BILL ANALYSIS
AB 1600
Page 1
Date of Hearing: September 13, 2001
ASSEMBLY COMMITTEE ON JUDICIARY
Darrell Steinberg, Chair
AB 1600 (Keeley) - As Amended: September 7, 2001
FOR CONCURRENCE
SENATE VOTE : 23-12
SUBJECT : HEALTH CARE PLANS: EQUITABLE RELIEF FOR VIOLATIONS OF
EXISTING OBLIGATIONS
KEY ISSUE : SHOULD THE LAW BE CLARIFIED TO EXPLICITLY PROVIDE A
MECHANISM BY WHICH PROVIDERS AND CONSUMERS MAY ENFORCE EXISTING
OBLIGATIONS OF HEALTH PLANS UNDER THE KNOX-KEENE HEALTH CARE
SERVICE PLAN ACT BY SEEKING EQUITABLE RELIEF, PROVIDED THEY HAVE
FIRST EXHAUSTED EXTERNAL ADMINISTRATIVE REMEDIES?
SYNOPSIS
This bill, sponsored by the California Medical Association, is
designed to allow interested persons a clear and effective
equitable remedy to address unfair health plan practices, with
the exception of disputes concerning patient care issues subject
to internal grievance and/or external review procedures. In
particular, the bill fills a gap in existing law regarding
enforcement of the Knox-Keene Act obligation that contracts
between plans and providers be fair and reasonable. Although
the Department of Managed Health Care has declined to enforce
this obligation, health plans and other opponents contend there
should be no other mechanism by which to seek redress for
violations.
SUMMARY : Allows for enforcement of existing statutory
obligations respecting health care service plans (licensees).
Specifically, this bill :
1)Expressly authorizes a private right of action for equitable
relief from violations of the Knox-Keene Act, except as to an
enrollee or subscriber's individual grievance under specified
sections, provided that administrative remedies of the
Department of Managed Health Care (DMHC) have first been
exhausted.
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2)Provides for the continuation of health service contracts that
expire during the pendency of an action respecting the
contract in order to ensure continuing care to enrollees or
subscribers.
3)Prohibits retaliation by licensees against persons who
exercise their rights under the bill.
4)Prohibits licensees from seeking or obtaining waiver of the
rights provided under the bill or indemnification for
liability for violation.
EXISTING LAW:
1)Regulates health care providers and health care service plans
under the Knox-Keene Act. (Health and Safety Code section
1340 et seq. All further statutory references are to this
code unless otherwise noted.
2)Sets forth the intent of the Legislature to ensure that
California residents receive high-quality health care coverage
in the most efficient and cost-effective manner possible.
(Section 1342.6; Business and Professions Code section 16770.)
3)Provides that all contracts between a health care service plan
and health care providers shall be fair and reasonable, and
shall contain provisions requiring a fast, fair, and
cost-effective dispute resolution mechanism under which
providers may submit disputes to the plan. (Section 1367.)
4)Requires each health care service plan to ensure that its
dispute resolution mechanism is accessible to non-contracting
providers for the purpose of resolving billing and claims
disputes. (Section 1367.)
5)Requires DMHC, on or before July 1, 2001, to adopt regulations
to ensure that plans have adopted a dispute resolution
mechanism that is fair, fast, and cost-effective for
contracting and non-contracting providers. DMHC shall report
to the Legislature on or before December 31, 2001 on
recommendations for any additional statutory provisions which
are necessary relating to plan and provider dispute resolution
mechanisms. (Section 1371.38.)
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6)Otherwise governs the relationship between providers,
enrollees and subscribers, and between them and the plan and
authorizes a private right of action for damages and equitable
relief for breach of a plan's duty of care to arrange for the
provision of medical care under specified conditions. (Civil
Code section 3428.)
FISCAL EFFECT : As currently in print, this bill is keyed
fiscal.
COMMENTS : As passed by this Committee, this bill provided an
exemption from federal antitrust laws to allow health care
providers, as a class, to renegotiate contracts with health care
service plans. In response to concerns raised with that
approach by the DMHC, the bill now seeks instead to level the
playing field between providers and plans by simply authorizing
a private right of action, for equitable relief only, to redress
violations of the Knox-Keene Act. Most notably, this bill would
permit a provider to enforce the obligation under Knox-Keene
that all contracts between plans and providers shall be fair and
reasonable.
This Bill Fills the Need for a Mechanism to Enforce Existing
Law . According to the author, health care providers are being
economically squeezed by health plans and need better ability to
enforce the obligation of Knox-Keene to obtain fair contracts.
According to the California Medical Association (CMA), health
plans have the ability to offer provider contracts on a "take-it
or leave-it" basis. CMA asserts that four or five health plans
control over 80 percent of the market not served by Kaiser,
giving them the market power to insist that providers accept
contract terms that are unfair, unreasonable and harmful to
patient care.
The Knox-Keene Act recognizes the potential disparity in
bargaining power by requiring that plan-provider contracts be
fair and reasonable. However, the Act provides no explicit
mechanism for enforcing this obligation. Moreover, DMHC has
declined to get involved in this issue. DMHC's regulations do
not address or provide a process for ensuring that contracts are
fair and reasonable. In response to the prior version of AB
1600, DMHC reaffirmed in an August 1, 2001 letter to the author
that it does not wish to serve "as the ultimate arbiter of the
adequacy of agreements between health plans and providers."
