Court Allows HMO to Resume Signing Up Medi-Cal Patients

Dealing a temporary setback to state health regulators, a federal judge’s ruling will allow an HMO accused by the state of numerous licensing violations to resume enrolling indigent Medi-Cal beneficiaries.

The ruling by U.S. District Judge Dickran Tevrizian came after Tower Health Services, a Long Beach-based HMO that serves nearly 50,000 Medi-Cal beneficiaries, sued to overturn a 90-day ban on marketing and enrollment imposed by the state Department of Health Services, which cited numerous and repeated licensing violations.

The state ordered the actions late last month and said they were based on findings in its annual financial and administrative review of Tower’s Medi-Cal operations. Tower has members in Los Angeles, San Bernardino, Orange and other counties.

The case prompted accusations by Tower Health that top state regulators deliberately attempted to “discredit and malign” the company by releasing “false and misleading” information to a Los Angeles Times reporter about proposed disciplinary actions.

In court documents, Tower claims that the state “leaked” information to The Times after learning that Tower planned to sue the state over the pending sanctions.

State regulators, Tower claims in the suit in federal court in Los Angeles, “carefully timed the imposition of sanctions against the plan to cause the greatest possible harm.”

Late Monday, Tevrizian ordered that the state’s 90-day suspension of Tower be temporarily postponed to allow both sides more time to gather more evidence for a hearing later this month.

In a separate ruling, Tevrizian barred the state from releasing to the news media a July 26 letter from Joseph A. Kelly, a top health official, to Tower executive Paul Cohen. The letter notifies Tower of the state’s plan to impose the 90-day enrollment ban, listing numerous accusations of licensing violations by the Long Beach firm.

Noting that The Times had already published a story about the state’s sanctions against Tower, Tevrizian found that any further distribution of the letter to the press “could cause irreparable damage to Tower’s reputation and ability to enroll new members if the alleged violations are found to be groundless and/or rectified by Tower’s remedial actions. . . .”

Because of Tevrizian’s ruling, state health officials earlier this week refused to provide a copy of the July 26 letter to Sacramento journalist Barrett McBride, who writes the California Health Law Monitor, a health policy newsletter.

Tevrizian said he had determined that two of the state’s accusations against Tower were “moot” because the company had already acted to comply with state requirements.

Tower claimed that the state’s sanctions could result in the loss of “tens of thousands” of new Medi-Cal enrollees and threaten its financial viability. Tower said the timing of the sanctions is especially damaging because the state is preparing to shift hundreds of thousands of Medi-Cal enrollees into private HMOs. Tower could potentially double its membership in Los Angeles County alone as a result of the huge Medi-Cal shift.

But state health official Kenneth Wagstaff calls Tower’s enrollment loss figure “an egregious overstatement,” according to court papers. He notes that Tower’s enrollment ban was due to expire Oct. 23 and that the state-mandated Medi-Cal shift will not begin until January or February of 1997.

According to court records, Tower accuses Wagstaff, a top official in the state’s Medi-Cal managed-care program, of deliberately attempting to malign Tower by leaking details of the audit to The Times. Wagstaff calls that charge “unfounded and wrong,” court records show.