New kid on regulatory block to challenge the HMOs

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The San Diego Union-Tribune

Imagine being asked to adopt a child, then, after seeing that infant through its first difficult years, being forced to give it up for adoption because you’ve been deemed to be an unfit parent.

That about sums up what has happened to the state Department of Corporations.

Gov. Gray Davis has accomplished what many had sought for years: With the stroke of a pen, he took managed care out of the domain of DOC and created the Department of Managed Care to oversee health maintenance organizations.

The bill creating the managed-care department, AB 78, takes effect July 1.

For the past two decades, DOC has attempted to police the state’s HMO industry. For much of that time DOC was seen as little more than a paper tiger.

While every government agency is open to criticism, the amount and nature of the complaints leveled against DOC often rose to the level of contempt.

Jamie Court, the director of Consumers for Quality Care, an advocacy group, characterizes DOC’s regulatory history as “lethargic at best.”

Sara Nichols, state director for Neighbor to Neighbor, a consumer advocacy group, says: “There’s no question that the Department of Corporations has been asleep at the wheel in terms of regulating HMOs.”

And, from a report released in June by the Consumers Union and the center for Health Care Rights: “The Department has been an invisible regulator.”

To many critics, the problem dates to 1975 when the Knox-Keene Health Care Service Plan Act effectively turned jurisdiction of HMO matters over to DOC, itself an arm of the state Business, Transportation and Housing Agency.

In most other states, policing HMOs is done by the insurance department, not by an entity whose primary mission is “the offer and sales of securities, franchises and off-exchange commodities and transactions involving certain fiduciaries and lenders.”

Robert Hertzka, president of the San Diego Medical Society, says: “It was an historical mismatch. (The state was) asking swimmers to run a marathon.”

In 1975, when the managed care industry was in its infancy, legislators were primarily concerned with ensuring fiscal solvency of the plans. “No one thought anyone would ever talk about quality of care,” Hertzka says.

These days, no one is talking about anything but that.

The report released by Consumers Union was particularly pointed in its criticism of DOC’s handling of medical survey reports, which measure the quality of care provided by health plans.

DOC was required to review each HMO’s compliance with medical and organizational requirements at least once every three years and to make its medical survey report available to the public within 180 days of each review.

Looking at survey reports done for 12 HMOs, the writers found that the average time between surveys was nearly five years. In each of two Kaiser Foundation Health plans, almost seven years passed between surveys. The statutory deadline was met in only one plan.

Similarly, after the reviews were done, the DOC didn’t release its reports for close to a year — on average.

The writers of the consumer’s report said: “Late issuance of reports not only denies consumers access to timely HMO information, it also undercuts the credibility of the (DOC’s) regulatory efforts.”

Criticism of the department was particularly loud when Pete Wilson was governor, when the growth of the HMO industry was paired with appointments to the DOC of individuals who critics said were, at best, unknowledgeable about the industry. At worst, they were seen as openly pro-HMO.

“Clearly, the attitude was one of wanting to be friendly to the industry,” says Assemblyman Martin Gallegos, D-El Monte, who sponsored the bill creating the Department of Managed Care.

In the two decades it has regulated HMOs, the DOC fined just one. In 1994, it imposed a $500,000 fine on TakeCare — a Northern California HMO that was eventually absorbed by PacifiCare Health Systems — for denying care to a 9- year-old girl with a rare childhood cancer.

“I didn’t know that there was even one,” says Dr. Jack Lewin, chief executive officer for the California Medical Association.

Earlier this year, State Auditor Kurt Sjoberg found that the DOC had $6 million left from its 1998 budget on top of a $2.6 million surplus from 1997. That, along with a backlog of 305 consumer complaints, indicated to Sjoberg that DOC was dragging its feet in carrying out its duties.

Sjoberg’s recommendation: Strip the department of its HMO responsibilities.

DOC officials declined to comment on the creation of the Department of Managed Care and whether it reflected disapproval of the DOC has been regulating HMOs.

“The department has its supporters and its detractors,” says Julie Stewart, a spokeswoman for DOC. “We were given the mandate to carry out the Knox- Keene Act.”

From the HMO perspective, the DOC has been largely successful in fulfilling that mandate.

Walter Zelman, president of the California Association of Health Plans, says the DOC’s major weakness has been that it wasn’t good at advertising itself and reaching out to consumers.

For those reasons the association supported creating an agency to oversee HMOs. “Consumers need a more visible agency, and the value of a new department is that it will have a new name,” he says.

Most people interviewed express optimism that the department will do what DOC didn’t, but not every one is convinced.

Court, of Consumers for Quality Care, is concerned the department will remain part of the Business, Transportation and Housing Agency. “That department has a culture of business growth, not consumer protection,” he says.

Ideally, Court adds, the department should have fallen under the jurisdiction of a health and welfare or consumer protection agency.

Supporters of the bill creating the Department of Managed Care had tried to get it out of the business agency, a move Gov. Davis rejected. Another new piece of legislation puts into place markers that medical groups have to maintain to guarantee the financial solvency of medical groups.

Statewide, Gallegos says, 80 percent of medical groups are in financial trouble, and it was was decided the matter was important enough to keep the new department in the business agency.

Still, Gallegos says that resources will be increased for the department and that a culture emphasizing consumer rights and enforcement of HMO legislation will exist in the department.

He noted that the department’s creation will be the first of 21 health care bills signed last month by Davis to be implemented. Without it, the assemblyman says, the other bills could not be enforced.

Consumer Watchdog
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