Sacramento Bee

Establishing a system that consumer advocates say will put California at the forefront of the patients’ rights movement, Gov. Gray Davis on Monday signed a sweeping package of health care reforms, topped by a measure that will let patients sue their HMOs for denying them medically necessary treatment.

The 21-bill legislative package also creates a separate state department to regulate HMOs and help consumers deal with their health plans, an external review procedure for disputes over treatment decisions, and a requirement that HMOs pay for second medical opinions sought by patients.

While industry representatives warned that elements of the package could drive up medical insurance premiums, consumer advocates said the package represents only the beginning of what needs to be done.

In signing the bills, Davis urged Congress to “take note of what we have done here” and adopt a national patients’ “Bill of Rights” before adjourning for the year.

“Too often, critical medical decisions are being made by cost-cutting bookkeepers instead of caregiving doctors,” Davis said at a signing ceremony staged outside a family medical clinic in Los Angeles. “It’s time to make the health of the patient the bottom line of every managed-care company in California.”

The package — which also included bills requiring health plans to cover mental illness services, cancer-screening tests, contraceptive services and various diabetic supplies and services — was the product of months of negotiations in the Legislature and between Davis and leaders in the health-care industry.

Two major HMO bills passed by the Legislature were not acted on by Davis Monday — one improving the nurse-to-patient ratio in hospitals, and another requiring that all health-care decisions at HMOs be made by California-licensed physicians. Davis has not yet announced his intentions for those bills.

The state’s new liability law — SB 21 by Sen. Liz Figueroa, D-Fremont — is meant to circumvent a federal law protecting HMOs from lawsuits over health-care decisions. California’s new law is modeled after one that has worked successfully in Texas.

“In California, HMOs have been exempt from responsibility for long enough and it shows in their conduct,” Figueroa said. “It’s time they were treated like everybody else.”

California’s liability law takes effect Jan. 1, 2001, giving the state a year to establish the new external review system. The liability law requires patients to exhaust the state’s new external review system before filing suit.

The law subjects managed-care providers to unlimited punitive damages when wrongful denials, delays or modifications of care cause substantial

Such harm is defined in the law as loss of life, loss or significant impairment of limb or bodily function, significant disfigurement, severe and chronic physical pain, or significant financial loss.

While public employees already have even broader rights to sue their health plans, about 15 million private-sector employees enrolled in HMOs will be given the right to sue under the new law, according to the Assembly Judiciary Committee.

Patient advocate groups have argued that by opening up HMOs to lawsuits, HMOs will be less likely to base treatment decisions on financial considerations.

“This historic reform package will be a bellwether for the nation because it evens the gravest imbalances of power between HMOs and their patients in the state where HMOs were born and over 90 percent of the population is in managed care,” said Jamie Court, the advocacy director for the Foundation for Taxpayer and Consumer Rights.

The HMO industry lobbied hard against the bill. In a letter to Davis asking him to veto it, Walter Zelman, president of the California Association of Health Plans, said SB 21 should have included some limits on the extent of liability faced by HMOs.

“We see no public interest in the prospect that one error by one plan might produce damages, including punitive damages, in the millions — if not tens of millions — of dollars, all of which would go to one plaintiff and his or her lawyers, and almost all of which will end up being paid for by other policyholders,” he wrote.

Zelman on Monday praised the creation of the external review process, which he said “should substantially increase consumer confidence that they will get the health care they need when they need it,” but still warned that elements of the package “may produce more in the way of higher costs than benefits to consumers.”

The health-care reform package signed by Davis also includes bills that will:

* Expand patient privacy rights by prohibiting the unauthorized sale of medical information not necessary for health-care services and the disclosure of a patient’s participation in outpatient psychotherapy.

* Set deadlines for health plans to respond to treatment requests by physicians.

* Require health plans to cover the screening, diagnosis and treatment of breast cancer, and prohibit HMOs from denying enrollment because of a personal or family history of breast disease or breast cancer.

* Require HMOs to cover hospice care as well as the testing and treatment of PKU, a genetic disorder that can result in brain damage.