Court Says Judges Can Ban Deceptive HMO Practices

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Associated Press

SAN FRANCISCO — In a victory for consumers, the state Supreme Court ruled Thursday that a patient can go to a judge, rather than an arbitrator, to ask for a ban on false advertising and other deceptive practices by an HMO.

Lawyers said the ruling was the first of its kind in the nation. Federal law and U.S. Supreme Court rulings have generally supported enforcement of arbitration clauses contained in standard consumer contracts of health maintenance organizations, banks and many other businesses.

The 4-2 ruling also represents a modest advance in patients’ rights against HMOs.

A new state law, effective Jan. 1, lets patients seek damages if they are substantially harmed by a health insurer’s decision to delay, deny or alter necessary treatment. Most such cases would be decided by one or more arbitrators, rather than a judge and jury, because the law left HMOs’ arbitration requirements intact.

Thursday’s ruling lets HMOs require arbitration of medical malpractice and other damage claims. But the court said a request for an injunction under a consumer-protection law, barring unfair business practices that hurt other members of the public, must be heard by a judge.

“Publicly accountable judges, rather than arbitrators, are the most appropriate overseers of injunctive remedies explicitly designed for public protection,” said the opinion by Justice Stanley Mosk.

Dissenting Justice Ming Chin said the ruling violates federal arbitration law and shows “judicial hostility toward arbitration.”

Arbitrators can award the same damages as juries. But consumer groups and trial lawyers say arbitration is biased in favor of businesses, which can steer cases toward certain arbitrators who have ruled in their favor.

Critics also note that arbitrators hear cases in private and cannot be overruled even if they fail to follow the law. Businesses that favor the procedure say arbitration is faster and more efficient than court litigation and just as fair.

Advocates on both sides declared victory.

“A conservative California court is saying that when society has issues… those matters should not be locked behind the curtain of a private arbitration process,” said Jamie Court of the Foundation for Taxpayer and Consumer Rights.

The ruling gives Californians new rights against “any member of big business that has a predatory, unethical business practice,” said Christopher Angelo, lawyer for the Long Beach family of a brain-damaged baby whose lawsuit was the subject of the ruling.

The family’s HMO, CIGNA HealthCare of California, issued a statement that noted the court’s approval of arbitration for damage claims and didn’t mention the newly created exception for injunctions against deceptive practices.

“We are pleased that the state Supreme Court recognized the value of arbitration,” the company said. Lisa Perrochet, a lawyer for CIGNA, said the injunctions discussed by the court are seldom sought, but arbitration might have been seriously weakened if HMO patients could take some damage claims to court.

Angelo’s clients, Keya Johnson and her son, Adrian Broughton Jr., gain little from the ruling, which appears to require them to arbitrate their damage claims.

Their suit said inept medical care caused the boy to be born brain-damaged and paralyzed in one arm in December 1993. Besides medical malpractice, they claimed false advertising by CIGNA.

Johnson said the HMO’s door-to-door solicitor induced her to sign up by promising better care and one doctor throughout her treatment. Instead, she said, she was cared for by a physician’s assistant during pregnancy.

Besides damages, the family sought an injunction against future deceptive practices. The court said the private claim for damages could go to arbitration, but the request for an order to protect the public must be heard by a judge.

The case is Broughton vs. CIGNA, S072583.

Consumer Watchdog
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