PacifiCare, State Begin Court Battle Over Regulation of Health Plans

A legal showdown between PacifiCare Health Systems Inc. and the state of California over the state’s power to regulate health plans is expected today in Orange County Superior Court.

PacifiCare is resisting a demand by the state Department of Corporations for access to internal records of the Cypress-based company’s California health plan. The department, the state’s regulator of health maintenance organizations, says it sought the records after many enrollees complained about the health care they were receiving through PacifiCare.

The state said the complaints suggest that PacifiCare needs “oversight, regulation and enforcement” to make sure it is providing care that meets professional standards, access to services, continuity of care, and referrals outside its network of providers when appropriate.

Officials of the plan, which has more than 1 million members, say the department’s demands for documents are unreasonable. The company estimated that compliance would involve more than 49,000 hours of labor and cost the company more than $750,000.

Since January, 1994, members of PacifiCare and its Secure Horizons plan for senior citizens have filed more than 11,000 complaints with the company. It’s unclear, however, whether PacifiCare generates more complaints than other plans.

Observers say the dispute is an outgrowth of an aggressive effort by Commissioner Gary S. Mendoza to dispel his department’s reputation as a lax regulator.

Orange County Superior Court Judge John M. Watson is scheduled to hear several motions in the legal standoff. PacifiCare wants an order blocking the agency from pressing its demand for members’ medical records, documents involving peer review of health-care decisions, and many other items.

Conversely, the department is asking the judge to force PacifiCare to open up.

Although the department has the power to suspend or revoke a health plan’s license, it’s taking the less drastic step of seeking $2,500 in penalties for each possible violation.

The controversy comes amid other signs that Mendoza may be stepping up state scrutiny of health plans. Last year, the department levied a fine for the first time in the 20 years it has been regulating health plans. It ordered TakeCare Health Plan to pay $500,000, alleging it failed to refer a young girl with a malignant tumor to an experienced surgeon.

TakeCare, a unit of FHP International Corp. in Fountain Valley, has challenged the state’s action in a suit in Orange County Superior Court. It also is appealing the fine in an administrative proceeding.

What’s more, the state appears to be getting tougher with health plans in its periodic review of their activities. Lyle Swallow, an associate vice president for Health Net Inc. in Woodland Hills, says that in the past year letters from the department have taken on a more aggressive tone.

But consumer advocates say the state hasn’t gone far enough. The Center for Health Care Rights, a Los Angeles consumer advocacy group, aims to intervene in the state’s behalf in the PacifiCare case. Peter Lee, the group’s lawyer, says a court victory for PacifiCare could affect state oversight of the entire industry, “chilling the department’s authority and initiative to investigate truly bad plans.”

Consumer groups also pooh-poohed PacifiCare’s position that it’s protecting its members’ right to keep their medical records private. Ele Hamburger, a staffer with Consumers Union, said, “In the name of consumer privacy, PacifiCare is trying to thwart the department’s efforts to meet its obligation to investigate HMOs.”

The dispute arose in July when the department’s enforcement division announced investigators wanted to inspect PacifiCare records dating back to Jan. 1, 1993. It sought members’ complaints and records on members who have dropped the plan, as well as the company’s grievance procedures, contracts with health-care providers, peer-review procedures and financial statements.

The state presented the court with complaints from about a dozen members or their relatives. Among the court filings are complaints from:

* Pamela Murry of San Diego, who said her daughter was denied surgery to correct a facial birthmark. Murry stated that, after she complained to the state, PacifiCare approved the surgery as a “goodwill” gesture.

* Norma Pappas of Covina, who said her elderly husband, who had heart surgery in August, 1994, was denied access to a cardiologist when he was hospitalized with heart failure several months later. On Christmas morning, he suffered a heart attack. After getting an angioplasty, he was unable to talk or walk and suffered from dementia, she said. He was transferred to a convalescent hospital, where he was discharged after a month, still in a demented condition and tied to a wheelchair, she said. He suffered heart failure again in April and died last summer, according to her complaint.

* Ann Breck, a nurse in Goleta, who said her elderly father was in a frail condition after surgery when he was transferred over her objections to a convalescent hospital. He became severely dehydrated, she stated, and died within weeks.

The state contends that, when it demanded to inspect PacifiCare’s records last summer after receiving these and other complaints, the company produced 19 “incomplete” complaint files, which had been edited and culled from hundreds of thousands of complaints.

In August, the company sued the department.

The state law covering health plans is at the heart of the dispute. The department cites a provision that states, “All records, books and papers of a [health] plan . . . shall be open to inspection during normal business hours by the [department’s] Commissioner.” PacfiCare contends that other provisions require the department to review medical records on site and that records can be examined only by people qualified to interpret medical information.

Meanwhile, both sides also have been asked to testify Dec. 5 at state Senate Insurance Committee hearings on the commissioner’s authority over health plans. This year, Sen. Herschel Rosenthal, (D-Los Angeles) the committee chairman, sponsored a law that tightened grievance procedures. The committee will likely consider whether additional legislation is needed to clarify the commissioner’s access to records when grievances aren’t being properly handled, a source close to the committee said.

Lee, at the Center for Health Care Rights, suggested another remedy--legislation requiring health plans to disclose the number and type of grievances they receive.

Although 32 other states have such measures, he said, “California has no provision like that, so the only way for the department to know if there’s a problem is to conduct investigations.”