New York Times

Gov. Gray Davis signed a package of bills today that will give patients a variety of new rights in their relationship with health maintenance organizations in California and could well influence managed health care coverage across the country.

Most important, the broad set of bills, hammered out between advocates on both sides over several months, gives patients the right to sue their health insurers for punitive damages and solicit outside reviews of decisions denying them coverage.

The legislation also requires managed care providers to pay for second opinions on some treatments, cover the testing and treatment of breast cancer, pay for contraceptives and expand coverage for serious mental illnesses.

The measure will create a new state Department of Managed Care to regulate the huge industry, which covers about 23 million Californians.

The provision that gives patients the right to seek punitive damages when they have suffered substantial harm was the most contentious. It provides a way around a 25-year-old Federal law that prohibits many such suits, and it has been championed by consumer groups for years.

A battle at least as contentious over the issue is under way in Congress as part of the debate on a patients’ bill of rights. Health care insurers have long criticized this provision, saying its potential costs outweigh the benefits.

While there is no guarantee that the changes in California will play out around the country or be a decisive factor in the Congressional debate, California has long been a leader in developing managed care and regulating the industry. In addition, many of the country’s largest insurers are based here.

As a result, many other states look to California for guidance on regulatory issues, and it was clear that today’s signing was being watched closely. Texas allows patients to seek damages, while Georgia and Louisiana have procedures allowing patients to appeal care that was denied or insufficient.

Both consumer advocates and H.M.O. industry leaders ultimately found something to praise in California’s package of 21 bills, the product of a series of compromises that have created what many characterized as landmark legislation in the struggle on the slippery financial and ethical terrain of managed care to make it both profitable to the insurers and responsive to patients’ needs.

At one time, Mr. Davis, a centrist Democrat, was perceived by consumer advocates as resistant to giving patients such broad rights to seek damages, but he hailed today’s measure as a solid middle ground.

“None too infrequently, Californians fighting for their lives are forced at the same time to fight H.M.O.’s,” Mr. Davis said at the signing, held at the Family Medical Center in North Hollywood. “It’s time to make the health of the patient the bottom line with California H.M.O.’s.”

He added, “I want to make sure managed care is more about quality care than it is about managed cost, and that’s what these reforms will do.”

Walter Zelman, president of the California Association of Health Plans, a trade group that represents most of the H.M.O.’s in the state, said, “This is going to be a shot in the arm for those advocating reform bills in Congress and in other states.” Mr. Zelman said that he felt the cost of lawsuits would drive up premiums for consumers, but that, all in all, “from where we started, this was a good package of bills.”

He said the industry particularly supported the bill providing for outside reviews of decisions by H.M.O.’s denying coverage to patients.

Jamie Court, the advocacy director of the Foundation for Taxpayer and Consumer Rights, which sponsored the bill creating the right to punitive damages, said that the threat of lawsuits would help patients, even if they never had to go to court, by pressuring the companies to put medical concerns first.

“The threat of lawsuits and of substantial damages forces H.M.O.’s to give better care,” Mr. Court said, “and it shifts the balance of power over medical decisions to the people who really have the medical knowledge.”

One did not have to go far to hear some conflicting views from patients. Ira Horn, 69, was at the signing at the medical center and said the law would hurt people like himself who could not afford an H.M.O.

“All it’s going to do is raise the rates,” complained Mr. Horn, who said he was a diabetic.

Cynthia Toussaint, 38, said she suffered a nerve disorder years ago, when she was a ballerina, and that her H.M.O. doctors took 13 years to properly diagnose the injury, which by then had put her in a wheelchair. Her H.M.O. initially contended that the problems were psychosomatic, she said, and once she received a diagnosis, it refused to cover her care. She said that the new laws did not go far enough, that the government should eliminate binding arbitration as well as bonuses that some doctors and administrators receive for keeping treatment costs down.

Many of the measures signed into law today were fought successfully by Mr. Davis’s predecessor, Gov. Pete Wilson, a Republican, and that effectively stymied the consumer advocates. But the political ground has shifted in recent years, with more patients and consumer groups criticizing the way financial considerations were being used to limit access to medical care by H.M.O.’s.

In addition, despite the Federal prohibition against certain kinds of suits against H.M.O.’s, some suits have succeeded, putting further pressure on legislatures to put regulations in place. Earlier this year a jury in California gave a record punitive award of $116 million to the widow of a former prosecutor who had died because of what his family said were delays in providing treatment for stomach cancer.

Mr. Court explained that the Federal law prohibited suits in disputes over benefits, but not if the basis of the challenge was the quality of the care provided. That interpretation, he said, had already been tested in Texas, and the courts upheld the state law, giving a green light to California and other states.

The right to sue for punitive damages has been the most prickly provision in the patients’ bill of rights that Congress has been working on. The Senate passed its version of the bill, and it has a measure providing for independent, external review of decisions denying medical care, but does not permit the suits for damages. The measure appears to have a better chance of passing the House, which is expected to take up the measure next month.

Karen Ignagni, the president of the American Association of Health Plans, the trade group representing the H.M.O. industry, called much of the package a model of good legislation.

However, Ms. Ignagni criticized the provision for lawsuits, saying it would prove expensive and unnecessary.

But the broad impact of the bills is expected to be a more transparent process that offers consumers a quicker resolution to certain disputes over coverage and guarantees that some forms of coverage long denied by managed care providers will now be required. In addition, the bills will protect patient privacy by restricting the conditions under which the insurers can release information.

Mr. Davis received particularly vigorous applause at the signing today before a crowd of about 200 legislators, doctors and patients when he mentioned the provisions mandating coverage of contraceptives under most plans and for coverage of severe mental illnesses. Treatment for illnesses like schizophrenia, major depression, bipolar disorder, autism and anorexia must now be covered for any age patient, and serious emotional disturbances in children must also be covered.