Davis Opposes Making It Easier for Consumers to Sue HMOs

A provision that makes it easier for consumers to sue their HMOs directly for large unreimbursed medical bills and related expenses will not go into effect if Gov. Gray Davis gets his way.

Davis, who won national acclaim for his role in supporting HMO reforms last year, is pushing for legislation that would remove a key section of a bill, SB 21, that he signed with reservations in September. The provision allows patients who suffer large personal losses to sue their health maintenance companies without first going through a new state independent review process.

Davis’ proposed change, which consumer advocates contend has the effect of gutting the original law, is contained in AB 2039, pending legislation by Assemblywoman Sheila Kuehl (D-Santa Monica), co-author of the original reform bill, which takes effect in January.

When he signed SB 21 last fall, Davis said in an accompanying letter that he was uneasy about allowing patients to bypass the independent review process, particularly in cases involving “significant financial harm.”

“The independent external review requirement is a meaningful tool to ensure consumers receive necessary treatment, rather than a process to be avoided in pursuit of a lawsuit,” he wrote. “It is my understanding that the Legislature has made a commitment to address and clarify this issue next year.”

The governor, according to a spokeswoman, wants to distinguish between physical injury--which he believes merits direct access to the courts--and financial loss.

“If someone is in imminent danger of losing a limb or there is an extreme threat to their health . . . skipping the external review is designed to get that person treated as soon as possible,” said the spokeswoman, Hilary McLean.

But some legislators and consumer advocates said they knew nothing of last year’s agreement and saw his letter only in recent weeks. Even Kuehl and the bill’s primary author, state Sen. Liz Figueroa (D-Fremont), said they had not received a copy of the letter until last month.

“If we had known about it, we would have screamed bloody murder and maybe Sheila Kuehl would have felt she had enough support to go to the mat on it,” said Sara Nichols, legislative chairwoman for the Consumer Federation of California.

Davis received national attention for his bold HMO reforms. Time magazine even cited them in an October cover story headlined: “The Most Fearless Governor in America.”

Now, advocates fear the governor’s attempt to change SB 21 amounts to backpedaling. They point out that Davis received nearly $200,000 in campaign contributions from HMOs around the time of the bill signing--about half in the heated weeks of negotiations leading to SB 21’s passage and the other half in the weeks after his signing.

The problem with the governor’s proposed change is twofold, they contend. First, making physical harm the only exemption from independent review penalizes patients who avoided injury by paying for denied treatment themselves. They also believe it dilutes the intended deterrent effect of the legislation.

“What you want is the strongest possible incentive for the HMO to make the right decision the first time out,” Nichols said.

But an HMO spokesman said exempting financial harm from the independent review hurdle encourages patients to incur unnecessary expenses.

“You can achieve [financial harm] very easily,” said Walter Zelman, president of the California Assn. of Health Plans. “You’re denied coverage and, rather than appeal it, you immediately go out and spend money and then you can sue.”

“That’s ridiculous,” responded Figueroa. “When people are sick, they’re not thinking about abusing a situation; they’re thinking about getting . . . back to good health.”

Neither Figueroa nor Kuehl shares the governor’s objection. But Kuehl acknowledged that to secure Davis’ signature on SB 21, she promised to revisit the financial harm clause this year. And she said she intends to keep her word.

Although details are still being worked out with the governor’s office, Kuehl’s bill is expected to come up for its first public hearing Tuesday in the Assembly Judiciary Committee, which she heads.

Figueroa has no intention of supporting it when it reaches the Senate.

“I compromised a lot on [SB 21] and I feel comfortable with the law as is,” she said. “I did not make any agreement with the governor to change it at all.”

Davis used the same approach--signing but with a caveat--on a handful of other bills last year, including a nurse staffing bill by Kuehl.

Kuehl described the approach as far more creative than a scolding veto message, but Senate Leader John Burton (D-San Francisco) pooh-poohed it as a poor way to conduct business. “My theory about chief execs is you make them make a choice,” he said.

In the case of SB 21, participants said final negotiations on the financial harm issue occurred at the last minute--among legislators, legislative aides and governor’s representatives huddled at the back of the Assembly chambers minutes before the vote.

“From the consumer perspective, this is clearly a double cross; there was nothing said in public about this change,” said Jamie Court, advocacy director for the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Zelman acknowledged that it is not the best way to make law. But he defended his organization’s latter-day lobbying campaign aimed at the governor’s office because the financial harm waiver was altered the weekend preceding the vote.

“We did not see it until six hours before the vote,” Zelman said.

Interestingly, state employees are exempt from the change, should it occur, because the law that restricts rights to sue--the law that SB 21 modified--does not extend to public employees. So, “there’s no similar limit on Gov. Davis or any other legislator that’s going to vote on this bill,” Court said.