State Investigating If Former Commissioner Profited From Role : Attorney General Scrutinizing Actions of ’83 Appointee to Panel on Cutting Medi-Cal Costs

Medi-Cal costs were soaring four years ago when the state Legislature, grappling with a budgetary crisis, decided it had to do something. It created a seven-member commission to help reduce the bills.

One of the first people appointed to the state Medical Assistance Commission in early 1983 was Robert (Nick) Starr, the politically active owner of a North Hollywood medical laboratory.

The appointment was evidence of the resiliency of Starr, a Ventura resident, during a long, frequently turbulent public career.

Fifteen years earlier, a Superior Court judge forbade him from holding public office in the future after he was found guilty of accepting a bribe while he was a Los Angeles harbor commissioner. The sentence was voided, however, when an appellate court overturned the conviction, saying the judge had given faulty instructions to the jury.

It was not the only controversy involving Starr, who has been appointed to many governmental posts over the years--and has even served as an FBI informant.

In the mid-1970s, for instance, the state ordered the San Fernando Valley Fair to stop renting space from Starr and his wife, Diane, concluding that the rental was a conflict of interest. Diane Starr was one of the directors of the fair at the time; Starr had been its manager.

And just three months before Starr was appointed to the commission aimed at trimming Medi-Cal costs, a state audit concluded that his own laboratory had overbilled the state health care program by $184,259.

Starr’s three-year term on the state commission ended last spring, and once again his actions are under scrutiny. Last month, the state attorney general’s office announced an investigation into whether Starr had broken any conflict-of-interest laws as a commissioner.

Investigators said they are trying to determine whether Starr hoped to profit from the commission’s ill-fated pilot project called Expanded Choice. The controversial program would have required 250,000 Medi-Cal recipients in the Valley area and San Diego to enroll in health maintenance organizations.

The inquiry stemmed from a physician’s allegations during a lawsuit over the split-up of a small medical group. The physician had invested in the group, which rented space in a North Hollywood building owned by Starr. During the course of the suit, brought to Van Nuys Superior Court, the physician said he had decided to invest only after Starr--who is not a party in the suit--promised him that the group would get patients through Expanded Choice.

Starr was chairman of the state commission’s committee overseeing the Medi-Cal experiment, which was scrapped before it could begin this year.

The investigation has prompted some legislators to wonder why Starr was appointed to the state commission in the first place. The part-time post paid $33,732 a year.

“It’s an excellent question. It’s one people should answer,” said Assemblyman Burt Margolin (D-Los Angeles), who chairs the Legislature’s Joint Committee on Medi-Cal Oversight.

‘You don’t find people with those backgrounds on commissions; they usually get weeded out,” Margolin said.

In an interview, Starr vigorously denied trying to profit from his commission job. He said his only connection to physicians hoping to participate in Expanded Choice was as their landlord. “I just can’t figure how all this got started,” he said.

He commented: “I’m probably the most overly investigated person in the state.”

Starr was appointed to the state commission, whose main responsibility is negotiating Medi-Cal contracts with hospitals across the state, by the Senate Rules Committee in February, 1983. No one protested the appointment, and it sailed through, said Cliff Berg, the committee’s executive secretary.

Berg said questions about the appointment would best be answered by Sen. David A. Roberti (D-Los Angeles), the Rules Committee chairman and Senate president pro tem.

“As far as I know, Mr. Starr is someone Sen. Roberti has known for a number of years,” Berg said. “I think he was familiar with Mr. Starr’s biography.”

Roberti declined to comment pending the outcome of the attorney general’s investigation.

Challenging Job

Starr said he became a commissioner because he considered it a challenge to help improve the Medi-Cal system, which he termed “a mess.” Roberti knew he was interested in the commission because he had contacted the senator’s office about legislation intended to create the panel, Starr said. Roberti was not aware of the Medi-Cal audit of his lab, Starr said.

Berg said a run-in with state regulatory agencies would not have disqualified Starr from serving. It is not unusual for businessmen and health providers to have clashes with the state, he said.

Alan Rosenberg, a longtime attorney of Starr’s, agreed with Berg. “My client is not an angel, but he isn’t as big a rat as everyone is trying to paint him. . . . We all do things that, if brought to light, we’d be ashamed of,” Rosenberg said. “That does not make him a bad person.”

Starr, 53, a Valley resident much of his life, has been active in state and Los Angeles politics for decades. A conservative Democrat, he has helped in several mayoralty campaigns and in the Valley secession movement during the mid-1970s, served on a variety of government panels and made regular contributions either in his own name or through his former business, Bio-Med Laboratories Inc., which he established in 1959.

