In September 1999, California Governor Gray Davis signed Senate Bill 21 (Figueroa), sponsored by the Foundation for Taxpayer and Consmer Rights, which allows patients to recover damages for HMO corporate negligence. The law takes effect January 1, 2001.
Until then, California patients with employer-paid health coverage in private industry do not have the right to receive damages against HMOs that deny and delay medically necessary treatment, due to the federal Employee Retirement Income Security Act or 1974 or ERISA.
If a patient with private industry coverage tries to take an HMO to court for acting in bad faith (a cause of action under state common law), the HMO hides behind a loophole in ERISA, claiming it cannot be held accountable to state common law or in state courts where damages are available. HMOs that lose the federal ERISA grievance only pay the cost of the procedure they denied, no other damages or penalties. (If ERISA rules applied to bank robberies, convicted thieves would simply have to give back the money.)
SB 21 allows all patients the right to hold HMOs accountable for damages like government employees, not subject to ERISA, can today. SB 21 allows patients to hold HMOs accountable for interfering with the quality of health care benefits delivered. This right is based on a Texas model that has resulted in phenomenal success since the Texas law took effect in September 1997. Approximately six lawsuits has been filed under the Act but doctors report that they are getting their treatment requests approved more readily by HMOs. This deterrent effect is precisely the point of ensuring that HMOs face the same liability as every other type of business in the state. Still, Governor Davis made significant modifications in SB 21 from the version introduced by the Foundation for Taxpayer and Consumer Rights.
SB 21 Initially As Sponsored By FTCR
All harms have remedy.
Allowed for patient remedies in “a civil action” — a court room.
Effective January 2000.
No requirement to submit to independent review process.
Doctor-run medical groups that accept risk (capitated arrangement) and arrange for care are liable.
SB 21 As Amended By Legislature To Meet Gov. Davis’ Request
Only substantial harms have remedy, defined as “loss of life, loss or significant impairment of limb or bodily function, significant disfigurement, severe and chronic physical pain, or significant financial loss.”
Does not preclude HMOs from forcing patients into binding arbitration as condition of health coverage.
Effective January 2001.
Must use review process unless “substantial harm” as defined above will imminently occur.
Doctor-run medical groups that accept risk (capitated arrangement) and arrange for care are liable.
Numerous official studies show HMO liability reform would be both health-enhancing and cost-effective.
Existing HMO liability legislation has not resulted in increased costs and litigation. In Texas, an HMO liability measure, SB 386, which took effect in September 1997, has not raised health care costs or resulted in a “litigation explosion.”
Unless there are financial consequences to an HMO for denying expensive treatment, the financial calculus of “managing care” will always weight toward withholding and delaying costly care, no matter how sorely the treatment is needed or substantially it is justified by medical science. SB 21’s liability provision is sorely needed.