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HMOs aim to stop even modest reform in its tracks.
 

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March 1, 2002
When HMOs Attack
HMOs aim to stop even modest reform in its tracks.

California’s HMO reform laws, in force since mid-2000, make up the toughest patients’ bill of rights in the nation. They allow bigger fines and send more types of challenged HMO decisions to independent review boards than in any of the other 40 states with such panels.

But those reforms are now facing significant challenges. In recent months, California HMOs have filed a string of lawsuits in an effort to escape the regulations they failed to defeat in the state legislature in 1999.

In December, the HMO California Blue Shield filed the first suit challenging California’s reforms. Bridling under the system of almost unlimited review of patient care decisions, Blue Shield is trying to sharply limit the kinds of cases California’s new Department of Managed Health Care can ask the independent boards to review.

Many HMOs object even more strongly to another part of California’s laws, which have allowed regulators to levy the nation’s biggest HMO fines. Kaiser Permanente, California’s largest HMO, sued in federal court last fall after getting hit with a $1.1 million penalty for inadequate care in cases that led to the deaths of three plan members between 1996 and 2000.

All died after seeking care in Kaiser hospitals that even the HMO admits are overcrowded. Kaiser argued that since the patients were covered by federal Medicare insurance, the state didn’t have the right to oversee their cases, asking a federal judge to cite Daniel Zingale, director of the new oversight department, for contempt of court for levying the fine. On December 10, Judge Ronald Lew declined to issue a contempt citation. Kaiser has promised to appeal and has filed a separate suit to overturn the fine.

These efforts are part of a steady campaign by HMOs to shake off the state’s tough new regulations. The California Medical Association, a branch of the American Medical Association, has also sued to prevent Zingale’s department from releasing information on the financial standing of medical groups, winning a temporary restraining order from state courts. Zingale argues that the public is entitled to know how much of the health-care dollar goes to actual care and how much to administrative costs and corporate profits.

It was predictable that lawsuits would be a prime HMO tactic. This industry, which lobbies in both Congress and state legislatures against allowing patients any right to sue them, hesitates little in filing legal actions of its own. HMOs have also appealed hundreds of orders from the new California department and simply refused to comply with others.

“This is a new department, and we think they’ve overstepped their bounds in some of their enforcement actions,” California Blue Shield lawyer Steven Madison told a reporter after filing the HMO’s bid to cut regulators’ ability to refer patient disputes to independent review boards. (Madison also represents Kaiser.) The boards have the power to compel HMOs to provide services or medications they have previously denied patients. In their first year of operation in California, the boards handled 651 patient appeals and upheld HMO decisions in 58 percent of cases.

Of any of these steps, Kaiser’s demand that director Zingale be cited for contempt is the most threatening to regulators and patients seeking redress. Judge Lew’s refusal left intact the powers of the new HMO regulators, allowing them to consider the experiences of their state’s 4.1 million Medicare patients in evaluating HMO services—Medicare patients account for 23 percent of HMO members in California. But Kaiser’s pending appeal leaves the future of HMO regulation very much in doubt.

Kaiser’s penalty was the largest of 48 assessed by the new agency in its first year. The company didn’t even bother to deny the charges that led to the big fine, claiming instead that “in its zeal to be perceived as a patient and consumer advocate the department is overstepping.”

“This case is becoming a battle over whether Kaiser has a license that requires it to provide timely care to patients or whether it has a license to kill,” Jamie Court, director of the Foundation for Taxpayer and Consumer Rights, responds. “The HMO is seeking to put itself above the law in every jurisdiction where the public challenges it.”

A challenge to the somewhat narrower authority of review boards in Illinois, brought by the Chicago-based Rush Prudential HMO, presents an even greater danger to HMO regulation. The case is now before the Supreme Court: If the Court does not uphold the power of Illinois’ review board, California’s board will be rendered powerless. “The Illinois case has the potential to gut our independent review process, just as much as the California suits,” Zingale says. “Take that process away, and you’ve all but eliminated the California patients’ bill of rights.”

A decision ending independent reviews in Illinois would raise questions about the legality of any reviews of HMO decisions, all but wiping out any chance of significant federal reform, says Jamie Court. A decision is expected in July. “These businesses are trying to evade regulation as much as they can,” Court says. “They say they’re nothing but fiscal and administrative agencies with no responsibility for medical care, [but] they’re making decisions about what care patients are allowed.”

Thomas Elias is a political columnist for 62 California newspapers. His latest book is The Burzynski Breakthrough, now available in an updated second edition.


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