Proposal Has No Cure for Physician Groups

Gov. Gray Davis’ plan to reform health care in California includes several important gains for consumers, including the right to sue an HMO, but it would also leave untreated deep fissures in the state’s managed-care system.

Most pressing, several health-care experts say, is the precarious financial shape of the state’s physician groups, which form the backbone of managed care in this state and have been toppling at an alarming rate.

The governor’s plan would require some of these groups to meet minimum solvency standards, but does not address the underlying cause of their financial troubles.

Moreover, those solvency standards would not apply to the majority of physician groups, including some of the state’s largest and most troubled, which would remain outside the state’s jurisdiction.

It also does not put this limited financial oversight on a fast track, which means that many could be out of business by the time the governor’s reforms kick in.

“Physician organizations are hemorrhaging,” said Nancy Oswald, president of the Oakland-based National Independent Practice Assn. Coalition, which represents physician groups.

In the last three years, 115 California physician groups have either declared bankruptcy or gone out of business, and an estimated 85% are in serious financial trouble, said Jack Lewin, executive vice president of the California Medical Assn.

“It will take two years at least to get the governor’s program up and running, and by then two-thirds of the [physician groups] will be bankrupt and gone,” Lewin said.

Those bankruptcies could cause serious disruptions for consumers, who might receive poor care if a group to which they belong can no longer afford to provide appropriate treatment, or be forced to bounce from group to group as their doctors look for new organizations to join.

Still, consumer groups greeted the plan with a cautious optimism, saying that several of its provisions would provide important protections for patients. The most significant of these is the governor’s proposal to set up a series of state-run panels to which consumers who have been denied care can appeal.

If an appeals panel concluded that a treatment or referral had been wrongly denied to a patient, the health plan that denied the request would be forced to provide it.

There would be no cost to the consumer for using the appeals process, and no denial would be considered too small to be worthy of appeal. Consumers would have to first exhaust the health plan’s internal appeals process before turning to the review panels, but the governor’s proposal would cut in half the length of time allowed for such internal appeals, from 60 days to 30.

To eliminate conflicts of interest, the appeals boards would be set up and paid for by the state.

“External review is everything consumers could want,” said Helen Schauffler, director of the Center for Health and Public Policy Studies at UC Berkeley.

Particularly important, Schauffler said, were provisions requiring health plans to speed up their internal review, expedited review in cases of emergencies and the binding nature of the review board’s decision.

The proposal would also allow consumers, under very limited circumstances, to sue managed-care plans for denying or delaying needed treatment. But the denial must result in imminent death, loss of limb or loss of function before a suit can be filed.

The tight restrictions were praised by doctors and health-care industry executives, but consumer advocates said the governor provided little recourse for those whose injuries were not extreme or immediately measurable.

“We’re glad to see liability is on the table, but we are concerned about the definition of substantial physical harm” before a lawsuit could be filed, said Betsy Imholz, director of West Coast operations for Consumers Union.

Imholz and others said they were also troubled by the governor’s decision to put the state’s Business, Transportation and Housing Agency--the same agency that currently regulates health maintenance organizations--in charge of health plan oversight.

Gary Hagen, who headed health plan regulation for the administration of former Gov. Pete Wilson and now works in the insurance industry, said he had strongly urged Davis to create a new, Cabinet-level position for regulation of managed-care companies. Others had argued that the oversight for managed care should fall to the state’s Health and Welfare Agency.

Hagen was in charge of health-care regulation for the state Department of Corporations, a division of the Business, Transportation and Housing Agency, which was roundly criticized for failing to be more aggressive in policing managed care.

The problem, Hagen said, was that the Department of Corporations was geared to deal with such issues as securities fraud and not health care. Simply moving health-care regulation out of Corporations and into the overall Business, Transportation and Housing Agency would not solve the problem, he said.

“The management structure isn’t as familiar with the business of health care as it is with securities regulation and constructing freeways and things of that nature,” Hagen said. “This very basic public health and safety system is in financial crisis, and it really deserves attention without a lot of extraneous other kinds of things affecting it.”

Maria Contreras-Sweet, Davis’ state secretary for Business, Transportation and Housing, drew up the plan after months of consulting with industry and consumer groups.

She called it “ambitious” and indicated that the governor might be open to more stringent regulation down the line.

“This is a nice moderate pace,” Contreras-Sweet said, “a good place to begin.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Health-Care Overhaul

Key provisions of the managed-care reform plan proposed by Gov. Gray Davis:

* External review: Patients whose treatment is denied or modified by a managed-care company may appeal to a state-run panel of doctors, and managed-care companies must abide by their decisions or pay $5,000 a day in fines until they comply.

* Liability: Patients who suffer substantial physical harm as the result of denial, delay or modification of treatment by a managed-care company may sue for punitive damages.

* Patients’ rights: Health plans must make their guidelines public and accessible, and must base them on sound science rather than fiscal considerations.

* Oversight: A new department to oversee managed care will be created and placed under the auspices of the Business, Transportation and Housing Agency. Managed care is presently regulated by the same agency, but as a subdivision of the Department of Corporations. The department’s consumer advocate will report directly to the secretary of Business, Transportation and Housing.

* Fiscal solvency: Applies only to medical groups and health plans of the sort already regulated by the state, but sets standards for financial reserves and equity, and creates a board to oversee solvency issues.