Court Backs Medicare Enrollees’ HMO Suits

A California appeals court ruled Tuesday that Medicare recipients may sue their health maintenance organizations for punitive damages in state court for denying referrals, tests or certain treatments.

Until the ruling, there had been no appellate decision on whether Medicare enrollees living in California could sue their HMOs in state court. A number of such cases were dismissed on grounds that the federal Medicare law precluded complaints at the state level, and then plaintiffs could sue only for actual damages--the value of services denied.

But the 4th Appellate District Court in Santa Ana ruled that while the federal law applies in many cases, consumers who wish to use the quicker state court process may do so in certain cases.

The ruling comes at a time when Congress is debating whether to give more patients the right to sue managed-care plans.

“This is a fabulous victory for California’s Medicare enrollees,” said Carol Jimenez, who represented the plaintiff in the case. “It will open up the gates for people [to sue] when they are denied treatment.”

Tuesday’s decision grew out of an Orange County case in which a retired Costa Mesa businessman alleged that PacifiCare Health Systems Inc. of Santa Ana and its physician provider group, Greater Newport Physicians Inc., had engaged in fraud and unfair business practices when it denied him a referral for a lung transplant.

George McCall, who suffered from progressive lung disease and has since died, said in his suit that PacifiCare denied him important treatment and repeatedly refused to refer him to a specialist for a transplant.

McCall sued PacifiCare, its medical group and his pulmonologist, alleging fraud and negligent infliction of emotional distress. Last summer, an Orange County Superior Court judge dismissed the suit, holding that it was precluded by the federal Medicare Act.

But writing for the unanimous court, Judge William Bedsworth said federal appeals courts have held in recent cases that claims that do not merely seek reimbursement for Medicare benefits can be filed in state courts.

The appellate panel reversed the Orange County judge’s dismissal, allowing McCall’s widow, Barbara, to proceed with the suit.

PacifiCare would not comment on the decision, saying that company executives had not yet read it.

“This case has huge ramifications,” said Russell Balisok, a Los Angeles lawyer who argued the appeal for McCall, who accused HMOs of underpaying doctors as a way to pressure them to provide less costly care to enrollees.

Jamie Court, a consumer advocate whose organization, Consumers for Quality Care, monitors and participates in legal cases involving managed care, said the decision will make it easier for seniors to demand better access to specialists and treatments.

But the trade group representing the state’s managed-care companies cautioned that in the end, health-care premiums would go up if more people were allowed to sue.

Plaintiffs “can potentially win large amounts and the rest of us have to pay for it,” said Walter Zelman, who heads the Sacramento-based California Assn. of Health Plans.

Barbara McCall said in a statement that she “hopes that today’s ruling means that HMOs will no longer be able to get away with the things they did to George.”