Lawmaker’s Bills Would Have Benefited His Firm

A Granada Hills assemblyman with an ownership stake in one of the region’s large medical groups has pursued legislation and regulatory action that would benefit such groups in the health-care marketplace.

Republican Keith Richman has served as author or coauthor on two pieces of legislation aimed at improving the financial position of the small niche of companies that serve as middlemen between health maintenance organizations and patients.

He also has asked the state Department of Managed Health Care to intervene in situations where such companies believe that HMOs should pay them more money, and requested a full audit of the department shortly after its chief, Daniel Zingale, refused to do so.

Richman’s actions do not appear to be illegal, several experts in campaign finance and conflicts of interest said. The assemblyman sought an opinion from an attorney for the Assembly Ethics Committee, and the lawyer concluded that ownership alone does not amount to a conflict of interest. He urged Richman to discuss the matter again with him, however, if he intended to support bills that would benefit the medical group financially.

Still, a debate is brewing over Richman’s dual roles. Richman says his expertise in health care has inspired important efforts at health-care reform. But when asked about the assemblyman’s actions, several legal experts and watchdog groups said they were troubled by his sponsorship of legislation from which his company could benefit.

“If I were a legislator, I wouldn’t be introducing legislation that affects my company,” said Robert Stern, head of the Center for Government Studies, a watchdog group. “It just looks bad.”

Richman, a physician, is the former chairman of the board of Lakeside Health Care, which treats 100,000 patients, most of them in the San Fernando Valley. He resigned from that position when he was elected to the Assembly in 2000, but remains on Lakeside’s board of directors, drawing a salary described in state disclosure reports as from $10,000 to $100,000 per year. He owns from 3% to 4% of the company, which is described in the same documents as worth $100,000 to $1 million.

Richman says the financial problems plaguing medical groups need to be addressed and he has the expertise to do the job.

“I can understand how [Lakeside ownership] may have the appearance of conflict, but I think that my arguments on the merits of any bills, including health-care bills, need to stand on their own,” said Richman, who is up for reelection in November. “I bring an expertise from my experience both as a physician and as a person who’s run and served on the board of directors of a large medical group, and that I think brings value to the Legislature.”

Stern and others argue that Richman’s pursuit of legislation that could affect Lakeside Health Care points up the need for stricter conflict-of-interest laws.

“What’s troubling about it is you have a person who has the access to make legislation who is in a position to benefit himself by it,” said Carol Scott, a former member of the Fair Political Practices Commission who now works as a health-care lawyer in Sherman Oaks. “And what’s even more troubling is that it’s not black and white enough that someone could say something about it.”

State law prohibits legislators from introducing bills that would directly benefit a company in which they own shares or which has paid them a salary during the past year. However, if the legislation would also affect other companies, California law does not consider it a conflict of interest.

Richman’s critics say his situation is a little more tenuous because his company is in a relatively small business niche.

Lakeside Health Care is one of 259 companies licensed in California to bear risk like a quasi-insurance company. Those companies take monthly payments from HMOs and use the money to pay for patient care. But there is often not enough money to pay for all the care required.

Lakeside, like many such groups, appears to be in financial trouble. According to state records for the first and second quarters of 2001, Lakeside did not meet three financial tests set up by the state to show whether a medical group is in sound financial condition: It did not have working capital, tangible net equity or engage in timely payment of claims to providers.

Richman, like many doctors, believes that because HMOs have so much market clout, a medical group cannot stay in business without pleasing them. As a result, medical groups must either sign unfair contracts or lose patients, he said.

His legislation, he said, is intended to address that unfairness.

One bill, written by Richman and vetoed last fall by Gov. Gray Davis, would have made it illegal for health plans to enter into contracts with medical groups that required the groups to pay for expensive injectable medications such as those used in chemotherapy.

Relief from such a requirement could save a medical group millions of dollars annually.

The other bill, on which Richman is a coauthor with Speaker Pro Tem Fred Keeley (D-Santa Cruz), would force the Department of Managed Health Care to consider cases in which a medical group believed that an HMO was offering an unfair contract. If the department declined to take a position, then the medical group could enter a mediation process. And if still unsatisfied, it could sue.

Richman said in a December interview that he co-wrote the bill, AB 1600, out of frustration with the department because it has “chosen not to” intervene when doctors and medical groups have said they were being underpaid by health plans.

The bill was pulled from the legislative calendar late last year, but Richman says it will be reintroduced later this month.

Richman has criticized the department and the Davis administration for its reluctance to intervene in contracts between HMOs and medical groups.

In a letter to department chief Zingale dated Sept. 12, Richman upbraided the Davis appointee for “timidity” in dealing with health plans. That same day, he requested a state audit of the department.

Steve Thompson, chief lobbyist for the California Medical Assn., which is sponsoring AB 1600, said Richman is a “very honest guy” who is addressing a legitimate problem and is not seeking to enrich himself.

Daniel Pellissier, Richman’s chief of staff, said he urged his boss to divest himself of his shares in Lakeside Health Care when the physician was elected.

Richman said he did not because Lakeside could not buy them back and he did not believe there was an outside market for them. Instead, the Assemblyman sought an opinion from the Assembly Legislative Ethics Committee.

The legal opinion, written by attorney Scott Hallabrin, says that if a bill affects other companies as well, Richman’s ownership in Lakeside does not constitute a conflict. The attorney urged Richman to contact him again if he was considering supporting a bill that might benefit Lakeside, but Richman hasn’t done so, Hallabrin said.