A Medi-Cal Matter

By DAVID R. OLMOS

July 21, 1996 12 AM PT

TIMES STAFF WRITER

When a big HMO wanted to sponsor health fairs at a Boyle Heights elementary school, educators faced a quandary.

Was the private company, Foundation Health, sincerely interested in improving the health of poor children and their families? Or was it just trying to drum up business?

School officials finally said OK, but insisted that parents choose the program themselves and that other health maintenance organizations be invited too. And when Foundation proposed a raffle as a way to draw bigger crowds, school officials limited the prize to a $10 department store gift certificate--not the more lavish things the HMO had suggested. “You want to protect the school from being a marketing arena,” said Pam Wagner, a nurse at the school, a short walk from the Ramona Gardens housing project.

That’s not as easy as it sounds.

“The [HMO] marketing folks, with their BMWs and cellular phones, have come rolling up and want to do raffles and give away bicycles,” said John di Cecco, a health services official with the Los Angeles Unified School District.

Indeed, many of Southern California’s poorer neighborhoods have become marketing targets for HMOs these days.

Their sales agents are turning up at schoolyards, doctors’ offices, churches, clinics, hospitals and colorful booths on historic Olvera Street, hoping to exploit what is arguably the most sweeping change ever in medical care for California’s poor.

Between now and the end of 1997, the state plans to transfer more than 3 million of California’s 5.5 million Medi-Cal recipients into HMOs. It is a task roughly comparable to moving every resident of Iowa into managed care in one year.

The state has begun transferring millions of indigent Californians in 12 of the state’s largest counties into managed-care plans in a massive effort to revamp health-care delivery and financing. Gov. Pete Wilson ordered the switch, billing it as a way to rein in escalating medical costs and improve access to medical care for the poor.

For private health-care firms, the program could be a gold mine: roughly $9.5 billion in Medi-Cal spending during the next six years in Los Angeles County alone.

And where there’s gold, there’s a gold rush.

The promise of that kind of payoff already has touched off a pitched marketing battle in the competition to sign up patients. It is guaranteed to intensify later this fall, when what so far has been a voluntary shift will become mandatory.

And health-care advocates and HMOs themselves warn that state government, in its haste to move Medi-Cal patients into managed care, may be woefully unprepared--or even unwilling--to monitor the sometimes questionable or illegal recruiting schemes dreamed up by health plans, often with help from physicians and hospitals.

They also criticize the state’s award of multibillion-dollar Medi-Cal contracts to HMOs with questionable track records.

Both problems may be inevitable, critics say, when the same state agency responsible for privatizing much of Medi-Cal is also charged with policing the process.

Some health-care advocates charge that the Department of Health Services has shown a reluctance to aggressively monitor the HMOs, perhaps to avoid embarrassing disclosures that could slow Wilson’s ambitious mission to slash the state’s $16-billion Medi-Cal bill.

Already, marketing agents for HMOs have tracked down Medi-Cal recipients at their homes, aboard city buses, and at check-cashing outlets and welfare offices. They’ve offered them cash--$20 in some cases--as an (illegal) inducement to sign up. And they’ve lied to Medi-Cal members, telling them they would lose their medical benefits if they didn’t join a health plan or that the HMO would let them see any doctor they wanted.

After lawsuits and newspaper disclosures and a rash of consumer complaints, the state finally cracked down on the most extreme abuses. Wilson signed Medi-Cal reform legislation last year prohibiting door-to-door and telephone solicitations and banned HMOs from directly enrolling patients. Instead, independent--and presumably unbiased--contractors will sign people up. The enrollment ban took effect July 1.

But there are other ways to reach potential customers--through their doctors and hospitals, their churches, even their children.

“Just the other day I had to shoo away [an HMO marketer] from our very door that was trying to recruit our patients,” said Sylvia Drew Ivie, executive director of T.H.E. Clinic, a community health clinic in Los Angeles’ Crenshaw district. “They have lots of resources at their disposal that community clinics don’t have, like giving out baby car seats or putting up great big billboards.”

Nor is it only a matter of unseemly or deceptive sales practices. There are also allegations of outright fraud.

There were disclosures that at least one HMO had offered kickbacks to doctors and a hospital in return for referring their Medi-Cal patients to that health plan. Physicians and the hospital embraced the schemes, justifying the money as fees to cover the cost of paperwork.

“If your physician is now being offered money, you wonder what is next,” said Lark Galloway-Gilliam, executive director of Community Health Councils, a Los Angeles health advocacy group.

In June, regulators--citing complaints from members and several physicians--accused Tower Health Services, a managed-care firm that serves the poor in Los Angeles County, of marketing abuses and making it hard for members to quit the health plan. The state proposed a 90-day ban on new enrollment for the firm. Tower has disputed some of the audit findings, and the state has yet to impose the ban.

