CALIFORNIA ENACTS SWEEPING MANAGED CARE REFORM – THE LATEST IN AN EMERGIING NATIONAL TREND
On September 27, 1999, California Governor Gray Davis signed into law an impressive "package" of new health care bills affecting the managed care industry in California. Although many of the 21 new laws take effect as late as January 1, 2001, there is little question that the new legislation will have immediate and far-reaching effects on the managed care industry throughout the country.
In 1997 Texas passed similar managed care legislation that made sweeping changes to the industry. Among the most significant was Texas Senate Bill (SB) 386, the "HMO Liability Act." Passage of SB 386, which allows an HMO enrollee to sue its health plan, has set a precedent for other states, and federal legislation permitting HMO liability nationwide is pending.
During the legislative battle over Texas SB 386, the managed care industry argued that passage of the bill would cause premiums to increase significantly as a result of a surge in litigation. Similar arguments were made by the California Association of Health Plans (CAHP) in a letter to Governor Davis opposing California's version of Texas SB 386, SB 21. However, the reality in Texas is that to date there have been only a few lawsuits filed under Texas SB 386. It appears that HMO enrollees are instead using Independent Review Organizations (IRO) as a means of resolving grievances. Thirty-one states and the District of Columbia have also adopted laws whereby patients can appeal an HMO's denial of coverage to an IRO. However, relatively few patients nationwide have yet to take advantage of this new appeals process, with the largest states averaging fewer than 250 appeals each year.
The future is uncertain for Texas SB 386 and similar state laws establishing IROs. One year ago, on September 18, 1998, a federal court in Houston upheld Texas SB 386's liability provisions on the grounds that "quality of care" claims are not preempted by ERISA, while simultaneously striking down the IRO provisions as preempted by ERISA. The case is currently on appeal to the 5th Circuit. Despite the court's ruling, HMOs operating in Texas continue voluntarily to support the use of IROs. In California, 16 of CAHP's 40 members will similarly begin voluntary independent review programs by the end of 1999.
Recent legislation has also focused on mandated benefits for enrollees and whether physicians may collectively bargain with managed care entities. Both Texas and California now require plans to cover services ranging from mandatory cancer screening to the treatment of diabetes. This year, Texas passed Texas SB 1468 permitting collective bargaining. Numerous states and Congress are considering legislation to allow physicians the right to bargain collectively.
California's latest package of managed care bills involves issues similar to those recently addressed in Texas. Following are brief descriptions of the new California bills, all effective January 1, 2000, unless otherwise noted.
Independent Review
Assembly Bill (AB) 55 requires the Department of Corporations (and presumably its successor, the Department of Managed Care) to establish an independent medical review system by January 1, 2001, to allow patients to dispute claims when treatment has been delayed, denied or modified by their plan. Effective January 1, 2001, Senate Bill (SB) 189 will require health care service plans to provide enrollees with written response to grievances while expanding the right to independent review for experimental treatments. SB 189 also expedites the review process by requiring a response within 30 days of the patient's appeal for treatment coverage.
Restructured Governmental Oversight
AB 78 establishes a state agency devoted exclusively to the licensing and regulation of health care service plans. The newly created Department of Managed Care falls under the auspices of the Business, Transportation and Housing Agency. This bill also establishes a new Office of the Patient Advocate, which will assist health plan enrollees with complaints, provide educational guides, issue annual reports and make recommendations on consumer issues. AB 215 establishes deadlines for health plans to respond to physician requests when a patient is referred to a specialist (a technical clean up bill to SB 260). Effective July 1, 2000, SB 559 will prevent plans from inappropriately marketing and selling their provider lists to gain additional revenue. Similar requirements on contracting agents who sell, lease, assign or otherwise transfer a list of contracted providers will also be applied to those who pay for these contracts.
HMO Liability
SB 21 states that patients have the right to sue their health plans for harm caused by failure to provide ordinary care under the plan for services rendered after January 1, 2001. This will provide an additional ground for consumers to sue HMOs if they are substantially harmed (defined to include financial harm) by delay, denial or modification of medically necessary treatment. The postponed effective date was a result of a compromise to allow for further legislative action on this subject.
Consumer Protections
Several new consumer protections were also passed. AB 12 requires health care service plans to provide a second medical opinion upon request by the patient, subject to certain limitations, and requires plans to file timelines for responding to requests by July 1, 2000, with the Department of Managed Care. AB 285 requires staff members of health plans that provide telephone medical advice services to hold a valid license, registration or certification in any of the specified health professions, and further requires in-state and out-ofstate businesses providing such services to register with the California Department of Consumer Affairs. AB 416 expands patient privacy rights by prohibiting health care providers from releasing medical information regarding an individual's participation in outpatient treatment with a psychotherapist without a written request to the provider and notice to the patient. Prior to AB 416, such protections covered only inpatient care for mental health conditions and not for records of outpatient psychotherapy. SB 19 amends the Confidentiality of Medical Information Act to prohibit the unauthorized selling, sharing or use of medical information for any purpose not necessary to provide health care services. This bill amends the Knox-Keene Health Care Service Plan Act of 1975 to require health care service plans to make their policies and procedures available upon request on or after July 1, 2001. SB 59 sets forth procedures and time frames for health care service plans to review a treatment request by a physician.
Ensuring HMO Fiscal Solvency
SB 260 establishes the Financial Solvency Standards Board within the newly created Department of Managed Care. This bill addresses the fiscal solvency crisis facing medical groups in California by adopting regulations and placing adequate safeguards in contracts between health care service plans and risk-bearing organizations, effective January 1, 2001.
Additional Health Care Benefits
AB 39 requires health care service plans that provide outpatient prescription drug benefits to provide FDA-approved prescription contraception methods. SB 41 requires specified individual and group disability insurance policies, issued, amended, renewed or delivered, to provide contraception coverage for spouses and other dependents. SB 41 also provides exemptions for religious organizations to request insurance policies without coverage for contraception methods. SB 5 requires coverage for the screening, diagnosis and treatment of breast cancer; enrollment cannot be denied because of a personal or family history of breast disease or breast cancer. SB 64 mandates coverage for a variety of diabetic services and supplies, which must include specified equipment, supplies, training, and prescription drugs that are determined to be medically necessary. SB 349 requires coverage for psychiatric emergency medical conditions. SB 349 also provides additional screening, examination and evaluation of a patient to determine whether a psychiatric emergency medical condition exists. SB 205 affirms the importance of cancer screening testing for the purpose of early detection, and requires health care service plans and disability insurers to cover medically accepted cancer screening tests for any contract or policy issued, amended or renewed on or after July 1, 2000. AB 88 requires health care service plan contracts to cover the diagnosis and medically necessary treatment of severe mental illnesses at any age, and for serious emotional disturbances of children for any contract or policy issued, amended or renewed on or after July 1, 2000. SB 148 will require health plans to provide coverage for the testing and treatment of phenylketonuria (PKU) for any contract or policy issued, amended, delivered or renewed on or after July 1, 2000. Finally, AB 892 will add hospice care to the basic health care services required to be provided by health care service plans on or after January 1, 2002.