HMO Accused of Marketing Fraud, Other Improprieties

State health officials have accused a Southern California HMO that serves indigent Medi-Cal members of marketing fraud, mishandling of consumer complaints and making it hard for members to quit the health plan.

The state warned Tower Health Services that it may ban the HMO from enrolling new members for 90 days unless the firm moves quickly to fix numerous problems cited in a June 10 audit report.

Tower, based in Long Beach, provides medical services for nearly 50,000 Medi-Cal enrollees in Los Angeles, San Bernardino, Riverside, Orange and Fresno counties.

The case is the latest in a string of alleged abuses to come to light in the state’s program to shepherd nearly 2 million Medi-Cal enrollees into health maintenance organizations during the next few years. Medi-Cal is California’s version of the federal Medicaid program.

The Tower audit is also an untimely embarrassment for L.A. Care, a quasi-public HMO that plans to offer medical services for about 750,000 Medi-Cal recipients in Los Angeles County beginning in late 1996. Tower is one of five private HMOs in L.A. Care, which recently kicked off a marketing campaign.

In its audit, the state Department of Health Services cited Tower’s repeated problems in handling members’ requests to quit the plan.

“There were cases in which a member called Tower to request disenrollment but was not disenrolled until several months later,” the audit said.

Kenneth Wagstaff, a department official, said the state proposed sanctions because auditors have cited Tower for similar problems during the last three years.

“We use a three-strikes-and-you’re-out approach,” he said.

Last year, consumer and legal aid groups sued the department over its alleged failure to protect Medi-Cal beneficiaries’ rights, citing numerous cases in which dissatisfied consumers had trouble leaving HMOs after they joined. The suit accused HMOs of delaying disenrollment requests in order to boost profits.

The audit also said that department investigators witnessed Tower sales employees engaging in “inappropriate and unauthorized marketing” at federal Women, Infants and Children (WIC) program offices in Riverside and San Bernardino counties.

Tower executives did not return calls seeking comment Monday.

The state said the incidents occurred after a May 1 state ban on HMO sales agents operating at welfare offices, check-cashing outlets and other locations that have been the scenes of aggressive and sometimes fraudulent sales tactics by HMO marketers.

The audit also accuses Tower marketers of “routinely” misinforming Medi-Cal recipients about changes taking place in the federal program in order to persuade them to sign up for the HMO.

Tower was also sanctioned in 1993 by the state for “serious marketing violations,” the audit said.

The report also said the department had received “numerous complaints” from doctors and other providers complaining that medical bills had not been paid by Tower.

Tower was notified of the threatened sanctions in a June 10 letter from Joseph A. Kelly, chief of the state’s Medi-Cal managed care program, to Dr. Paul Cohen, who owns the company with his son, Robert.

The audit also disclosed that of the $22.1 million that the state paid under its Medi-Cal contract with Tower for the 12 months ended June 30, 1995, Tower took $4.8 million--or 22% of the total--off the top for administration and marketing expenses. A year earlier, Tower retained 24% for overhead costs, the audit notes.

State regulations set 15% as an acceptable ratio for overhead costs, meaning that 85% is supposed to go to pay for patient care, the audit notes.