Viewpoint by Thomas Elias: HMOs bridle under new regulators

January 29, 2002

More than three-fourths of California business executives believe the advent of health maintenance organizations has decreased the quality of health care for the sick. Fully 80 percent of those executives — including leaders of a range of companies from the Yellow Cab Cooperative to Honda Motor Cars to Pacific Gas & Electric — are convinced HMOs and insurance companies are "very responsible for the problems in the current health care system."

That finding comes from a survey facilitated by local chambers of commerce. It is a stinging indictment of an industry by its biggest customers. Those sentiments among business leaders are not new. They were one big reason legislators in 1999 smoothly passed a law creating a new state Department of Managed Health Care to regulate HMOs.

But the HMOs demur. They contend the services they provide are top quality compared with what's available in other states and countries. And they've been fighting steadily to shake off the new state regulators, who have been open for business only since the middle of 2000.


Predictably, lawsuits are a prime HMO tactic. This industry, which fights mightily against giving patients the right to sue them, has little hesitation about filing suits of its own.

"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 a suit aimed at cutting the agency's ability to refer patient disputes to independent medical review boards. The supposedly impartial boards now can compel HMOs to provide services or medications they have previously denied patients. The boards in 2001 helped more than 200,000 patients resolve disputes with HMOs.

A similar lawsuit aiming to eliminate independent medical reviews brought by an Illinois HMO is now before the U.S. Supreme Court. If the high court should reverse an appellate ruling that upheld independent reviews, the Blue Shield suit would become moot and this state's health care regulations would be partially eviscerated.

Even if its Illinois cohort fails, Blue Shield will apparently keep trying to undermine this key part of HMO reform. Meanwhile, another legal move attempted by the Kaiser Family Health Plan would have been even more dangerous to regulators and the public if it had succeeded.

Kaiser's action came when the Managed Health Care department fined it $1.1 million after several patients covered by Medicare insurance died in Kaiser facilities. The penalty was the largest of 48 assessed by the new agency in its first 18 months. The infant department also has taken over management of one financially ailing HMO and set up a telephone hotline to help consumers resolve disputes over care they've been denied.

Protesting its fine, Kaiser asked a federal judge to hold department director Daniel Zingale in contempt of court because, the HMO claimed, only the federal government can act against HMOs when Medicare patients are involved.

Kaiser didn't even bother to deny the charges that led to the fine, claiming instead that "in its zeal to be perceived as a patient and consumer advocate the department is overstepping …."

That led Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, to claim, "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 … the HMO is seeking to put itself above the law in every jurisdiction where the public challenges it."

Kaiser lost. Judge Ronald Lew ruled Zingale could not be held in contempt for levying the fine. So the new HMO regulators' powers remain intact, allowing them to consider the experiences of the state's 4.1 million Medicare patients in evaluating the services HMOs provide. The decision also reduced chances any other penalized HMOs will try a similar challenge.

But the future of the HMO regulation nevertheless remains very much in doubt. "These businesses are trying to evade regulation as much as they can," said Court. "They say they're nothing but fiscal and administrative agencies with no responsibility for medical care." Never mind that they frequently decide what care patients are allowed.

No one is certain just yet what the HMOs' next legal step in California will be, but it's an absolute certainty that one setback in one state court won't deter this industry from trying to escape as many regulations as possible.

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