State Widely Criticized for Regulation of HMOs : Health: Patients, activists, lawmakers assail handling of complaints and inspections. Agency vows to improve.

To Carol Green it was a clear case of blaming the victim.

In April, the state Department of Corporations finally responded to her complaint against Kaiser Foundation Health Plan over the treatment of her father, Mel Spiro, during the end stage of his terminal illness.

Green had alleged months before that California’s largest HMO had denied Spiro necessary pain medication, intimidated her family from accompanying him to treatment and delayed for three hours sending an ambulance to take him to an emergency room.

On every particular, the Department of Corporations--which regulates health maintenance organizations in California--found in Kaiser’s favor.

Kaiser’s “responses as to these matters are consistent with professionally recognized standards of care,” concluded Senior Corporations Counsel Linda D. Azzolina.

In fact, the agency’s investigation consisted largely of asking Kaiser for its version; records show that the department’s findings parroted the health plan’s defense virtually point by point.

In contrast, when the Los Angeles County Department of Health Services probed Green’s complaint, it found that the ambulance delay was due to confusion between two Kaiser facilities. Spiro’s excruciating pain, the product of bone cancer, remained uncontrolled because Kaiser nurses had erroneously recorded it as “mild.” As a result of the case, Kaiser changed some patient-care practices.

Consumer groups and patient-care advocates say the Department of Corporations’ handling of Green’s complaint was all too typical. As HMOs and other managed care firms come to dominate health care in California, the department’s ability to enforce their compliance with state law is coming under strong challenge.

Critics say the department may be the state’s weakest regulator--weaker than the boards that oversee chiropractors and cosmetologists, weaker than the Department of Insurance or the Department of Motor Vehicles.

That is no small concern. The health plans under the Department of Corporations’ jurisdiction provide medical care to 12 million Californians--consumers who, under managed care, have fewer choices among health providers and fewer places to turn when things go wrong.

Corporations Commissioner Gary S. Mendoza, the department’s head, acknowledges the preeminent importance of HMO regulation among his agency’s diverse duties.

“If someone has a problem with an escrow company or a licensed lender, they get annoyed,” Mendoza said. “But if they have a problem with their health care, or the health care for their child or parents, it’s a . . . life-impacting development.”

But observers say the agency has not come close to fulfilling its responsibility.

“It’s almost a ghost of a regulator,” said Jamie Court, director of Consumers for Quality Care, a Los Angeles-based advocacy group. Because of the agency’s lax oversight, he says, “an automobile repair shop is much more likely to be cited for a botched tuneup than an HMO is for failing to diagnose cancer or refusing a referral to a specialist.”

The department’s oversight is so poor, argues state Sen. Herschel Rosenthal (D-Los Angeles), chairman of the Senate Insurance Committee, that it threatens the credibility of the HMO industry itself.

“We are headed for a consumer backlash,” Rosenthal told an April 19 committee hearing, “if we do not establish a credible and fully funded DOC regulatory program to assure consumers that HMOs will comply with quality-of-care standards and that those that don’t will be held accountable by DOC.”

Accountability Missing

A review of department records by The Times, as well as interviews with health care professionals and other experienced observers, shows that accountability is precisely what is missing from state regulation of the HMO industry.

In the 20 years it has held jurisdiction over managed care firms, the department has fined an HMO for violating patient care standards only once. (The $500,000 fine, imposed last year on TakeCare, a unit of Fountain Valley-based FHP International, is being contested by the firm.)

Beyond that single case, not one of the state’s 10 biggest HMOs has been cited by the department for a violation relating directly to patient care since at least 1985, which is as far back as department records go.

The agency has consistently failed to meet a legal mandate that it inspect each HMO at least once every five years for compliance with state health and safety standards. Three of the state’s biggest HMOs haven’t been audited even once. In contrast, the state Department of Health Services, which regulates HMOs that treat Medi-Cal patients, audits those entities on average about once a year.

The Department of Corporations has even assisted HMOs in throwing a curtain over problems and deficiencies that by law it must publicly disclose.

State law requires that all deficiencies cited by department auditing teams be disclosed if they haven’t been corrected by the HMO within 30 days. The agency, however, repeatedly stretched the deadline, according to a 1992 report by the state auditor-general, sometimes granting HMOs extensions of several months and nevertheless striking the deficiencies from public reports.

