State HMO regulator snagged in web of legal challenges

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San Diego Union-Tribune

A year-and-a-half into his tenure as the state’s head regulator over the managed-care industry, Daniel Zingale is facing a series of legal challenges that could limit his department’s ability to govern health plans.

At the same time his department is battling those lawsuits, a case being considered by the U.S. Supreme Court also has the potential to severely limit Zingale’s regulatory power.

Just a few months ago, near his one-year anniversary as director of the Department of Managed Health Care, Zingale received high marks from both health plans and doctors for his even-handed, diplomatic touch.

Indeed, to some, Zingale, a longtime consumer advocate, was criticized by some as being too conciliatory.

But these days, his department’s resources are often tied up in courtrooms battling a variety of lawsuits from health plans and the state’s main lobbyist for doctors.

In recent months:

 Blue Shield of California won a decision in state Superior Court, barring the department from penalizing the health plan for not covering a weight-loss drug for an obese member.

 A federal court ruled in favor of the state HMO industry, finding that the department had only limited regulatory control over Medicare HMOs.

 Kaiser Permanente is fighting the department in state court, seeking to overturn a record $1.1 million fine for failing to provide adequate care in its hospitals.

 In a separate action tied to the $1.1 million fine, Kaiser filed a petition in federal court, alleging that Zingale was in contempt of court for attempting to regulate Medicare HMOs. Zingale successfully argued that the department merely used the case of a Medicare HMO patient in levying its fine but was not trying to enforce Medicare laws.

 And the state doctors association sued the department, trying to stop it from releasing the financial records of the state’s medical groups.

The most serious challenge to Zingale and the department, however, may come not from the health plans or doctors but from a case being heard by the U.S. Supreme Court, which is weighing whether states can force health plans to pay for patient care recommended by an outside independent party. Legislation passed by Gov. Gray Davis in 1999 gave Californians the right to such independent reviews.

The case centers around an Illinois woman, Debra Moran, and her HMO, Rush Prudential. When the HMO refused to pay for Moran’s $98,000 operation to alleviate a compression of nerves in her neck, she demanded an outside review under an Illinois law. The independent review agreed surgery was necessary and ordered the HMO to pay for it.

Moran and the HMO have been battling in court since 1998, and in 2000 Wellpoint Health Networks, parent company of Blue Cross of California, bought Rush and appealed the case to the Supreme Court.

If the court decides health plans do not have to abide by decisions made by independent reviews, much of the regulatory power of Zingale’s department would be eliminated.

“If you take that away, you’ve gutted California’s patients bill of rights,” Zingale said.

While the court makes its decision, expected in July, Zingale finds himself fending off the lawsuits against his department.

That a new government agency is being tested is not unexpected. Some 30 health-care laws have been passed since 1999, dropping the department and health plans into an often murky landscape.

“In the life of any regulator, you’re going to have (a situation) where you’re implementing new things and there are going to be disagreements,” said Beau Carter, executive director of the Integrated Healthcare Association, an HMO trade association in Walnut Creek.

Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, said that health plans are awakening to the fact that there is now an active regulator over their industry. When the Department of Corporations oversaw health plans, critics regarded it as ineffective.

“You’ve got to remember there’s been a vacuum of 25 years where there was never any effective regulation of HMOs,” said Court, a longtime critic of managed care.

But whatever expectations Zingale may have had when he started his job, it’s clear that his department and the industry it regulates are heading into a more contentious phase.

“I have certainly learned when (HMOs) mount a legal battle, they bring a lot of resources and we have to be prepared,” Zingale said. “I’d rather have our lawyers working on patient-care issues.”

Zingale and the HMO industry agree there has been no real pattern to the lawsuits, and Zelman said the industry is not attempting to undermine the department’s role as a regulator.

“I don’t think there’s been any change in approach on the part of plans,” said Zelman. “The kind of legal issues that have arisen are generally one plan versus the department. I know there’s no overall strategy here.”

But Zingale said that each case has the potential to erode the department’s power. Pointing to the Blue Shield case, which the department is appealing, he said that if that decision stands, “it’s a significant setback for patients” who could be denied medically necessary drug therapies.

And had the federal judge ruled against Zingale in the Kaiser suit, that would have rendered the experience of Medicare HMO members irrelevant from the state’s perspective, he said.

If dealing with health plans were not enough, Zingale is also in a fight with the California Medical Association over the department’s effort to release the financial records of the state’s some 200 medical groups.

Zingale maintains that patients have a right to know how their medical group is faring financially because it can affect the quality of care they receive.

Physicians argue that making the information public would put them at a disadvantage in negotiating with HMOs and create panic among patients who may misinterpret the records.

“We’re looking for a middle ground that will provide the information that patients need within the context of the law,” said Peter Warren, a spokesman for the medical association.

Zingale denies he is frustrated by the legal challenges, but Court, the consumer advocate, said his approach as a regulator has changed subtly.

When Zingale was appointed, Court questioned whether he had the mettle to fight the HMO industry. But Zingale has “grown a little more courageous, and I think he realizes this is an adversarial process,” Court said.

Consumer Watchdog
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