Broad Health Care Reform Package Signed Into Law

Gov. Gray Davis on Monday signed into law one of the most ambitious health care reform packages in the nation, granting more than 20 million California residents the right to sue their HMOs, obtain second medical opinions and appeal their health plan’s decisions to independent experts.

The package of 20 bills, which Davis touted as a balanced, bipartisan effort, includes not only measures to ensure HMO accountability but also mandates for coverage of mental illness treatment, contraception, cancer screening and a variety of diabetes services and supplies.

And it provides confidentiality protections for consumers, sets up a new Department of Managed Care to oversee health maintenance organizations and establishes a financial solvency board to address the financial condition of medical groups.

“It’s time to make the health of the patient the bottom line,” Davis said in a packed ceremony at the Family Medical Center in North Hollywood in front of a banner reading “Putting Patients First.” “We are today taking historic steps to cure what ails our managed care system.”

Seeking to set a national example, the governor pointedly prodded Congress to pass a similar set of guarantees right away.

“There is no reason why Congress can’t pass a patients’ bill of rights by the end of the session this year,” Davis said, to cheers from hundreds of people gathered outside the center.

California is the latest of several states to push ahead on a comprehensive managed care regulation while Congress--under heavy pressure from insurers and employers--has dallied over whether to enact strong patient protections nationally.

“As the birthplace of managed care and the biggest state in the country, it’s a big deal when California acts because it instantly becomes a bellwether for the nation,” said Larry Leavitt, a senior health policy analyst at the Kaiser Family Foundation, a nonprofit health care research organization based in Palo Alto.

“That’s particularly true because the fight here was fairly contentious. . . . In many other states there are lobbyists, but the clout of consumers and of insurers and business is not as strong as it is in California.”

With the new laws, California joins fewer than half a dozen states that allow patients to sue their health plans for negligence.

The other large state with a liability law as well as a strong independent appeals law is Texas (where the law is being challenged).

“This sends a message to Congress that it’s not just Texas, it’s other states that believe that holding managed care companies accountable is important,” said Connie Barron, a senior lobbyist for the Texas Medical Assn.

“Washington has been much slower to respond [than the states], but this development should increase the likelihood that federal legislation will pass,” agreed Chris Jennings, chief health care policy advisor to President Clinton.

House Poised to Take Up Bill

On Capitol Hill, the House of Representatives is poised to take up a measure next week that would impose uniform regulations on managed health care plans nationwide. In contrast to the California law, that federal legislation would cover everyone with health insurance, not just HMO members.

Reform advocates cautioned that California’s new laws, which will take effect next year and the year after, protect only those people in plans regulated by the state. About 48 million Americans--including 2 million in California--are in plans governed solely by federal laws. In such plans employers self-insure, meaning that they pay for their workers’ health care directly out of premiums collected rather than relying on an insurer.

Davis’ enthusiastic embrace of the reforms marked a change since midsummer, when he abruptly put the brakes on about 70 bills headed for his desk. A cautious and centrist governor, Davis noted that many conflicted with each other or were duplicative and said he would accept only five or six streamlined bills.

Stunned fellow Democrats complained that Davis’ declaration appeared to be a rerun of a 1997 surprise by Republican Gov. Pete Wilson, who, through threatened or actual vetoes, delayed the overhaul of the managed care industry by almost two years.

Although some consumer advocates complained about weaknesses and items left out of the reform legislation, many legislators and advocates were euphoric, saying the reforms went further than they ever anticipated.

“I am so excited I can hardly stand it,” said Assemblywoman Helen Thomson (D-Davis), who for three years struggled to push a bill though the Legislature that would force plans to cover biologically based mental illnesses, such as schizophrenia, on par with other physical diseases.

“Wowee!” said Assembly member Carol Migden (D-San Francisco), coming off the podium after the signing ceremony. “In combination, these bills are going to provide real relief to people [and will] be easy to understand and implement.”

Migden introduced what Davis called one of the “crown jewels” of the legislative package--setting up an independent medical review system for patients to dispute claims when treatment has been delayed, denied or modified by their health plan.

Another item cited by the governor was the right-to-sue legislation introduced by state Sen. Liz Figueroa (D-Fremont), which is limited to consumers who can show they were “substantially harmed” by a plan or company.

The new laws will also compel plans to provide second opinions to patients who request them.

From the multibillion-dollar managed health care industry, Davis’ action drew mixed praise and a warning of potential higher costs to consumers.

Walter Zelman, president of the California Assn. of Health Plans, said the package should “substantially increase consumer confidence that they will get the health care they need when they need it.” But he voiced concern that the program “includes proposals which we fear may produce more in the way of higher costs than benefits to consumers.”

Industry Opposed Bill

The industry strongly opposed the bill allowing privately insured Californians to sue their health plans, but supported the bill to establish an independent review process for resolution of disputes. It also “reluctantly opposed” mental health parity on cost grounds.

Assembly Republican leader Scott Baugh of Huntington Beach joined in warning of potential higher costs to consumers, noting that several of the bills require the addition of new services, tests or medications, including birth control pills for women.

“This package of mandates . . . will bring about a collective increase in premiums to the ratepayer of 10% to 15%,” Baugh warned.

Stephen Mayberg, director of California’s Department of Mental Health, discounted concerns that health care costs will increase markedly as a result of the parity legislation.

“The experience in 27 other states [with so-called parity laws] is that it hasn’t significantly changed the economics of the delivery of services,” Mayberg said.

On a national level, mental health advocates were thrilled at California’s parity law.

“California is the big prize,” said Laurie Flynn, director of the National Alliance for the Mentally Ill. “For such a large populous state, a diverse state, to move parity into law is a big victory for people with mental illness.”

State consumer advocates lauded the reform package but stressed that patients need to be educated about their new rights and that gaps in the new protections must be filled.

“It’s a good set of rights--but consumers have to know they have them, said Peter Lee, of the Center for Health Care Rights. “That continues to be the outstanding question mark . . . whether the new [Department of Managed Care] will really work to inform consumers about their rights and do what the governor says he wants to do, which is put patients first.”

Jamie Court, director of Consumers for Quality Care of Santa Monica, said that the new laws fall short in that HMOs still can prevent patients from suing by forcing them to sign binding arbitration clauses as a condition of treatment.

Missing from the governor’s stack of signed bills were two controversial measures on which aides said he has not yet made a decision. One, AB 58, by Assemblywoman Susan Davis (D-San Diego), would require medical directors of health plans who make medical decisions to be licensed physicians. The other, AB 394, by Assemblywoman Sheila Kuehl (D-Santa Monica), would require the state Department of Health to establish minimum nurse-to-patient ratios in most hospitals.

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Marquis reported from Los Angeles, Rubin from Washington and Ingram from Sacramento. Times staff writer Dan Morain in Sacramento contributed to this story.