The department’s very existence remains a secret to the vast majority of managed care subscribers. Only 1% of insured Californians surveyed in June by the Los Angeles Times Poll were able to name the Department of Corporations as the principal HMO regulator.

“It doesn’t make logical sense,” says Linda D. Ross, a Los Angeles businesswoman who won a $150,000 arbitration against Kaiser over her mother’s death. “Anybody looking to file a complaint against a hospital is going to turn to a health agency, not the Department of Corporations.”

The department acquired its regulatory responsibility for HMOs virtually by default in 1975, when the Legislature enacted the Knox-Keene Act to license and regulate prepaid health plans. Because the industry--then made up of Kaiser and several smaller nonprofit plans, with a total of 2.8 million members--feared the legal ramifications of being treated as insurance companies, it lobbied strongly against being regulated by the Department of Insurance.

So the job fell to an agency that specialized in issuing business licenses and regulating investment firms--activities that to this day consume about 75% of the Department of Corporations’ resources.

The agency’s obscurity is unsurprising, for HMOs are under no legal mandate to tell patients where to turn for help with a consumer complaint. The 42-page disclosure booklet issued to new members of Kaiser mentions the agency only once--on page 36--and only as an agency empowered to rule on complaints of improper termination of benefits by the health plan.

Although state law requires businesses such as taxicabs and barbershops to prominently post the phone numbers of their regulators, a bill requiring HMOs to do the same is stalled in the state Legislature--because of the health plans’ opposition.

Patients, consumer advocates and even state officials have long grappled with problems at the department, ranging from inadequate record-keeping to years-long delays in the issuance of official reports.

In January, Consumers Union--the nonprofit organization that publishes Consumer Reports--discovered the difficulties of navigating the department’s bureaucracy when its San Francisco office sought access under public records laws to medical survey reports for California HMOs.

Only after more than six months of back-and-forth correspondence did the group finally obtain most of the surveys.

“If it takes a consumer group six months, eight letters and many more telephone calls . . . the average consumer is likely to have far more difficulty in accessing the information,” Eleanor Hamburger, a Consumers Union staffer, complained in a July letter to the department.

Disorganized Files

In the course of a Times investigation, department officials were unable to account for dozens of important documents, including records showing which HMOs had recently been audited for compliance with medical care standards.

Official correspondence and other key documents that must be accessible to the public under state law were missing from the agency’s wildly disorganized files. Even some department employees say they have been unable to gain access to important data.

The department’s handling of consumer complaints is similarly haphazard.

Only two employees--neither with any medical experience--are assigned to handle the 2,000 to 2,400 complaints that reach the department every year.

Mendoza contends that the two-person staff merely gives complaints an initial screening and that serious complaints are referred to more experienced professionals.

“The two-person reference is really a caricature,” he said, noting that the agency maintains a cadre of professional consultants to help conduct HMO audits and examine complaints. (The department refused to identify any of those consultants despite repeated formal requests by The Times--a policy that makes determining their qualifications or possible conflicts of interest impossible.)

In any event, Mendoza acknowledged, “we’re going to have to increase our commitment to respond to enrollee complaints.”

For now, the department disposes of as many as 90% of health care complaints by directing consumers to the HMOs’ own grievance systems. But while state law requires every HMO to have such a procedure in place, it provides no guidelines covering how the system is to be structured, how quickly an HMO must act or when a grievance deserves to be reviewed by an outside party. At almost all plans, patient complaints are reviewed only by employees or officers of the HMO itself.

The result, critics say, is the appearance of HMO regulation--but not the reality.

“The facade of being regulated serves as a great benefit to the HMOs,” said one former department investigator who asked to remain unidentified. “But the reality is there is no regulation. . . . The Department of Corporations is doing nothing.”

Even when the department tries to investigate, it is sometimes stonewalled by the HMO industry.

That happened earlier this month, when the agency asked Cypress-based PacifiCare for access to its corporate books and records, as well as patient files. The HMO responded by suing Mendoza in Orange County Superior Court and seeking a restraining order to block the records request. A hearing on the dispute is set Sept. 27.

“We’re not afraid of scrutiny,” said Jon Wampler, chief executive of PacifiCare of California. “What surprised us was the extent of what they’re asking for. . . . At some point I think I owe it to our members to just not allow a fishing expedition randomly.”

Indeed, HMO executives say they regard the department as a tough regulator.

