California Might Set HMO Patients’ Rights Trend

California, which boasts the sixth largest economy in the world, is often a national trailblazer in making public policy. So its new laws regulating managed health care will be examined closely by other states. The patients-rights package sailed through the Golden State legislature even as the U.S. Congress in Washington remained deeply divided on HMO reform.

Almost despite himself, Gov. Gray Davis has put California at the forefront of the national battle to strengthen government controls on the health insurance industry.

Among the new laws recently signed by Davis are two that give Californians in Health Maintenance Organizations the power to seek independent reviews of medical decisions, and then to sue HMOs if they suffer “substantial harm” because treatments are denied.

The only other states that allow patients to sue their HMO are Texas and Georgia. Since the Texas law was enacted in 1997, there have only been five lawsuits — a record that flies in the face of warnings from insurance companies that congressional approval of a patient’s right to sue would flood the courts with litigation and cause health insurance rates to skyrocket.

The two potentially far-reaching HMO bills — part of a package with 21 items in all — emerged from a heap of some 70 HMO-related measures that piled up in the Legislature in August.

At that time, Davis, California’s new Democratic governor told the San Francisco Chronicle he had little interest in healthcare reform. “That ain’t my agenda,” he declared. “My agenda is education.”

Less than two months later, Davis stood at a press conference in Los Angeles to sign bills that he and the legislative leaders negotiated in the final weeks of the 1999 session. “With the help of many legislators from both sides of the political aisle, we have developed a well-crafted, even-handed package of reforms that will improve health care delivery in California while keeping it affordable for families and their employers,” the governor said.For Davis, the journey from reluctant to eager player, shows the political power of the HMO issue — even though public opinion polls show California voters place issues like education, crime far higher on their list of important issues.

Latest figures from the U.S. Census Bureau show California has one of the nation’s highest rates 22 percent of people without health insurance. Yet two recent surveys by the Public Policy Institute of California reported that only three percent of adults said health care and HMO reform were important issues. Schools topped the list at 31 percent in September.

Public sentiment notwithstanding, legislative Democrats, eager to push through legislation either vetoed or blocked by former Gov. Pete Wilson, a Republican, eagerly seized on the issue.

“We know that other states are watching what California does to regulate HMOs and we can take pride in offering laws like these to the rest of the nation,” said Senator Liz Figueroa, D-Fremont, author of the bill that allows law suits against HMOs.

“In California, HMOs have been exempt from responsibility long enough and it shows in their conduct. It’s time they were treated like everybody else,” she said.

The centerpiece of the package is the liability measure, similar to one that Gov. George W. Bush of Texas allowed to become law without his signature.

The law, which takes effect in 2001, will make any health care service or managed care plan liable for any “substantial harm” suffered by a patient through denial, delay or modification of care.

“Substantial harm” means loss of life, or loss or significant impairment of limb or bodily function, significant disfigurement, severe and chronic pain or financial loss.

Patients in most cases must use all administrative procedures in a new independent review process, created in a separate bill, before a suit could be filed. The law does not limit recovery if the plaintiff wins.

A federal law called the Employee Retirement Income Security Act (ERISA) has been interpreted to prohibit claims for damages against HMOs with very few execeptions.

The new law takes a new approach, in an effort to escape the bar erected by ERISA. It states that health service plans are engaged in the insurance business, and that persons denied coverage have the same rights to sue as any other type of insurance customer.

“California patients and their doctors will now have more leverage when requesting treatment because HMOs will have to fear the threat of significant damages for their wrong-doing,” said Jamie Court of the Foundation for Taxpayer and Consumer Rights, which has long sought the liability legislation.

“This historic reform package will be a bellwether for the nation,” Court said, “because it evens the gravest imbalances of power between HMOs and their patients in the state where HMOs were born and over 90 percent of the population is in managed care.”

Independent reviews could be sought by HMO members who challenged a denial or delay of care they believed was not medically necessary or appropriate. The costs of the reviews would be paid by the insurers.

At Davis’ request, the new law does not address whether the findings of the independent review can be used as evidence in any subsequent court action. HMOs wanted the findings to be used as evidence, while trial lawyers opposed the plan. By leaving the decision up to judges, Davis basically sided with the HMOs.

Also signed were bills that create a new state agency to regulate the managed care industry, strengthen medical privacy laws, and require health plans to provide coverage for mental illness, contraceptives, and cancer screening.