Opinion Editorial of San Jose Mercury News

San Jose Mercury News

Eager to polish their image, California’s health management organizations and insurers of managed care announced a package of reforms last Thursday for the Legislature’s consideration.

These changes would be good, but they don’t go far enough. We recommend lawmakers also approve the one thing the industry is most eager to avoid: legal liability for bad decisions.

The reform package was proposed by the California Association of Health Plans, the trade group for Blue Cross, Health Net, PacifiCare and others in the managed care business. It calls on the Legislature to create a new regulatory agency, guarantee independent review when care is denied, and require all health plans to inform members about financial considerations such as physician pay incentives. These are all things that HMOs could do on their own, but a legislative mandate would make everyone conform.

The sheer size of the health care industry calls for a separate state regulatory agency, with a strong role for consumer advocates. Gov. Davis is reportedly in favor of a new agency, the big question being whether it will be part of the Business, Transportation and Housing Agency, or the Health and Human Services Agency. We favor the latter.

Other good industry proposals, many of which are incorporated in existing bills, are guaranteed access to second opinions and to quick review of medical necessity decisions; a promise that only medical professionals will make medical decisions; and disclosure of financial arrangements with doctors’ groups.

But we part ways with the health care industry over the issue of liability. Senate Bill 21, introduced by state Sen. Liz Figueroa, D-Fremont, would allow patients to sue their health plans for quality of care violations and for acting in bad faith. The California Association of Health Plans is opposed to this bill; we support it.

Californians can sue their auto manufacturers if their cars explode, or their contractors if their houses fall apart. But if they obtain health coverage through their employers, as most do, they cannot sue their HMOs for damages, no matter how egregious the misconduct.

Public employees and self-employed persons have the right to sue, because of the way a federal law is worded, but people in private employer-paid health plans can only recover the cost of the denied benefit — not much compensation if the denial resulted in death or life-long disability. While going to court should be a rarity, it ought to be available as a last resort. The threat of a lawsuit is a powerful counter-incentive to the profit motive which has brought managed care into such disrepute. And while HMOs and insurers complain legal liability would cost too much, we haven’t noticed that it has put food processors, airplane manufacturers or newspapers out of business — except, perhaps, a few that deserved to go out of business.

Legal liability for HMOs where it exists has not flooded the courts with litigation, and studies indicate the cost to Californians will be low. Legislators should take seriously the California Association of Health Plans agenda, which offers a coordinated path to reform, instead of the scatter-shot approach which too much legislation takes. But they should also take action to protect individuals whose last appeal is to the courts. When SB21 is heard later this month