employers will be picking up the tab in terms of higher premiums."

Texas Insurance Commissioner Bomer said he was disappointed with Judge Gilmore's ruling, adding that he believes it will deny Texans' "access to the independent review process, which has been working very well."

Geoff Wurzel, executive director of the Texas Assn. of Health Plans, the state's HMO trade group, said the industry has supported the review process in the past.

"It was not our understanding, and I don't believe it was Aetna's plan, to get the (independent review) process thrown out," Mr. Wurzel said.

However, consumer advocate Jamie Court, director of Consumers for Quality Care in Santa Monica, Calif., praised Judge Gilmore's decision.

"The ruling is a tremendous victory for patients who deserve to be able to take HMOs to state court and receive damages," he said.

Aetna U.S. Healthcare vs. Texas Department of Insurance, U.S. District Court, Southern District of Texas, Houston Division, No. H-97-2072, Sept. 18.