“The DOC has provisions for patient complaints, and we’re constantly responding to them,” said Kaiser Chairman David Lawrence. “They’re pretty aggressive and very proactive.”

The strain on the department’s complaint-handling procedures would increase if the agency follows through on the long-promised establishment of a toll-free number for aggrieved patients.

The department does not have a firm date to begin the service, which Mendoza announced in December, nor a guarantee that sufficient funds will be in place to staff it.

State lawmakers this year tried to appropriate $2 million for the department to set up the phone line and step up its auditing of health-plan quality--a provision that would have substantially bolstered the agency’s $5-million budget for HMO oversight. But lobbying by the HMO industry--which pays for its regulation through an annual per-patient assessment--emasculated the funding measure.

What’s left in the pending bill is a raise of one cent per enrollee in the HMO assessment, which the department estimates will bring in less than $500,000 a year in new funds.

As a result of tight budgets, the department has consistently been unable to meet its legislative mandates, including one that every HMO be subject to a comprehensive audit of medical care every five years.

The state auditor-general found in 1992 that the department had missed the five-year timetable in 13 of the 126 medical surveys conducted in the previous five years. And though Mendoza says the agency is now up to date, the department’s files show that audits of some of the biggest plans--including FHP International, the state’s fourth-largest HMO--are overdue or were started after the five-year deadline.

Even when the strapped department uncovers a major deficiency, HMOs appear to escape sanction.

Appointment Delays

That was the case with Cigna, whose Ross-Loos Healthplan was cited by the department twice in four years--most recently in September--for forcing patients to wait excessively long periods for office appointments.

Although Cigna’s stated standard was to make well-patient appointments within 30 days of a patient’s request, the auditors found the plan violating that standard at three of its major Southern California centers by an average of 10 days to three weeks.

The department also found excessive waits for specialist appointments, including one case in which a patient had to wait six weeks for referral to a neurologist and another in which a patient waited three months for a prescribed biopsy.

The agency cited Cigna for having failed to correct the deficiency after its previous medical audit in 1986, when excessive waiting times were also noted. But the department’s only action against the 656,000-member plan after last year’s audit was requiring Cigna to once again set forth a program to correct the failings.

“They’ve cooperated and have already started to take care of matters,” said Richard M. Murakami, assistant commissioner in charge of HMO oversight, when the findings were released in September.

A Cigna official said this month that the plan responded to the audit findings by adopting statewide standards for its preventive health programs and by improving communication with its members, such as “birthday card reminders” for women who need Pap smears, mammograms or cholesterol screenings. Also, Cigna has shortened waits for appointments by adding doctors to its network and closely monitoring appointment availability. Cigna said it is now in compliance with state rules for appointment waiting times.

Perhaps the most serious shortcoming of the department’s medical audit program is one the agency inherited from the Legislature. By law, any deficiencies cited by the agency that an HMO pledges within 30 days to correct are not publicly disclosed--no matter how major.

An attempt to strike the secrecy provision from the law was killed in Sacramento this year by HMO lobbyists who argued, as Health Net lobbyist Jeff Shelton put it in an interview, that the rule provides an incentive for HMOs to correct deficiencies.

“It’s the carrot-and-stick approach, the stick being public disclosure,” he said. HMOs, he said, are less inclined to argue with the department over potential citations when it is easier to simply correct the deficiency to avoid disclosure.

That viewpoint is not shared by patient advocates.

In the words of Allen Davenport, legislative director of the Service Employees International Union, the largest public-employee union in the state: “The idea that covering up inadequate health care is going to improve the system is contrary to every free-market principle we know of.”

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About This Series:

SUNDAY: Medical care is being rationed in California. That’s one of the keys to “managed care.”

By imposing restrictive policies and erecting bureaucratic obstacles, health maintenance organizations have accumulated the power to override doctors’ decisions and act determine the nature and extent of the care 17 million Californians receive.

HMOs fall short on some preventive care measures.

HMOs say they are more oriented toward preventive care than traditional fee-for-service medicine, noting that the healthier they keep their members, the more money they’ll save. In fact, the fee structure of many HMOs has the effect of discouraging such basic preventive programs as child immunization. Moreover, many California HMOs score consistently low on measures of preventive care.

TODAY: The state’s HMOs are regulated by a toothless watchdog.

Although HMOs function as insurance companies and as health care providers, their primary regulator isn’t the Department of Insurance or the Department of Health Services. Instead, they are overseen by the Department of Corporations, a notoriously weak agency whose other duties include regulating escrow companies and mortgage lenders. In 20 years, it has levied just one fine against an HMO.