According to Legi-Tech, a computerized campaign-reporting service, Starr and his lab have donated $15,000 to state politicians since 1982. Included in that is $1,250 given by the lab to Roberti several months before Starr was appointed to the Medical Assistance Commission.

State Sen. Alan Robbins (D-Van Nuys), whom Starr supported for Los Angeles mayor in 1977, said controversy may have followed Starr because of his personality. “Nick is sort of a good old boy without a good-old-boy personality,” Robbins said. “He has a tendency to sometimes irritate people.”

Starr, indeed, is not a retiring person. The sailboat he docks at his home, built on an inlet that flows past the Ventura Yacht Club and into the Pacific Ocean, is named Hot Money.

Legal Troubles in ‘60s

Starr’s legal troubles stretch back to the 1960s, when he was harbor commissioner during the administration of Mayor Sam Yorty.

The bribery case stemmed from Starr’s role as a commissioner in awarding a contract to a developer who wanted to build a world trade center on Terminal Island. Prosecutors alleged during the trial that Starr and Karl L. Rundberg, another former harbor commissioner, also solicited payments from others doing business with the commission, although no charges were filed in those cases.

Defense attorneys maintained that money, goods and services their clients received or sought from harbor tenants were loans and not bribes.

Starr in 1968 was found guilty of bribery for accepting $6,500 worth of furniture from the trade center developer.

At the sentencing, Superior Court Judge William B. Keene characterized Starr and Rundberg’s commission activities, including those for which they were not indicted, as “dead wrong . . . immoral and illegal.”

But the appellate court ruled that Keene failed to properly instruct the jury concerning Starr’s statement to district attorney’s investigators that he had accepted the furniture. The court said jurors should have been told that independent evidence establishing that a crime had been committed had to be presented before they considered Starr’s statement.

Rundberg died, and the district attorney decided not to retry the case.

Starr said he was confident he would be exonerated, adding that, even after the jury verdict, his attitude was: “I know I’m right. I’m not going to bend to these people. I’m going to keep the bastards down.”

Since then, Starr’s businesses and public activities have been questioned by state Medi-Cal auditors, nursing home regulators, the state’s Division of Fairs and Exposition and even 4-H leaders in the Valley.

Starr became secretary-manager of the Valley Fair after the fair, moribund since 1959, was resurrected in 1975. Sen. Robbins recommended Starr to run the fair at the board’s first meeting.

Almost from the start, 4-H groups complained about Starr’s management style, said Robert McBroom, a longtime 4-H leader. The youth leaders complained in letters to state officials that Starr and some of the board members were arrogant and uninterested in agricultural events.

Starr left the fair in 1976 after his wife, Diane, was appointed to the board. The Starrs first donated, then rented, space for the fair’s administrative offices in buildings they owned in North Hollywood.

After receiving a complaint about the arrangement from another fair director, the state Division of Fairs and Exposition ordered the fair offices out of the Starrs’ property in 1978.

Robbins defends Starr’s performance as the fair’s manager, saying that Starr had been willing to work for nothing because the fair had no money at first.

“If anyone were to ask me, I don’t know anything wrong he’s ever done,” Robbins said.

Nursing Home Inquiry

Also in the mid-1970s, state regulators investigated a nursing home, the 47-bed North Hollywood Lodge and Sanitarium, operated by Nick and Diane Starr. Proceedings to revoke the nursing home’s license started after Los Angeles County health inspectors found problems with the handling of drugs there in 1973 and 1974, state records show.

Accurate records of medications were not kept; some drugs were given when there was no doctor’s order, and others were withheld even though physicians had written prescriptions for them, according to state records.

By the time the Department of Health Services revoked the convalescent home’s license in 1976, the Starrs had sold the facility, according to county health department records.

Years earlier, Starr’s involvement with another nursing home helped prompt a new city law. In 1967, Starr had asked the city Board of Zoning Adjustment for permission to build a 185-bed nursing home and a beauty parlor in a residential area in Pacoima. The rezoning request was approved when a board member who was Starr’s former business associate cast the deciding vote.

City Councilman Louis Nowell, who represented the East Valley, complained that the vote was a conflict of interest. But the zoning board and an assistant city attorney decided that Nowell had no legal standing to appeal the action.

As a result of the case, the City Council the next year gave itself the right to challenge actions by the zoning board.

Starr, who has been an investor in at least one other nursing home, said he did not want to talk about his experiences with convalescent homes.