The same month, a San Diego physician accused ProCare Inc., a San Diego managed-care company, of altering and backdating patients’ files in advance of a state inspection to ensure that it would pass muster--and also improve its prospects for getting a bigger piece of the fast-expanding Medi-Cal HMO pie. ProCare denies the accusation, which the state is now investigating.

Meanwhile, as HMO marketers literally set up shop in doctors’ offices and hospitals around L.A. County, critics are contending that the HMOs are in effect using the providers’ reputations and influence to help steer Medi-Cal recipients to specific HMOs.

At White Memorial Medical Center in Boyle Heights, for example, Foundation Health had, until the July 1 enrollment ban, been signing up new Medi-Cal members at the hospital’s information center on Cesar Chavez Boulevard. White Memorial--which relies on HMOs such as Foundation to deliver patients to the hospital--said Foundation and perhaps other HMOs will be invited to provide “educational” presentations at the center.

“We’re very interested, as many providers are, in helping our customers understand the changes that are happening in advance,” said Mark Newmyer, the hospital’s marketing vice president.

State officials defend the policy of allowing HMOs to market at primary-care doctors’ offices and hospitals, saying those are the logical places to reach patients. “We felt that for the patients to know that these doctors have an affiliation with a health plan is not coercive,” said Kenneth Wagstaff, a state Medi-Cal official.

The health plans may not be using kickbacks, but they are enticing doctors--and, indirectly, their patients--with the promise of financially more attractive contracts.

Critics fear that the interests of many patients will get trampled in the rush, as medical considerations become secondary to financial ones. What happens when a health plan that offers a good financial deal for a doctor also requires that his or her patients go to a questionable hospital?

“It’s one thing for a doctor to say to a patient, ‘If you want to keep seeing me, you might think about enrolling in this plan,’ ” said Lourdes A. Rivera, staff attorney with the National Health Law Program in Los Angeles, an advocacy group for the poor. “But if one plan becomes more appealing to the doctor based on financial incentives, that might not be in the best interest of the patient.”

Medi-Cal is what the state calls the federal Medicaid program. Traditionally, Medi-Cal has operated as a fee-for-service program, in which recipients can go to a doctor or hospital of their choice. The doctor then bills the state for the services.

HMOs limit patients’ choice of doctors and tightly manage access to specialists, the length of hospital stays and other aspects of care to control costs. In HMOs, doctors, hospitals and other providers get a flat monthly fee for each patient--in this case, from the state--on the calculated gamble that they will take in more money than it costs to provide care for the groups of patients overall.

Supporters of managed care for the poor say the change will increase the number of doctors and hospitals that accept Medi-Cal members and improve access to primary health-care services for needy families. Supporters say that by emphasizing prevention, health education and early intervention, managed care eventually will produce savings for taxpayers.

While even critics see potential benefits in managed care for improving access to medical care for the poor, many consumer advocates, physicians and some HMO executives are dismayed by the way contracts for the huge Medi-Cal business are being parceled out to the private sector.

Especially troubling to many health-care experts is the state’s decision to award a whopping $5.9-billion Medi-Cal contract for Los Angeles County to a group of HMOs with a history of regulatory run-ins, medical quality problems and complaints from consumer advocates and members.

The six-year contract, awarded after an exhaustive bidding process that attracted most of the state’s major HMOs, went to Foundation Health of suburban Sacramento, one of California’s biggest HMOs, and two subcontractors: Molina Medical Centers, a Long Beach HMO, and Signal Hill-based Universal Care.

In dozens of interviews with health-care experts and in state records reviewed by The Times, state regulators drew sharp criticism for failing to adequately screen the HMOs or for overlooking important information about their past performances.

Foundation was awarded contracts for four California counties, including Los Angeles, which the Rancho Cordova-based firm boasts will make it the nation’s largest Medicaid contractor.

Foundation’s selection for Los Angeles County was appealed--unsuccessfully--by a host of other bidders, including Blue Shield, Blue Cross, United Health and Kaiser Permanente.

Foundation won the contract despite a record of marketing abuses and a 1994 state medical audit citing violations of state licensing requirements in eight categories, including quality of care, continuity of care, handling of patient grievances and preventive services.

In both the 1993 and 1994 audits that the state does annually of HMOs that serve Medi-Cal enrollees, Foundation was cited as having “major deficiencies”--defined as having the “potential to endanger patient care or operations”--in preventive care. And in compliance with preventive health screening standards, Foundation actually did worse in 1994 than it did in 1993, when it was cited for major deficiencies.

State health officials counter that Foundation was chosen for the L.A. County contract in an extensive bidding process in which it outscored all competitors. And Foundation says it has taken steps to fix the medical quality problems cited in the state audits.