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Lacking a means for enforcement, these violations of the
Knox-Keene Act are effectively a wrong without a remedy.
Provision of an express right to enforce the law removes any
ambiguity.
In opposition, the American Medical Group and others acknowledge
that there is no means by which to enforce the Knox-Keene
contract obligations through DMHC. Yet, they contend that there
should be no other means because rates should be controlled only
by whatever terms are dictated by contracts.
The health plans further argue that a private right of action is
inappropriate because the obligations entrusted to DMHC must be
left with DMHC as the administrative agency with primary
jurisdiction over the industry. They point to case law to
effect that it is an improper invasion of the powers of the
Legislature for a court to resolve disputes having a purely
regulatory impact. However, it seems little answer to a
legislative proposal to say that in the absence of a legislative
response a court should not invade the province of the
Legislature. While it might be improper for a court to act
under the existing legal scheme, it is not improper for the
Legislature to act. Moreover, it must be recognized that the
doctrine of primary jurisdiction - that is, judicial deference
to the expertise of an administrative agency - would appear to
have little appeal or application where, as here, the
administrative agency has declined to act.
The Bill Requires Exhaustion of Departmental Remedies Prior to
Suit. The health plans also argue that AB 1600 would render
DMHC toothless, and defeat the purpose for its creation. The
California Association of Health Plans (CAHP) argues that
creating a private right of action under Knox-Keene would
fundamentally affect the ability to DMHC to fulfill its
regulatory mission to enforce the law to promote the delivery of
medical care. Private judgments could significantly affect the
financial health of the HMO and its ability to deliver services,
thus compromising DMHC's mission. CAHP argues that permitting
judges to make these determinations would invariably lead to
inconsistent results.
Entrusting the resolution of legal disputes to the courts,
however, is neither a novel nor a controversial proposition,
particularly on issues of reasonableness. In any event, given
that Knox-Keene does not demand consistency in contract rates
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and other provisions, this need for consistency appears
overstated. Further, to the extent that the department believes
that consistency is needed on any issue, it should be noted that
the bill expressly requires exhaustion of departmental
administrative remedies prior to any suit. Thus, DMHC would
have a full opportunity, under whatever regulations it may
choose to adopt, to supervise and resolve any and all disputes.
Only where DMHC fails to act will there be cause for a private
lawsuit. Of course, it would be illogical and at odds with the
purpose of the bill if this exhaustion requirement applied to
internal plan procedures. Accordingly, the exhaustion
requirement is intended to apply only to any administrative
remedies that the department might adopt.
Only Equitable Relief Could be Obtained by Such an Action.
Importantly, the bill authorizes a private suit only for
equitable relief. Equitable relief relating to actions on a
contract generally involves specific performance, reformation,
declaratory or injunctive relief rather than money damages, and
does not involve trial by jury. This bill does not purport to
affect the rules or circumstances under which such equitable
relief might be granted, it simply applies these principles to
actions for violation or threatened violation of the Knox-Keene
Act. Of course, these actions, like all court actions, would be
subject to control and supervision by the court, including the
power of the court to prevent and/or terminate any frivolous
actions.
No Right of Action Would be Allowed for Patient Grievances.
Further contrary to the health plans' concerns, this bill would
not permit a suit of any kind regarding a patient or
subscriber's complaint that is subject to the existing internal
grievance or independent external review process under the
specified sections of the Knox-Keene Act.
Contracts that Expire During the Pendency of an Action Would be
Extended to Allow for Continuation of Patient Care . In actions
regarding a contract between a plan and a provider, the bill
would require that, if during the pendency of the action the
contract expired, the court is to provide for continuing care to
enrollees and/or subscribers by extending the contract for 180
days, during which time the contract rates and terms would stay
in effect, subject to appropriate adjustment by the court to
ensure continued access to health care. In essence, this
provision is an equitable measure designed to preserve the
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status quo or adjust the circumstances of the contracting
parties during the litigation to ensure that patients are not
adversely affected by the termination of the contract. Although
it may be thought that the bill should permit some flexibility
in the 180-day contract continuation period to deal with the
potentially wide variety of circumstances that may arise, it
should be kept in mind that this explicit grant of authority in
the bill is in addition to the existing authority of the courts
to issue injunctive orders.
Pending/Prior Related Legislation. SB 21(Figueroa), Ch. 536,
Stats 1999, created a private right of action for damages and
equitable relief for breach of a plan's duty of care to arrange
for the provision of medical care under specified conditions.
REGISTERED SUPPORT / OPPOSITION (CURRENT VERSION OF BILL) :
Support
California Medical Association (sponsor)
American Academy of Pediatrics
California Association of Neurological Surgeons
California Dental Association
California Nurses Association
California Primary Care Association
California Psychological Association
California Psychiatric Association
Calif. Chapter of ACP-ASIM Services
Consumers Union (if Amended)
Foundation for Taxpayer and Consumer Rights
American College of Obstetricians and Gynecologists
California Podiatric Medical Association
numerous individual physicians
Opposition
American Medical Group Association
Association of California Life and Health Insurance Companies
Blue Shield of California
California Association of Health Plans
California Association of Physician Organizations
California Chamber of Commerce
Health Insurance Association of America
HealthNet
Molina Health Plan
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National Independent Practice Association Coalition
PacifiCare of California
Several individual medical groups
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334