HMO Charity Disbursements Come Under State Scrutiny

The money being handed out by several large health-care charities created by HMOs is drawing scrutiny from state officials.

On Tuesday, Assemblywoman Liz Figueroa (D-Fremont) challenged the state’s biggest health-care charity, the California Healthcare Foundation, to justify a $40,000 grant awarded last year to an HMO industry group.

And Atty. Gen. Dan Lungren said his office began conducting a review of the HMO foundations after media reports questioned whether some grants were in keeping with the group’s charitable responsibilities.

California is home to some of the nation’s largest health-care charities, a result of the decision by several big HMOs to switch from nonprofit to for-profit status. Under state law, health-care companies are required to create medical charities to compensate Californians for the years they operated as largely tax-exempt businesses.

The HMO conversions have created about half a dozen separate charities with combined assets of more than $4 billion. The formation of these charities has sparked considerable debate nationally among regulators and health policy experts and within the philanthropic community about how such vast sums of money should best be spent.

Figueroa, who chairs the Assembly Insurance Committee and is one of the Legislature’s leading advocates for reforming the managed-care industry, said she was “very concerned” about a $40,000 grant that the California Healthcare Foundation made to the California Assn. of Health Plans, a trade group that lobbies on behalf of HMOs.

The California Healthcare Foundation is the state’s biggest medical charity, with assets of about $2 billion. It was one of two charities created through the 1996 conversion of Blue Cross of California to a for-profit organization. A key issue in the Blue Cross conversion was the insistence by regulators and consumer advocates that the charity be independent of any influence by Blue Cross management.

In a letter sent Tuesday to Mark Smith, foundation president, Figueroa noted that the HMO trade group was “a Blue Cross political lobbyist” and not “the kind of organization that should ever have access to public benefit funds.”

Smith said Tuesday that the HMO group was one of three organizations--including a UC Berkeley research group and the Los Angeles-based Center for Healthcare Rights--which received money to prepare “background reports” on issues dealing with how the elderly and sick fare in managed-care programs.

“We were looking for help understanding the perspectives of a variety of people who must be involved in providing care for the elderly,” Smith said. He said the three grants were a tiny portion of a $15-million program for improving the medical care of elderly people enrolled in HMOs.

Figueroa conceded that she sent the letter without first seeking an explanation of the grant. She said the grant was brought to her attention by Consumers for Quality Care, a Los Angeles advocacy group that has been highly critical of the managed-care industry.

Smith said Consumers for Quality Care was denied a grant from the foundation last year and has been “vindictive” ever since.

Lungren’s inquiry was prompted by an article about the California Wellness Foundation and other health charities that “raised issues with respect to whether certain grants” were in compliance with the laws governing the charity, said Jim Schwartz, a deputy attorney general.

The article in the March issue of California Medicine questioned grants by the California Wellness Foundation to support youth music festivals and anti-violence “peace marches,” among other groups.

California Wellness officials contend these grants were justified and in any case represent only a tiny fraction of the money awarded by the foundation. The foundation was formed in 1992 when the Health Net HMO reorganized itself into a publicly traded for-profit company.

Schwartz said the audit will include a “spot check” of grants made by about half a dozen charities created by the state’s HMOs.