Democrats Kill Wilson Plan to Create Agency Overseeing HMOs

State Senate Democrats on Thursday killed Gov. Pete Wilson’s plan to strengthen regulation of the health maintenance organization industry by creating a state Department of Managed Health Care.

Rejection of the proposal on a party-line 22-15 vote means that oversight of health maintenance organizations will continue under the Department of Corporations, unless Wilson and Democrats in the Legislature can reach a compromise in the next two months.

In California, the managed care industry has come under heavy criticism for allegedly placing cost savings ahead of high-quality care.

Common complaints include charges that HMOs substitute cheaper drugs rather than the most effective recommended by doctors; that women undergo mastectomy surgery as outpatients rather than being admitted to hospitals; and that nursing staffs are being cut back so severely that patient treatment is endangered.

About 18 million Californians, more than half of the state’s population, are covered by managed care plans.

Wilson’s reorganization plan would have transferred regulatory responsibility for HMOs from the corporations department, which has been criticized for lax oversight, to the proposed managed health care department, which would have been given beefed-up regulatory powers.

But Sen. Herschel Rosenthal (D-Los Angeles), a legislative expert on health insurance issues, charged that the HMO regulatory process in California is in need of “major surgery.” Instead, he said, Wilson “has offered a Band-Aid solution.”

The governor lashed back, accusing Democrats of sinking his program for partisan purposes. “It provides protection for the people and oversight of HMOs. It does everything the Democrats have been calling for. But when the governor submits it, they reject it,” said Wilson’s spokesman, Ron Low.

At the heart of the issue is a high-stakes fight among insurers, providers, patients and public officials over how to best regulate the estimated $50-billion-a-year managed care industry.

Consumer advocates favor a health- or consumer-oriented department or individual. In contrast, the industry generally supports retaining regulatory control under the administrative umbrella of the state Business, Transportation and Housing Agency, which includes the Department of Corporations.

Rosenthal said that the umbrella agency “has shown more concern for the financial health of HMOs than for the medical health of consumers. We need a new lead agency concerned about quality health care.”

But Sen. Ray Haynes (R-Riverside), a supporter of the governor’s plan, argued that HMO regulation should be kept out of the hands of public health administrators. He charged that “health bureaucrats” are chiefly motivated by “having more power over the health-care industry.”

A government reorganization plan submitted by a governor automatically takes effect unless it is rejected by either house.

Rosenthal held out hope that an HMO regulatory plan still could be enacted before the Legislature adjourns Aug. 31. He said a Senate-Assembly conference committee will consider several competing bills, but whether any could get Wilson’s signature is uncertain.

Rather than enact Wilson’s reform, said Jamie Court, director of Consumers for Quality Care, “I think it’s a victory if we just hold off until the next governor takes office.”

Despite the defeat of the Wilson bill, progress toward reform in managed health care has already surpassed last year’s efforts, when Wilson brought the process to a halt until he received recommendations from his managed care task force.

The task force finished its work in January, when it made a variety of recommendations, including appointment of a board or individual--dubbed a “health czar”--to regulate the industry.

So far this year, the governor has signed several HMO-related bills, which consumer advocates have praised as small but important steps. Starting Jan. 1 they will:

* Give women direct access to obstetric and gynecological care instead of waiting for their primary care physician to approve OB/GYN services. A second bill gives patients direct access to any specialist after an initial referral from a primary care doctor.

* Allow patients to stay with prescription medications they are taking even if their HMO has struck the drug from a list of medicines it will pay for. A related change will provide quick approval for a drug not covered by the plan when it is deemed medically necessary.

Pending in the state Senate is one of the session’s biggest bills, an Assembly-passed measure that would allow patients to sue HMOs for medical malpractice. “Only the threat of significant damages will force billion-dollar companies to provide timely and adequate treatment,” Court said.

Times staff writer Max Vanzi contributed to this story.