By ROBERT PEAR

WASHINGTON -- In a major victory for consumers, a federal judge has
expanded the rights of Medicare patients in health maintenance organizations,
saying they are entitled to immediate hearings whenever they are denied
medical services.

The judge, Alfredo C. Marquez of the U.S. District Court in Tucson,
Ariz., rejected the government's argument that it was not legally responsible
for the actions of HMOs that have federal contracts to care for Medicare
patients.

Four million of the 38 million Medicare beneficiaries are in HMOs, and the
number is rapidly growing. Republicans and Democrats alike look to such
health plans as a way to control Medicare costs. The decision may contribute
to this trend, assuring elderly people that they can join HMOs without losing
the rights available to patients in the traditional Medicare program.

Marquez said that when HMOs denied services to Medicare patients, they
were acting for the government, so their decisions amounted to government
action, and beneficiaries were entitled to "due process of law," including
full notice of adverse decisions and a meaningful opportunity to challenge
the denial of care.

The Clinton administration and the HMO industry had argued that HMOs
serving Medicare patients were private entities and that the federal
government should not be held responsible for their decisions.

"The decisions of the HMOs are not government action," the secretary of
health and human services, Donna E. Shalala, asserted in court papers. "Such
medical decisions are not made by government officials, and the government
has neither a role nor an interest in the decisions made by any HMO."

The Justice Department said Medicare patients in HMOs already had far more
rights and protections than non-Medicare patients in the same HMOs. In
addition, it said, no court has the power to second-guess the secretary's
decisions about whether to take enforcement action against an HMO.

Darrel J. Grinstead, chief counsel of the Federal Health Care Financing
Administration, which runs Medicare, declined to comment Wednesday's
decision. Other federal officials refused to say whether the government would
appeal.

Marquez ruled that "HMO denials of Medicare services are state action"
because "the government pays for covered services" and regulates the
activities of HMOs serving Medicare patients. So, he said, beneficiaries are
entitled to due process of law.

Medicaid officials in New York and many other states are prodding
low-income people to join HMOs. While Medicaid was not mentioned by Judge
Marquez, his analysis will be useful to Medicaid recipients challenging
denial of services by HMOs. Several such challenges have been filed by
Medicaid patients in Tennessee and other states.

Karen M. Ignagni, president of the American Association of Health Plans,
which represents HMOs, offered Wednesday to work with the government to help
Medicare patients exercise their rights to file appeals and grievances.

In his ruling, Marquez declared: "Existing procedures followed by HMOs
fail to secure minimum due process for Medicare beneficiaries. Notice and
informal hearing requirements set forth by statute and regulations are all
but ignored."

The lawsuit, a nationwide class action, was filed in 1993 by Medicare
beneficiaries who said they had been denied medically necessary services like
emergency care, home health care, skilled nursing care and physical therapy.
In many cases, the services had been recommended by doctors, but denied by
HMOs.

Patients in the traditional fee-for-service Medicare program can also
challenge decisions denying coverage for particular services. But they
usually receive care before filing claims, whereas HMO patients may be denied
care if the HMO decides that a particular service is not covered.

Economists say that HMOs often have a financial incentive to limit the
amount of care, whereas doctors paid through the standard Medicare program
have incentive to provide extra services.

Marquez reviewed many cases in which HMOs had been asked to reconsider
decisions denying care. "HMO reconsideration approximates a 'rubber stamp' of
the initial denial," he said. "This has grave consequences because an HMO
denial may mean the enrollee will go without medically necessary service."

While campaigning for re-election in Florida last month, President Clinton
expressed concern about changes in the health care industry that threaten the
quality of care, and he said he would appoint a commission to recommend ways
of protecting consumers.

Sally Hart Wilson, a lawyer at the Center for Medicare Advocacy who
represented patients in the class-action lawsuit, said, "The position taken
by the government in its legal briefs in this case seems to be at odds with
the administration's recent statements about how it wants to protect the
quality of care for people in HMOs around the country."

In papers filed with Marquez in March, the administration said the federal
Medicare law "does not require an impartial review procedure for Medicare
beneficiaries enrolled in HMOs before a termination or denial of their HMO
services."

Marquez found defects in many of the notices sent to Medicare patients by
HMOs. "Not one notice provided the specific basis for coverage denial," he
said.

In many cases, he added, the HMO "hides the ball" and fails to inform
Medicare patients that they have "a right to present additional evidence to
the HMO for reconsideration." This omission violates federal regulations, he
said.
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