“We’ve proactively taken measures to ensure that the standards the state requires are met by our providers,” said Dr. Don Garcia, medical director for Foundation’s Southern California region.

Joseph A. Kelly, chief of the Department of Health Services’ Medi-Cal managed-care unit, adds that neither Foundation nor its two subcontractors “have any documented problems of endangering the health and safety of the people of this state.”

State health officials acknowledge that the bidding process did not take into account the state’s own medical quality reviews. Rather, the companies were scored on how well they proposed to meet a wide array of state and federal bidding criteria, ranging from financial solvency to their ability to supply “culturally appropriate” medical services.

Similarly, Foundation partner Molina Medical has a history of regulatory problems. State audits conducted in 1992, 1993 and 1994 found “significant deficiencies” in Molina’s quality of care, records show.

A confidential 1994 audit by the Department of Corporations, the state agency that regulates HMOs, was particularly critical of Molina’s medical care. Auditors concluded that Molina’s “medical decisions are being influenced by financial considerations or, if not, by medical misjudgment.” Auditors also concluded that Molina had “a pattern of denial for medical services, both diagnostic and therapeutic.”

Yet, in addition to giving it a piece of the L.A. County contract, the state awarded Molina another plum: the main Medi-Cal contracts for San Bernardino and Riverside counties, worth as much as $1.7 billion over six years.

“Incredibly, these actual and documented inadequacies of Molina were overlooked,” according to a protest of the Molina award filed by a competitor, CaliforniaCare Health Plans of Woodland Hills.

But Molina, Kelly said, deserves credit for improving its performance in a 1995 medical audit limited to its Sacramento County operations. The audit found no deficiencies in Molina’s quality of care or access to medical services. And the plan was cited for only one “significant deficiency” in 16 categories included in the audit--considered a commendable showing.

“The fact that we’ve dinged Molina or Foundation is the strength of managed care,” said Kelly, noting that there is no comparable regulatory oversight of medical care in traditional fee-for-service medicine. “I don’t think there are any contractors we’ve ever had that have been totally perfect.”

Likewise, state officials say their action against Foundation’s other subcontractor, Universal Care, in March demonstrates the state’s vigilance. Regulators froze Universal’s right to enroll new Medi-Cal patients as punishment for offering “bounties” to doctors who helped members sign up with the health plan.

The state acted after determining that a senior executive--a member of the family that controls the firm--had offered illegal $25-a-head kickbacks to San Diego County doctors for their help in enrolling patients in Universal.

Universal’s offer of physician kickbacks occurred four months after publication of a Los Angeles Times story in which a reporter witnessed a Universal sales agent offering $20 directly to a Medi-Cal recipient on the street to induce her to sign up with the HMO--an illegal inducement.

To critics of the Department of Health Services, who say the state is often slow to act and too lenient, the agency was being uncharacteristically tough on Universal Care. Yet when the state lifted the ban less than two months later, it reinforced their doubts about how serious regulators are in policing the HMOs.

And the San Diego doctor incident wasn’t the only evidence regulators had of questionable payments by Universal to providers.

In December, department officials say they became aware of a long-running marketing program with St. Francis Medical Center in Lynwood. Regulators contend that Universal was paying $25 “bounties” to the hospital for each Medi-Cal enrollee who the hospital steered to the health plan.

In this instance, regulators levied no penalties against Universal except to order the health plan to end its program with St. Francis.

The hospital “never had any indication that this might not be kosher or illegal,” said Robert Issai, the hospital’s senior vice president.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The 12 County Contracts

By the end of 1997, California intends to have approximately 3.1 million Medi-Cal enrollees in HMOs as part of the state’s 12-county expansion plan. The state plan gives Medi-Cal recipients a choice between two HMO plans: a “mainstream” plan run by private HMOs, or a “local initiative” plan run either by the county or by a public-private consortium. Earlier this year, the state awarded contracts to the mainstream plans. The state estimates that the mainstream plan will collect roughly 60% of the Medi-Cal expenditures in each county, with the local initiative getting the remainder. The figures below reflect the state’s estimates.

COUNTY: Los Angeles

ESTIMATED VALUE OVER 6 YEARS: $5.9 billion

MAINSTREAM CONTRACTOR: Foundation Health

COUNTY: San Bernardino

ESTIMATED VALUE OVER 6 YEARS: $1 billion

MAINSTREAM CONTRACTOR: Molina Medical

COUNTY: Alameda

ESTIMATED VALUE OVER 6 YEARS: $782 million

MAINSTREAM CONTRACTOR: CaliforniaCare

COUNTY: Santa Clara

ESTIMATED VALUE OVER 6 YEARS: $712 million

MAINSTREAM CONTRACTOR: CaliforniaCare