Margaret Utterback died of a ruptured aneurysm at Kaiser Permanente's Hayward, Calif., hospital in 1996. When California investigators reviewed the treatment the 74-year-old woman had received, they found "systemic problems" with Kaiser's emergency-care procedures. So they fined the HMO a record $1.1 million.
But Kaiser hasn't taken the penalty sitting down. Last week, the Oakland, Calif.-based insurer tried, albeit unsuccessfully, to win a federal contempt-of-court ruling against Daniel Zingale, director of the state's Department of Managed Health Care, in connection with the fine. It's now pursuing an appeal of the penalty in state court.
The protracted scuffle underscores a growing power struggle between regulators and HMOs nationwide. The former are flexing their muscle by levying record-setting fines for an array of health plan infractions, while the latter are lashing back against what they call excessive government oversight. How the battle will play out-and what it will mean for patients-remains to be seen.
"In some instances, state insurance commissioners have used their discretion to levy extremely huge fines," said Susan Pisano, spokeswoman for the American Association of Health Plans. "Obviously, health plans have taken issue with these fines, especially at a time when (containing) costs means so much."
Indeed, over the past month alone, HMOs in at least two states have challenged insurance commissioners for allegedly overstepping their authoritative bounds.
In perhaps the most high-profile of the skirmishes, Kaiser last week accused Zingale of going too far in May 2000 when he slammed the company with the largest penalty ever issued against a health plan in California.
Kaiser told U.S. District Court Judge Ronald Lew in Los Angeles that Zingale erred when he tried to bolster the Utterback case by adding the experiences of two additional patients who had died of the same condition. One of them was a member of Kaiser's Senior Advantage Medicare HMO. But Lew, the HMO pointed out, had ruled in a separate federal case in August that federal law supersedes state law when it comes to federally funded Medicare members.
Zingale, however, argued that he had included the Medicare patient's experience simply to show "a pattern of poor care" by an HMO that his department regulates. The judge agreed and denied Kaiser's motion.
Consumer advocates had charged Kaiser with using the threat of contempt to slash away at the department's powers and intimidate the top HMO regulator, who could have faced jail if held in contempt.
Kaiser officials denied the company was trying to strong-arm the state regulator. "State regulators are testing waters outside what we believe are their regulatory boundaries," said Kaiser spokesman Tom Debley.
Kaiser is appealing the fine on the same basic premise before the state Office of Administrative Law in Oakland. Testimony, which began Dec. 4, is expected to run into January.
In that case, the HMO contends that whatever problems there may have been with its emergency-care system were the result of its provider network, not its health plan. Therefore, Zingale's department-which holds authority only to regulate health plans-had no right to step in.
"The DMHC doesn't have jurisdiction over medical offices, physician practices or hospitals. There are other agencies that regulate those things," said Kaiser spokesman Jim Anderson.
But Curtis Leavitt, attorney for the DMHC, said Kaiser is essentially trying to strip the department of its ability to impose fines based on the experience of patients. "If we can't regulate at the patient level, why regulate at all?" he said in court.
Kay McVay, president of the California Nurses Association, said a ruling in Kaiser's favor could ultimately hinder state patient-protection laws by taking away some of the department's enforcement abilities.
"A decade of HMO abuse has demonstrated that managed-care plans like Kaiser will not police themselves," McVay said Dec. 4 at a rally in Oakland.
Meanwhile, another court battle may be brewing in Washington state regarding how much control regulators actually have over what products insurers are required to sell.
Humana is now considering whether to appeal a $500,000 fine it was slapped with on Nov. 30 for allegedly ignoring state law when it tried to withdraw this year from Washington's small-group market. The penalty is the largest ever levied against a health plan in the state.
According to Washington Insurance Commissioner Michael Kreidler, Employer's Health Insurance, a unit of Louisville, Ky.-based Humana, requested permission on April 1 to cancel all of its small-group plans. The office withheld approval and made "repeated attempts" over the next six months to work with the insurer.
Humana, however, failed to respond and instead notified its enrollees on April 5 that they would not be insured as of Nov. 1, Kreidler said. Roughly 89 small businesses with 673 enrollees were affected.
In addition to being fined, Employer's Health has been suspended from selling any insurance in Washington for 120 days and must reinstate all small-group policyholders that want to continue their coverage.