State Oversight of HMOs Increasingly Lax, Critics Say

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State Sen. Steve Peace (D-Chula Vista) was not particularly surprised when a group of lobbyists for the state’s biggest health maintenance organizations spoke out at a hearing last month to oppose his bill to reform the state’s regulation of their industry.

It was that officials of the very agency charged with regulating the HMOs were doing the same that enraged him.

“It is impossible to distinguish between the lobbying done by the Department of Corporations and the lobbying done by the industry,” Peace said at an Aug. 6 Insurance Committee hearing. “This is a department that is the epitome of being captured by the industry.”


The Department of Corporations has never been known as an aggressive regulator of HMOs. But health care activists, medical professionals and a growing bloc of state legislators are concerned that under its newest management, the agency’s oversight is deteriorating.

In the four months since former securities lawyer Keith Paul Bishop took over the agency, critics say, he has blocked or delayed several regulatory initiatives undertaken by his immediate predecessor, Gary S. Mendoza. (Mendoza resigned to become a deputy mayor in Los Angeles.)

And they contend that the agency--often aligned with the HMO industry--is more strongly than ever resisting legislative and other policy efforts to assist consumers.

“Anything that involves making information available [to consumers], which should be one of their key roles, they seem to oppose,” said Carol Jimenez, staff attorney at the Center for Health Care Rights, a Los Angeles-based consumer group. “Most of the states in this country are publishing this kind of information.”

The upsurge in criticism of the department comes at a sensitive moment for the state’s rapidly changing health care system. HMOs under the agency’s jurisdiction administer the care received by 17 million Californians. That figure will rise sharply over the next few years as 1.5 million Medi-Cal patients--mostly poor women and children--are shifted into managed-care plans by state order.

Concern about lax regulation and the growing clout of HMOs in the state has already inspired two coalitions of labor, consumer and patients organizations to place two initiatives, Propositions 214 and 216, on the November ballot to impose sweeping new regulations on the industry. HMOs and other business interests are spending millions on advertising to defeat the initiatives.


Bishop declined to be interviewed for this article. But his supporters argue that the critics have not given him enough time to get accustomed to his health care responsibilities. They describe Bishop as a cautious and thorough person unlikely to make hasty decisions on important issues.

“If there is a perception of him moving slowly . . . it would be because he is getting his arms around the issues,” said Mark Watts, chief of staff to Assembly Speaker Curt Pringle (R-Garden Grove), who worked with Bishop at the state Business, Transportation and Housing Agency.

Still, health care advocates and some legislators say Bishop has already shown that he is less likely than Mendoza, his predecessor, to emphasize the agency’s consumer protection role. Under Bishop, the agency has sometimes taken a harder stand against consumer-oriented regulatory initiatives than the HMO industry itself--formally opposing some legislative bills accepted by the California Assn. of HMOs, the industry’s lobbying arm.

“There are 17 million [HMO members] in California who think that someone is watching after their interests,” said Mike Mattoch, a former corporations counsel who left the agency late last year to join the California Medical Assn. “But the short answer is, nobody is watching.”

Critics also are upset at Bishop’s handling of a public report about HMO member complaints reaching the agency through its new toll-free consumer complaint line. The report--a breakdown of complaints by category and HMO--had been cleared for release by Mendoza before his departure in March.

Bishop, however, delayed the report’s issuance until late last month. And the delay did not result in the report’s being updated with fresh information--its most recent data come from December.


“The timing is troubling and the report isn’t all that useful,” said Jeanne Finberg, staff attorney at Consumers Union in San Francisco. “It is really difficult for a consumer to try to read that report and make a choice of health plans.”

Legislators concerned with health care oversight say Bishop has been unresponsive to routine requests for information. Complains state Sen. Herschel Rosenthal (D-Los Angeles), author of numerous health insurance reforms: “Commissioner Bishop has yet to prove to me that he’s willing to strengthen and improve the regulation of HMOs.”

Dissatisfaction with the department’s performance has already given impetus to one bill in Sacramento that would strip the department of its health care responsibilities and transfer them to the Department of Insurance, which regulates traditional indemnity health plans. There, it is thought, the presence of an elected commissioner might ensure more aggressive regulation.

In Sacramento, uneasiness over the deterioration in HMO regulation has crossed party lines, meaning that the Legislature may soon be forced to act on some type of regulatory reform.

“Republicans used to defend HMOs a few years ago, but they’re not doing it as much anymore,” said a GOP legislative consultant on insurance issues. “There are lots of legislators whose families and constituents are having a lot of complaints with HMOs.”

Republicans “worry that if we don’t have an aggressive regulator out there, we’ll get something worse,” the consultant said, referring to the November ballot measures and to fears of another “single-payer” initiative--a Canadian-style health care system--that California voters resoundingly defeated in 1994.


To be sure, the agency that Bishop inherited has never seen HMO enforcement as its major responsibility. In virtually every state, HMOs are overseen by insurance or health care regulators. Here, they fall under the jurisdiction of an agency whose principal duties include the regulation of securities transactions and issuance of certain business licenses.

Even after acquiring its HMO responsibilities in 1975, the department continued to be led by a succession of business professionals or lawyers with scant, if any, experience in health care. That was the case with Bishop, 39, whose most recent post had been deputy secretary and general counsel of the state’s Business, Transportation and Housing Agency, parent of the Department of Corporations.

Bishop’s supporters say he has taken some actions unfriendly to HMOs.

Last month, the Department of Corporations released a strongly worded medical audit of Kaiser Permanente’s Northern California region that found numerous shortcomings in the large HMO’s patient-care systems.

Also last month, Bishop drew protests from the HMO industry by contracting with an affiliate of the California Medical Assn. to conduct medical-quality audits of HMOs. That contract represented a serious conflict of interest, the HMOs contend, because the medical association--which has often been highly critical of HMOs--has formed its own medical plan to compete with them.

But Bishop’s critics say he has evinced little interest in improving the agency’s poor record on consumer protection in health care.

Among the legislative initiatives that Bishop has opposed was the creation of a state ombudsman to help HMO patients resolve disagreements over quality of care, access to specialists and other issues.


A member of Bishop’s legal staff said the agency opposed the measure in part because it would make the department an “advocate for the enrollee”--exactly the role that many observers contend that a regulatory agency should play. A stripped-down version of the bill passed the Legislature and is awaiting action by the governor.