Panel Tosses Challenge to HMO Reviews

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LOS ANGELES, CA — A state appellate panel has rejected a consumer lawsuit that accuses state regulators of shirking their statutory duty to protect patients by favoring health maintenance organizations when they review complaints.

The 3rd District Court of Appeal panel ruled unanimously that state regulators do not have to give patients their medical records or otherwise help them challenge health plans when the patients are denied medical care or refused certain treatments.

Critics say the decision signals new judicial approval of state regulators’ practice of taking a hands-off approach to consumer complaints, especially within the independent medical review system used to resolve disputes between patients and their health plans. California Consumer Health Care Council v. California Department of Managed Health Care, C055056 (Cal. App. 3rd Dist., filed Sept. 5, 2003).

The panel issued the unpublished opinion Feb. 29 but agreed to publish key portions on Tuesday at the request of state regulators looking to set precedent.

Meanwhile, HMOs are lobbying to have that same review system expanded to handle more-extreme disputes. But consumer advocates say the process is tilted against patients.

Plaintiffs in the lawsuit had tried to force the Department of Managed Health Care, which governs HMOs, to play a heightened role in those patient-health plan disputes.

The panel, in its opinion, found the appeal lacked merit.

The Department "assumes a fair consideration of medical claims and affords all the process that is due," Justice Vance W. Raye wrote in the opinion. Justices George W. Nicholson and M. Kathleen Butz concurred.

Harvey Frey, who represents the nine named plaintiffs in the case, said he will appeal to the state Supreme Court.

"We are not asking for any money or for anything except a writ of mandate for the Department of Managed Health Care to obey the law as it is written," said Frey, a consumer attorney based in Santa Monica.

He said state regulators have a bias toward the health insurance industry at all levels of the complaint process, from simple grievances to independent medical reviews.

Frey said that bias is evident in regulators’ unwillingness to provide medical records to some patients or to explain in writing why their requests are denied.

HMOs routinely misrepresent the facts of the case to independent reviews, and the patient has no chance for rebuttal, he said.

"The law was designed to open this process up so the patient could see what was going on, yet the department is saying that every [record] they keep is confidential," Frey said.

Lynne Randolph, a spokeswoman for the Department of Managed Health Care, said the plaintiffs mistook the duties of the agency.

"There is no requirement in the law that the department be the go-between," Randolph said.

The legal skirmish strikes at the heart of what role state regulators must play when an HMO withholds care. It comes at a time when public outrage has reached a fevered pitch regarding controversial business practices in the health insurance industry.

In February, a retired judge awarded $9 million, most of it in punitive damages, to a woman who had her medical coverage withdrawn by Woodland Hills-based Health Net while being treated for breast cancer.

Los Angeles City Attorney Rocky Delgadillo also has opened an investigation into the practices of Health Net. And the Department of Managed Health Care has in the last year leveled record fines at HMOs.

The department enforces the Knox-Keene Health Care Service Plan Act of 1975, which governs HMOs and dictates how grievances by patients must be addressed. Its regulators are charged with overseeing a review of those cases, in which a health plan has denied a patient medical care because it is "experimental" or unnecessary.

Since 2001, the department has overseen the Independent Medical Review program.

But rather than play referee itself, the department contracts with a multinational, for-profit company called Maximus Inc. to review the cases. Maximus keeps a list of medical experts who decide, either alone or as part of a three-member panel, whether the health plan acted properly.

The review process is widely seen as a way to pre-empt costly and time-consuming lawsuits. The Department of Managed Health Care said it is a fair and efficient way to resolve disputes.

In 2006, third-party reviewers decided 1,015 cases in California, where patients had treatments denied for various reasons. In 61 percent of them, the reviewer sided with the health plan, and in 39 percent of the cases with the patient, according to data collected by the Department of Managed Health Care.

But some consumer advocates say that those outcomes show bias toward health plans and that the recent ruling would only tilt that bias further.

Jerry Flanagan, with the Santa Monica-based group Consumer Watchdog, said the Department of Managed Health Care is not living up to its statutory duties as a consumer-rights agency.

"I think the department is confused about whom their constituents are and where their duty lies," Flanagan said. "The department’s only stakeholders are patients."

The appellate panel’s decision seems to define the department as less of a consumer-rights group, as legislators intended, and more of a hands-off referee, he said.

This ruling is also unusual because the 3rd District rarely publishes its opinions, some lawyers said.

Attorneys for the department took the rare step of requesting that the ruling be published to set precedent and further define its role in resolving disputes. They said that the sections published were considered "groundbreaking."

"Few decisions interpret the Knox-Keene Act, let alone several provisions, and the department rarely gets to weigh in on what the statute we are charged with enforcing actually means," said Michael McClelland, senior counsel for the Department of Managed Health Care.

"Here we did, and the court seemed to agree with us," McClelland said.

 He said he hoped the published opinion would inform consumers of their right to independent medical reviews.

Though no legislation has been introduced, health plans are pushing hard for the same type of review system, loosely overseen by the department, to be applied in more-extreme cancellation cases, like when a health plan strips patients of their health insurance coverage after they fall ill.

That practice, known in the industry as rescission, has drawn the ire of lawmakers and law enforcement officials.

State legislators convened a Senate Health Committee hearing on the issue last week in Sacramento.

At that meeting, some senators echoed the complaints of consumer advocates that the Department of Managed Health Care was not doing enough to regulate the industry and protect consumers.

Consumer Watchdog
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