California Court Says Patients Can Sue Medicare HMOs

JULY 16, 2001 VOLUME 9, NUMBER 3

George and Barbara McCall, California residents, sued their HMO and their primary care physician. They claimed that the HMO (PacifiCare of California) refused to refer Mr. McCall to a specialist when he needed a lung transplant, and that he was ultimately forced to disenroll from PacifiCare and seek medical care through Medicare. PacifiCare, for its part, claimed that Mr. McCall’s sole remedy was to appeal through the Medicare process, and that he could not bring a separate lawsuit.

Mr. and Mrs. McCall signed up with PacifiCare as a Medicare HMO—they were covered by Medicare and chose the HMO in order to reduce co-payments and deductibles. Their lawsuit alleged that PacifiCare violated its duty to provide referrals consistent with good medical practice, allowed its medical decisions to be guided by fiscal and administrative decisions, and encouraged Mr. McCall to leave the program when he appealed the denial of medical care. The trial judge agreed with PacifiCare that those questions had to be addressed only to the Medicare agency, since that was the source of funding and control of the McCalls’ medical care.

The California Supreme Court disagreed. It pointed out that the review provided through Medicare is limited—Medicare HMOs are required to offer an administrative review process only to patients who are “dissatisfied because they do not receive health care services to which they believe they are entitled, at no greater cost than they believe they are required to pay.” That provision addresses only the availability and cost of services, and does not provide any review for medical malpractice, or breach of the HMO’s duty to provide care. Since those items are not covered in the Medicare appeals process, reasoned the Court, the common-law right to sue the health care provider must still be available to the patient. McCall v. PacifiCare of California, Inc., May 3, 2001.

The McCall case comes at a critical time for the Medicare program. Congress is currently discussing a “patient’s bill of rights” concept which incorporates the same ideas. Critics of the legal system claim that leaving HMOs open to litigation is just another way of driving up the cost of health care while lining the pockets of trial lawyers. Critics of the HMO and managed-care industry argue that refusing to allow Mr. McCall, and people like him, to sue their HMOs will lead to more abuses like those the McCalls believe they suffered.

Two of the Court’s seven justices dissented from the ruling. They argued that the law provides only one remedy for Medicare patients who are upset by the availability or quality of care—to appeal the denial through the Medicare process. In Mr. McCall’s case, that appeal would have been made to PacifiCare itself.

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