California's liability law will let consumers sue if they are substantially harmed by a health insurer's decision to delay, deny or alter necessary treatment.
The new laws will also require managed-care plans and other health insurers to provide a second opinion when a patient requests it and cover contraceptives, cancer screening and treatment of diabetes and mental illness.
"These bills taken together will ultimately put medical decision-making back where it belongs: in the hands of doctors and patients," Davis said at Monday's signing ceremony.
California's debate -- particularly on whether to let patients sue HMOs -- mirrored deliberations in many other states and in Congress.
President Clinton has been pressing for a "patients' bill of rights." At the heart of his proposal is a provision that would let patients seek damages from health insurers that botch treatment.
Texas and Georgia also have laws that let managed-care patients sue if the plan fail to exercise "ordinary" care in treatment, said Marla Rothouse, a health policy specialist with the National Conference of State Legislatures in Washington.
California law will require HMOs to make decisions about physicians' referrals for surgery or specialized care within five days in most cases, and let only medical professionals make those initial decisions.
To enforce the new laws, Davis approved a new state agency to regulate health care plans, taking the job from the Department of Corporations.
Patients affected by the changes include an estimated 15 million Californians covered by employer-purchased managed-care plans. Such plans limit patients' choice of doctors in exchange for lower premiums and lower fees for checkups and prescriptions.
Two measures form the centerpiece of the legislation, Davis said.
The first would establish an independent review system for patients who contend a managed-care plan has unfairly denied, delayed or changed treatment. Doctors with no stake in disputed cases would help resolve them.
All patient-health plan disputes would go through the review system first when the law takes effect in July, except in cases where injury is imminent or has already occurred.
Patients who disagree with the outcome could sue under the new liability law for compensatory and punitive damages if they have suffered substantial injury as a result of the health plan's actions.
The law, which takes effect Jan. 1, 2001, defines substantial harm as loss of life, loss or significant impairment of limb or bodily functions, significant disfigurement, severe or chronic pain or significant financial loss.