Medicare Patients Can Sue HMOs

Medicare patients in California may sue health maintenance organizations for denying necessary but expensive medical treatment, the California Supreme Court decided Thursday.

The 5-2 ruling clears the way for elderly and disabled patients and their survivors to seek hefty compensation, including punitive damages, from HMOs that improperly deny care. About 1.5 million Medicare patients in California are enrolled in HMOs.

Many such suits in California previously had been dismissed on the grounds that federal law requires these complaints to be filed in an administrative proceeding established by the Medicare law. The federal process allows only limited claims and compensation.

“The decision could not be better for Medicare beneficiaries,” said Carol S. Jimenez, a Los Alamitos lawyer who represents the family of a now-deceased Orange County man in the case. “It means that their HMOs can’t deny care and escape the consequences.”

Lawyers for PacifiCare of California, the second-largest HMO in the state and a defendant in the case, are considering an appeal to the U.S. Supreme Court.

“The concern is: Do we want to have a situation where the Medicare process is bypassed and is replaced with what we believe is unnecessary litigation,” said attorney Jon Z. Manzanares, who also denied that the Orange County man, George McCall, was treated improperly.

Justice Kathryn Mickle Werdegar, writing for the court majority, said state and federal courts have disagreed over whether such lawsuits are permitted in state courts, and the U.S. Supreme Court has not addressed the question.

She said the federal Medicare law, while establishing an administrative system for patient complaints, did not specifically prohibit lawsuits in state court.

“We presume that in enacting laws, Congress does not intend to preempt state regulation of the same subject matter unless a contrary intent is made clear,” wrote Werdegar, a moderate on the court.

The two most conservative members of the state high court dissented. Justice Marvin R. Baxter, joined by Justice Janice Rogers Brown, contended that the federal Medicare Act presents a careful administrative program for handling complaints.

“While the system may not afford the range of relief available under state law, it is designed to provide that coverage decisions are reviewed in a thorough and expeditious manner” by the federal government and review boards, Baxter wrote.

McCall, who suffered from lung disease, had brought the case, charging that his HMO, PacifiCare, and his physician provider group, Greater Newport Physicians Inc., refused to refer him for a lung transplant.

The Costa Mesa businessman was receiving treatment under Medicare. He was extremely ill and in the hospital when a nurse asked his wife, Barbara, why he wasn’t on a lung transplant list, Jimenez said.

When he asked about a transplant, his doctors told him he would be a candidate but they would not refer him until he quit the HMO and relied fully on Medicare, which covers the full cost of such transplants, the lawyer said.

The same doctors continued to treat him as a Medicare patient after he left the HMO, Jimenez said.

“The moment he disenrolled, they referred him for a transplant because then, from that moment on, they got paid every time they saw him and did not have to pay for any of the care for which he had been referred,” Jimenez said.

McCall waited about two years for the transplant, surviving on a ventilator. He died several hours after receiving a transplant at the age of 58. He left three grown children, two of them in college.

‘They Took the Love of My Life From Me’

Barbara McCall said Thursday that she hopes the ruling “means that HMOs will no longer be able to get away with things like they did to George.”

“George spent the last few years of his life on a ventilator, thinking about what might have been if he had been allowed a lung transplant earlier,” she said.

Before learning about the success of transplants from a nurse, she said, she and her husband had been told that they didn’t work and were dangerous. She said her husband had an inherited form of emphysema, and lung transplants save lives if they are done before the disease has ravaged the patient.

“He should have had it some time ago, many years ago, and he would have survived,” said his widow, a real estate broker. “They took the love of my life from me. They took my best friend.”

Medicare patients can go to private doctors, but some opt for HMOs that contract with Medicare. HMOs typically offer benefits, like prescription drug coverage, that Medicare doesn’t.

HMOs also are required to cover all benefits to patients that Medicare provides. Physician groups, however, are sometimes paid more by Medicare than by HMOs.

At the time McCall filed his lawsuit (McCall vs. PacifiCare, SO82236), at least two Courts of Appeal in California had previously ruled that the Medicare law barred such complaints in state court. Relying on those rulings, an Orange County Superior Court judge dismissed the suit.

Less than a month after McCall’s death in July 1999, another state Court of Appeal overturned the earlier rulings and decided that McCall’s suit could go to trial. The California Supreme Court’s ruling upheld that decision and disavowed the earlier appellate rulings.

Justice Werdegar noted that Medicare regulations provide administrative review of a limited number of claims--not the kind made in McCall’s lawsuit. For instance, a patient who is denied a service can appeal to Medicare and sometimes get a relatively quick decision.

Medicare law allows a patient to be reimbursed only for out-of-pocket costs that were incurred after the treatment had been improperly denied. If the patient disagrees with the government’s decision, he or she can appeal in federal court subject to the same limitations.

Certain kinds of complaints will still have to be submitted to the Medicare process, despite Thursday’s decision. A dispute over whether a treatment is covered by Medicare and an attempt to be reimbursed for care must be brought in the Medicare system, lawyers said.

McCall’s lawsuit alleges negligence, willful misconduct, fraud, negligent and intentional infliction of emotional distress, and unfair business practices. The lawsuit does not name a specific dollar amount, but some attorneys believe the damages could run into the millions.

In dissent, Baxter wrote, “It is not the prerogative of this court to second-guess the measured trade-offs enacted by Congress. “Today’s decision all but assures that Medicare administrative review process will cease to function as a meaningful limit on judicial review. I cannot, and will not, join in its undoing.”

The dissent exceeded the majority opinion in length, a possible sign that the case was originally assigned to Baxter but that he was unable to persuade a majority of the justices to go along with his views.

PacifiCare praised the dissent. In a prepared statement, company officials said: “Like the dissenting justices, we are concerned that the efficiency and integrity of the [Medicare] program’s administrative review process will be compromised.”

Consumer activist Jamie Court called the ruling a major victory for HMO patients.

“This decision was a very reasonable one, but it firmly drew the line in the sand against HMO efforts to take away the right of legal redress from patients in Medicare,” said Court, executive director of the Foundation for Taxpayer and Consumer Rights.

Jeffrey Ehrlich, an appellate attorney in Claremont, said his firm alone has about 10 cases pending that will be allowed to go to trial because of Thursday’s ruling.

He predicted that the ruling will “nip in the bud” attempts by HMOs in other states to prevent Medicare patients from suing in state courts.