State Official Joining Riordan Team

After a turbulent 2 1/2 years as the chief regulator of California’s powerful managed health care industry, Gary S. Mendoza will join Mayor Richard Riordan’s administration, sources said Thursday.

Mendoza is to become deputy mayor in charge of economic development for Riordan. The economic development post is a highly important one in the Riordan administration, which has made improving Los Angeles’ sagging business climate a top priority.

The office oversees efforts to attract new businesses and keep existing ones from jumping city or even state boundaries, and it spearheaded the newly organized Los Angeles Community Development Bank, which Riordan sees as the centerpiece of his efforts to stimulate the economies of the city’s poorest neighborhoods. The bank, along with federal grants and loan guarantees, became a consolation prize of sorts after the city’s embarrassing failure to win a lucrative federal “empowerment zone” designation.

The mayor’s office said it would neither confirm nor deny the report but added that it will make a statement today.

Mendoza would become the third deputy mayor for economic development in the 2 1/2-year-old Riordan administration. Just five months after the businessman-mayor took office in July 1993, his first top economic development aide, Deputy Mayor Alfred R. Villalobos, resigned in the wake of news stories about his checkered past as a private financial consultant.

He was replaced by Mary Leslie, a former Democratic Party fund-raiser and executive director of the California Commission for Economic Development before joining President Clinton’s Small Business Administration. After laying the groundwork for the as yet unopened Community Development Bank, Leslie resigned in November to head a private youth foundation.

Mendoza, a native of the San Gabriel Valley, is a Yale-educated lawyer and a former partner in Riordan’s Los Angeles law firm. He also served as lawyer for Riordan’s mayoral campaign and as a member of Riordan’s transition team after his election.

Mendoza was appointed commissioner of the Department of Corporations by Gov. Pete Wilson in July 1993. He is widely credited with bringing a more aggressive, consumer-oriented approach to an obscure state agency that regulates health maintenance organizations and investment firms. Before Mendoza’s arrival, the agency had been broadly criticized as a lax regulator, particularly in the health care field.

Mendoza’s push for tougher oversight of HMOs, which serve about 20 million Californians, have made him popular with consumer advocates. But those efforts have often infuriated officials of the state’s major health plans. In two instances, HMOs have gone to court to block the agency’s enforcement actions.

Some consumer advocates expressed concern Thursday over whether the department’s more aggressive approach will continue under Mendoza’s successor, who is yet to be named.

“Mendoza has taken the department to heights it’s never been to before in terms of consumer protections and awareness of consumer health issues,” said Judith Bell, co-director for the Consumers Union in San Francisco.

One issue that could delay Mendoza’s departure from the Department of Corporations is Blue Cross of California’s plan to convert from nonprofit status to a commercial entity--a proposal that involves billions of dollars of charitable funds. The highly charged issue has been a major focus of Mendoza’s tenure.

For more than two years, Mendoza has prodded Blue Cross to offer the state a better deal for its planned conversion. Under state law, nonprofit health plans are obligated to donate the full value of their assets to a public charity when they convert to commercial status.

Mendoza had approved a Blue Cross proposal to create two health charities with a combined endowment of more than $3 billion, but that plan was scuttled when the merger between WellPoint Health Networks, Blue Cross’ commercial subsidiary, and Health Systems International collapsed recently.

Blue Cross is preparing a new proposal for the state agency, and Mendoza may remain on the job until that process is completed, sources said.

The Blue Cross issue is one of several Mendoza has been involved in that have raised the anger of the HMO industry.

In early 1995, Mendoza announced the first fine in the department’s 20-year history against a California HMO for denial of medical benefits. FHP/TakeCare, one of the state’s largest HMOs, has challenged in court Mendoza’s authority to levy the $500,000 fine. That challenge is still pending.

Another big HMO, PacifiCare of California, sued Mendoza’s agency last year after the Department of Corporations sought access to thousands of members’ medical records as part of an audit of the HMO’s medical care.

Pushed by consumer groups and legislative mandates, Mendoza has also taken steps to improve the agency’s oversight of these medical plans and has blocked executives of one big health plan from cashing in on lucrative stock options. Last year, the department installed a toll-free telephone number to handle consumer complaints about HMOs.

“Mendoza has transformed the agency from one that is reactive and laissez faire to a proactive, aggressive protector of the public interest,” said Assemblyman Phillip Isenberg (D-Sacramento).

Don Prial, a spokesman for Health Net, another large HMO, said Mendoza “should be given a lot of credit for elevating the visibility of the HMO industry and for several initiatives he fought for regarding issues like quality of care.”

But other health industry sources said Mendoza’s actions have sometimes created friction with the Wilson administration.

“The HMOs have not been happy with Mendoza, period,” said one Sacramento lobbyist.

“They have been complaining for some time to the Wilson administration. But Gary also has strong supporters who have said he was making the governor look good.”