HMOs Seek to Limit Regulators’ Authority
The HMOs and physician groups that serve California’s 18 million managed care members have stepped up legal challenges against the fledgling state Department of Managed Health Care in an attempt to limit its authority.
The tactics range from lawsuits and appeals of department orders to simple refusals to comply. Already, such actions have limited the department’s reach in cases involving Medicare patients, prescription drugs and fiscal solvency for the state’s teetering medical groups.
On Monday, Blue Shield of California filed a lawsuit that, if successful, could reduce the state’s ability to refer patient disputes to an independent medical review board, a key component of managed care reform in California and other states.
Consumer groups say the HMOs’ actions are a sign that the industry is chafing under the new department.
“The more aggressive the regulator, the more likely that you’re going to have [a] stronger push back,” said Marjorie Swartz, a lobbyist who handles managed care issues for the Western Center on Law and Poverty.
The Department of Managed Health Care has sanctioned health plans and medical groups 48 times since its inception in July 2000, and revoked licenses for a medical group and a dental group.
“This is a new department, and we think they’ve overstepped their bounds in some of their enforcement actions,” said Steven Madison, the attorney who filed the Blue Shield suit. “There is a sense of trying to find out what the limits are of their authority.”
Just hours before filing the Blue Shield suit, Madison was in federal court representing another giant health maintenance organization, Kaiser Permanente, in an effort to hold the managed care department’s director, Daniel Zingale, in contempt of court.
Zingale, himself a lifetime Kaiser member, was forced to fly to Los Angeles this week to explain to U.S. District Judge Ronald Lew why his fine of Kaiser last year was not inappropriate. Zingale was not held in contempt in the case, which stemmed from an earlier court ruling that the state could not intervene in Medicare cases.
Madison also represents Kaiser in another ongoing court hearing more broadly challenging that $1.1-million fine.
In another case, the state’s large medical groups, acting through the California Medical Assn., have won a partial victory in a lawsuit to prevent Zingale from releasing data on their financial conditions. A Superior Court judge issued a temporary restraining order against Zingale in that case, barring him from releasing the information until the case is resolved.
The California Medical Assn., for its part, wants to limit the Department of Managed Health Care’s discretion by forcing it to intervene when medical groups face insolvency because health plans are not paying them enough. Assemblyman Keith Richman (R-Granada Hills) is working with Assemblyman Fred Keeley (D-Santa Cruz) to pass such a bill.
“Our frustration is that we have found nobody willing to address the issue of fair and equitable contracts [between health plans and medical groups],” said Steve Thompson, the CMA’s chief lobbyist. “These are strong tactics, but we have a marketplace in crisis.”
In the Blue Shield lawsuit, court papers suggest that part of the purpose is to define the managed care department’s proper role.
“Blue Shield seeks a judicial determination of its rights and the department’s jurisdiction,” Madison’s initial complaint states.
Ken Wood, chief operating officer for Blue Shield, downplayed the significance of his company’s suit, however, saying it was to settle a rare dispute between the health plan and state regulators.
The lawsuit is based on the case of a woman who is so obese that her doctors believed that she would die if she did not take the weight-loss drug XenicalJ. Her doctors argued that the drug, prescribed in October, should be covered under a new regulation that requires any health plan that offers pharmaceutical benefits to provide all medically necessary drugs.
Blue Shield, however, had excluded outpatient weight-loss drugs from the woman’s HMO policy. So the company refused to provide the drug and also refused to comply with the department’s request that the matter be heard by an independent medical review board, according to Zingale and the company.
On Nov. 30, after about a month of wrangling and an order from an independent review that was conducted without Blue Shield’s sanction, the company did begin to provide the woman with the drug.
But a few days later, Blue Shield filed suit.
“We do not think they have the authority to require us to provide a service which is not part of the contract,” said Blue Shield spokesman Tom Epstein. “They did not have the authority to require that this drug be paid for, or [to order] an independent medical review.”
In particular, court papers said, the company is asking the court to rule on whether the department can order a case to be sent for review by an impartial board of doctors, and whether it can order coverage for all medically necessary drugs.
The department’s ability to order pharmaceutical coverage has already been limited by an earlier case. In that instance, Kaiser sued to prevent regulators, then under the Department of Corporations, from requiring the health plan to provide the impotency drug Viagra. Kaiser won the suit, which is now under appeal by the Department of Managed Health Care.
To a degree, the litigation and political moves to define the department are to be expected, Zingale and others said. The Department of Managed Health Care is new, and consumer advocates say it is more aggressive than its predecessor, the Department of Corporations. Moreover, there were few specifics in the law creating the department.
“One of the things I asked when I came to work at the department was, ‘What kind of case law is there regarding this?’ ” said Zingale, a former AIDS activist. “And I was told it’s really wide open--there really isn’t any. We’re creating case law as we go.”