TUESDAY: Key decisions about your medical care have been taken out of your doctors’ hands.

Doctors across California feel they’ve been deprived of their role as patient advocates. That, compounded by a clamp-down on fees that has sharply reduced their income, has some doctors fleeing the state or the profession.

WEDNESDAY: If something goes terribly wrong, you may not be able to sue.

Many HMOs require patients to pursue medical claims thorugh arbitration processes rather than the courts.

HMO cost-cutting transfers millions of dollars from medical care to corporate coffers.

The “upstreaming” of medical dollars to HMO shareholders has become an issue with the employers and governments that pay the medical bills.

Your HMO may not pay for your trip to the emergency room.

Emergency room physicians say HMOs impose obstacles to patients getting urgently needed care--and then resist paying for the care that’s provided.

THURSDAY: The system can be improved.

Patient-care advocates and some HMO executives agree that much can be done to improve members’ access to care and information. Among the proposals are creation of a statewide HMO ombudsman, improvement of patient surveys and increasing.

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The Cops on the Beat

The state Department of Corporations--charged with regulating HMOs that provide health care to 12 million Californians--has fewer staff members and takes far less disciplinary action than agencies whose responsibilities aren’t matters of life and death.

REGULATORY AGENCY: Bureau of Automotive Repair

LICENSEES: 104,421

COMPLAINTS: 32,632

DISCIPLINARY ACTIONS: 9,969

FINES LEVIED: 158

BUDGET (In Millions): $81.2

****

REGULATORY AGENCY: Contractors State License Board

LICENSEES: 278,329

COMPLAINTS: 29,407

DISCIPLINARY ACTIONS: 8,965

FINES LEVIED: 3,220

BUDGET (In Millions): $38.0

****

REGULATORY AGENCY: Department of Insurance

LICENSEES: 1,400

COMPLAINTS: 43,789

DISCIPLINARY ACTIONS: *

FINES LEVIED: *

BUDGET (In Millions): $120.0

****

REGULATORY AGENCY: Board of Barbering and Cosmetology

LICENSEES: 455,182

COMPLAINTS: 3,402

DISCIPLINARY ACTIONS: 2,025

FINES LEVIED: 0

BUDGET (In Millions): $9.2

****

REGULATORY AGENCY: California Horse Racing Board

LICENSEES: 35,000**

COMPLAINTS: 1,394

DISCIPLINARY ACTIONS: 1,470

FINES LEVIED: N/A

BUDGET (In Millions): $7.7

****

REGULATORY AGENCY: Board of Dental Examiners

LICENSEES: 28,828

COMPLAINTS: 2,741

DISCIPLINARY ACTIONS: 310

FINES LEVIED: 33

BUDGET (In Millions): $5.4

****

REGULATORY AGENCY: Structural Pest Control Board

LICENSEES: 13,979

COMPLAINTS: 1,086

DISCIPLINARY ACTIONS: 500

FINES LEVIED: 418

BUDGET (In Millions): $2.9

****

REGULATORY AGENCY: Board of Funeral Directors and Embalmers

LICENSEES: 5,488

COMPLAINTS: 245

DISCIPLINARY ACTIONS: 69

FINES LEVIED: 39

BUDGET (In Millions): $0.503

****

REGULATORY AGENCY: Board of Nursing Home Administrators

LICENSEES: 4,064

COMPLAINTS: 1,699

DISCIPLINARY ACTIONS: 196

FINES LEVIED: 0

BUDGET (In Millions): $0.522

****

REGULATORY AGENCY: Department of Corporations***

LICENSEES: 100

COMPLAINTS: 2,400

DISCIPLINARY ACTIONS: 1

FINES LEVIED: 1

BUDGET (In Millions): $5.4

Disciplinary actions may include those taken on complaints filed in previous years. Budget appropriations are for the year ended June 30. Other data, except as noted, is for the year ended June 30, 1994.

* Department says it helped consumers recoup about $54 million in year ended Dec. 31.

** Estimate

*** Complaint data is for year ended June 30, 1995. Budget appropriation is for the department’s health-related activities only.

Sources: California Horse Racing Board, Department of Consumer Affairs, Department of Insurance, Department of Corporations

Researched by JENNIFER OLDHAM / Los Angeles Times