Ruling backs states’ power over HMOs

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Sacramento Bee

The U.S. Supreme Court ruled Wednesday that states can force HMOs to expand patient access to doctors and hospitals, upholding laws on the books in more than 20 states and potentially giving California greater power to regulate health plans.

In a unanimous opinion, the justices upheld a 1994 Kentucky law allowing HMO patients to seek treatment from doctors, hospitals, pharmacists or other caregivers outside a prescribed network as long as the provider agreed to accept the HMO’s rates and contract terms.

Although California doesn’t have a similar statute, known as an “any willing provider” law, state officials said the ruling would bolster efforts here to pass legislation policing HMOs and medical groups that treat the patients.

“California has the strongest HMO laws in the nation, and the same HMOs that took Kentucky to court have challenged laws here. Today’s ruling makes it a safer environment to expand patient protections in California,” said Daniel Zingale, cabinet secretary for Gov. Gray Davis.

The case, Kentucky Association of Health Plans v. Miller, turned on whether the state statute violated federal law.

Under the 1974 Employment Retirement Income Security Act, or ERISA, Congress has sole authority over regulating employee benefits, which can include job-based health coverage. But the federal law gave states the right to regulate insurance, which can include health plans.

In the Kentucky case, health maintenance organizations argued that the state’s law did not regulate insurance because it applied to contracts between companies and their vendors, rather than the relationship between insurers and patients.

By upholding the Kentucky law, the justices narrowed the scope of ERISA, said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights.

“The court is increasingly deferring to state laws that regulate HMOs and insurers,” Court said. “This ruling gives more protection to California laws that HMOs may challenge in the future.”

While the ruling will not have an immediate impact for California’s 18 million HMO members, insurers here raised concerns about the Supreme Court decision.

By definition, an HMO is a closed network of doctors and hospitals, a concept that is in direct opposition to the Kentucky law and others like it, said Michael Chee, spokesman for Blue Cross of California.

“People sign up for insurance to take advantage of the rates we negotiate for exclusive groups of doctors and hospitals,” Chee said. “These laws take away that exclusivity and the savings for patients that goes with it.”

Health plan officials also said distinctions that set California’s insurance market apart from other states make “any willing provider” laws impractical here. California law bars hospitals from employing doctors, essentially requiring most physicians to work in group practices.

“Outside of rural areas where there are no HMOs, most markets in the state have few doctors operating outside of HMO networks and few doctors working outside of medical groups,” said Tom Epstein, spokesman for Blue Shield of California.

Should such a law surface in California, it would polarize the medical community, pitting doctors in group practice against those working solo, said John Whitelaw, past president of the California Medical Association.

“It would be hard to manage care when patients can see physicians outside the group,” Whitelaw said. “For doctors in solo practice, it could bring them more patients.”

The court decision will loom over debates about several pending patients’ rights bills because many California officials believe it expanded states’ rights to regulate not just HMOs but also the caregivers with which they contract.

In particular, the ruling gives legal backup to SB 261, a bill proposed by state Sen. Jackie Speier that would allow the Department of Managed Health Care, which regulates HMOs, to begin policing medical groups as well.

“The Supreme Court removed any doubt that states have the right to regulate doctors and the medical groups they work with, which in the past has been questioned as beyond the scope of regulating insurance,” Speier said.

In addition, the court ruling may help legislation Gov. Gray Davis is backing that would allow HMO patients to keep seeing their doctors when a contract dispute severs ties between an insurer and a physician.

Under current state law, only the seriously ill and women past their first trimester of pregnancy have the right to remain with their doctors when contract disputes arise.

But AB 1286, proposed by Assemblyman Dario Frommer, D-Los Angeles, would let all patients remain with their physician for one year or until their next open enrollment period.

“In the Kentucky ruling, the Supreme Court is saying you can’t prevent patients from seeing a provider willing to treat them just because that doctor or hospital does not have a contract with the patients’ HMO,” Frommer said. “It’s not the patient’s fault that the provider and the HMO don’t have a contract, and patients should not be prevented from getting necessary care.”


The Bee’s Lisa Rapaport can be reached at (916) 321-1005 or [email protected]

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