FBI Informant

Perhaps Starr’s most unusual role in government service was as an FBI informant. He assisted the FBI during Labscam, a massive undercover investigation of Medi-Cal and Medicare fraud conducted in the late 1970s and early 1980s.

The FBI refuses to discuss Starr’s involvement. But an affidavit filed in U. S. District Court in Los Angeles by agent Ralph E. Lumpkin during a Labscam criminal prosecution in 1980 reported that Starr had been “actively involved in many investigations with the FBI” beginning in late 1978 or in January, 1979.

One of the people Starr helped indict on Medi-Cal kickback charges was Ray Kato, who ran Bio-Med Pharmacy in Starr’s North Hollywood medical building. The conviction was later reversed when an appellate court ruled that the trial court had erred by not allowing an entrapment defense.

Kato’s pharmacy license was eventually revoked, when a state audit found that the pharmacy had dispensed an unusually high number of controlled substances and that thousands of pills were missing.

Starr would not say much about his days as an FBI informant.

“I prefer to stay away from that. That job made me a lot of enemies,” he said. To discuss it, he added, “would be self-serving.”

The Medi-Cal payments received by Starr’s laboratory were questioned by the state in late 1982. State auditors examining Bio-Med Laboratories’ billings concluded that it had overbilled Medi-Cal by $184,259, according to state documents.

Auditors reported that more than half the lab’s records, which might have proven that lab tests were ordered and performed, were missing. In a letter to the auditors, Starr said the papers had been damaged by water and discarded.

Starr, whose laboratory filed for reorganization under federal bankruptcy laws shortly before the state demanded payment, has never repaid the state. The Department of Health Services is still trying to collect from Starr, according to Joan Clark, an official in the department’s collection section.

Starr, who says he left the now-defunct lab when he joined the Medical Assistance Commission, disavows any responsibility for Bio-Med’s financial problems.

“The fact is, I don’t owe the state of California anything,” Starr said. “It isn’t my personal debt. I don’t work for that lab anymore.”

Starr said Roberti was informed of the Medi-Cal audit and the bankruptcy proceedings a couple of years ago in an anonymous letter. When Roberti asked him about the letter, Starr said: “I didn’t give him an explanation. I told him it was not true.”

Starr said he has the trust of elected officials and has won appointments from them because of his track record.

“Once you get on one and do a good job, if you’re doing it right, they usually want you on their team,” Starr said.

In the appointed posts, Starr said, he follows the philosophy of “whoever appoints me.”

Starr said he has contributed mostly to Democrats, although he sometimes supports Republicans. He is now helping Republican Robert Thoreson, who is running against Assemblyman Richard Katz (D-Sepulveda), and also supported Rep. Bobbie Fiedler (R-Northridge) when she defeated liberal Democratic U. S. Rep. James C. Corman in 1980.

Assembly Race

Starr once ran for public office himself. In 1968, while he was under indictment for bribery, he ran for an Assembly seat in the eastern San Fernando Valley, but finished last among three Democratic candidates in the primary, getting 9% of the vote.

According to Starr’s resume, on file with the state, he has served on a Los Angeles County commission on health planning, a city committee on international visitors, a federal Small Business Administration committee and a state commission on revising the election code.

Starr had expressed an interest in staying on the Medical Assistance Commission when his term expired in April, according to Berg, the Rules Committee executive secretary. But Starr lost out to another well-connected Democratic businessman on the panel, its chairman, Richard Silberman of San Diego, who was appointed by former Gov. Edmund G. Brown Jr.

Appointments to the seven-member commission are split among the Senate Rules Committee, the Assembly Speaker and the governor. Starr’s term expired at the same time as Silberman’s.

Gov. George Deukmejian, who had the power to name a new chairman, appointed Republican Robert W. Walker, 72, the retired chairman of Blue Shield of California. The Rules Committee named Silberman to take over Starr’s spot.

The allegations involving Starr’s role in Expanded Choice apparently were not a factor in his departure from the commission--the attorney general’s investigation was not disclosed until more than two months afterward.

One of the attorney general’s investigators said Friday that the inquiry is continuing.

Michael W. Murray, the commission’s executive director, said recently that, if there “were something of substance” to the allegations, “that would surprise me.”

Starr, no longer on a public payroll, became a partner this spring in a Newbury Park medical laboratory, American Immunology Lab. The lab specializes in conducting immunological tests, including examinations for AIDS, he said.

But Starr does not rule out seeking another political appointment. “Give me a good challenge,” he said. “I’m not dead yet.”