Two proposals widely considered the most important HMO reform bills pending in the state Legislature have effectively been killed, according to Gov. Pete Wilson's office and several state lawmakers.

The bills SB 1653 and SB 1504 would create an independent panel to review cases that had been denied by health maintenance organizations. The creation of such a panel enjoys widespread support, and both bills were passed by the state Senate and sent on to the Assembly.

However, the Assembly Judiciary Committee on Aug. 12 amended both bills to include HMO liability, giving patients the right to sue their managed care plan for damages. Gov. Wilson opposes HMO liability and has promised to veto any legislation that includes it.

"If the bills come down linked, unfortunately the Legislature has missed an opportunity," said Ron Low, deputy press secretary for Wilson. "We will have no choice but to veto the bills. The governor supports external review, not liability."

HMO liability, a patient's right to sue for damages when he or she is denied treatment, has been a contentious issue between health care advocates and HMOs. Neither side has been willing to give an inch. Currently, patients have no outside legal avenues to pursue their disputes with managed care companies. HMOs claim that because they do not make "medical decisions," they should not be held legally liable in patient disputes.

Earlier this year, Sen. Patrick Johnston, D-Stockton, and Sen. Herschel Rosenthal, D-Los Angeles, introduced SB 1653 and SB 1504, which laid out a compromise, creating an independent "external review" panel.

But several powerful members of the assembly maintain such a panel would be "toothless" unless HMOs could be held legally liable for denying treatment.

"To say that the consumers are better protected with external review alone is not true," said Assemblyman Martin Gallegos, D-Los Angeles. "You have to have a strong deterrent to make sure the health plans are going to behave themselves. If we were to pass external review without the strong deterrent of liability, then the health plans would be getting off easy this year."

The managed care industry has argued that external review should be tried first, and only if that did not bring desired results should liability should be imposed.

Complicating matters is the upcoming election. Both candidates vying for governor Republican Attorney General Dan Lungren and Democratic Lt. Gov. Gray Davis say they support the concept of HMO liability. So the HMOs are pushing to get external review through the Legislature before Wilson leaves office, hoping that will placate reformists.

Patient advocates, while disappointed that HMO liability is unlikely to pass this year, remain hopeful.

"If it doesn't happen this year, I think we could get it next time" said Hoyt Minkoff, a lobbyist for the Consumer Federation of California. "The health plans (HMOs) see the writing on the wall, that is why they are furiously trying to get external review passed, but it doesn't look like it is going to happen."

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