Diluting of HMO Patients’ Rights Feared

Consumer advocates voiced concern Thursday that Gov. Arnold Schwarzenegger’s efforts to slice through regulatory red tape had neutered a dozen rules protecting the rights of more than 20 million HMO patients in California.

The hard-fought HMO reforms that guarantee patients access to certain drugs and benefits were being enforced by the state’s HMO oversight agency until Schwarzenegger took office in November. The status of those reforms now is in dispute.

The top enforcement lawyer for the California Department of Managed Health Care stressed that patients had not lost any rights or benefits, and that the rules were being applied as needed. Similarly, representatives of HMO companies said they were continuing to abide by the rules.

However, consumer advocates said the HMO watchdog appeared moribund in the face of Schwarzenegger’s executive order, which takes away the legal authority of rules brought under the governor’s review.

“It’s really unconscionable that Schwarzenegger would come along and remove the legal authority to enforce these strong consumer laws by just the stroke of a pen,” said Jerry Flanagan, a spokesman for the Foundation for Taxpayer and Consumer Rights, which obtained a list of the specific HMO rules targeted for review. “They’ve been revoked without review.”

In an effort to gain control over regulations that drive up business costs, Schwarzenegger signed an executive order the day he became governor that put an immediate hold on pending regulations affecting everything from garbage truck emissions to energy standards for air conditioners.

The provisions governing health maintenance organizations fall under a little-noticed part of Schwarzenegger’s order that directed state agencies to submit a list of de facto regulations already in force. Agencies often create rules outside the formal regulatory process in response to compliance questions and to clear up confusion about various aspects of the law. Issued as orders, advice letters, guidelines, bulletins and the like, they fill in gaps or provide details needed to fully enact broader statutes.

According to a confidential memo released by the governor’s office under a cover page titled “Underground Regulation Assessment,” the managed care department identified 12 rules affecting the relationship between HMOs and patients that meet that criterion. Once submitted to the governor’s legal office, the rules may be used “on an opinion-only basis which will not carry the force of law,” according to the order.

The rules in question provide significant protections for HMO patients. Included is a rule forbidding HMOs from denying benefits retroactively and another requiring HMOs to give a 15-day cancellation notice.

One barred plans from excluding coverage of an entire class of prescription medications when one drug in the class becomes available over the counter. Another rule capped co-payments at 49% of cost.

The memo’s author, G. Lewis Chartrand Jr., assistant deputy director of legal services at the Department of Managed Care, said the executive order would not lead to a freezing or suspension of the delivery of any benefits or services to HMO users.

“Any time a consumer calls up and says we’ve got a problem, we’re resolving them on a case-by-case basis,” he said. Decisions that had been covered by the rules now will be handled individually pending review by the governor’s Office of Administrative Law, Chartrand said.

But Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said those rules may no longer be enforceable. “This could allow Schwarzenegger a hook to take rules he does not like and say go back to the starting point or do away with them altogether.”

State Sen. Sheila Kuehl (D-Santa Monica), who was involved with the passage of the patients “bill of rights” and related laws in 1999, said she was concerned that the governor’s “blanket order” for review could be used as an excuse to make sure that rules “do not go beyond the minimum.”

Some of the rules have been enforced for years, said Daniel Zingale, the founding director of the state agency created by the patients’ rights package.

“Nobody wants to go back to the time when you had nowhere to turn when your HMO denied you care,” said Zingale, who left the agency a year ago to become an advisor to then-Gov. Gray Davis and now is an agricultural labor commissioner. “The industry has thrived even under the toughest patient protections in the country. I can’t imagine what the justification would be for stalling or reversing patient rights in California.”

Steven Tough, president of the California Assn. of Health Plans, praised Schwarzenegger’s regulatory review and said the industry believes the rules under scrutiny would better serve patients and HMOs if they were fully vetted. He said the industry had been invited to submit rules that it believed needed more review.

Most of the rules are supported by the HMOs, but they have problems with details that are unnecessarily burdensome, Tough said.

The review “is in no way sidestepping or obviating important consumer protections,” Tough said. “The goal is to preserve the things that are really good and right to keep, and maybe we can clear the deck” of regulations that are overly burdensome or make no sense.