Here’s the Reason State Will Stiffen HMO Oversight

Gov. Gray Davis plans to strip the state’s Department of Corporations of its power to oversee health plans.

The governor’s press secretary, Michael Bustamante, left no doubt of that when he remarked recently, “The governor has not made a determination yet on where it will go. But he has made the determination it will not stay with the Department of Corporations.”

The new oversight agency may reside, as Corporations does now, in the Business, Transportation and Housing agency. It may be placed in the more consumer-oriented Health and Welfare Agency.

Conceivably, it could also be made a stand-alone body reporting only to the governor, though Davis may not want to take so much direct control over a potato as hot as health care.

Regardless, it will be an unlamented change. The department has earned notoriety for its weak regulation of health care, and everyone from its former leaders in the Pete Wilson administration to lobbyists for the managed care industry to the most liberal reformers, will accept a move.

How does a department in state government find itself so unpopular? The case of Melody Johnson of Norco helps explain it.

Johnson was 16 when she died of cystic fibrosis Dec. 12, 1995. On Nov. 22, 1996, her parents, Jay and Terry Johnson, first asked the Department of Corporations to penalize their HMO, PacifiCare, for having inadequately treated her.

Then-Commissioner Keith P. Bishop promised an investigation just four days later.

Four months later, on March 26, 1997, Bishop’s assistant, Joe Parra, wrote the Johnsons, saying “that the evidence was insufficient to establish” that PacifiCare had violated state law in the treatment.

Bishop agreed, however, on Aug. 7, 1997, to reopen the investigation after hearing testimony from the Johnsons before a managed care task force.

There were meetings, there were inquiries, but nothing much happened. On April 16, 1998, a new commissioner, Dale F. Bonner, wrote the Johnsons that he had told his staff to complete the review initiated by Bishop “as expeditiously as possible.”

On Oct. 29, 1998, Christopher A. Nuechterlein, assistant commissioner in charge of the department’s new Health Plan Enforcement Division, wrote a reassuring letter to Dr. Vincent M. Riccardi, whose American Medical Consumers organization had taken up the Johnsons’ cause.

“Be assured that the department is sensitive to the distress of Jay and Terry Johnson,” Nuechterlein declared. “We are making every effort to bring this investigation to an expeditious conclusion with as thorough a review as possible.”

After that, nothing. But Cheryl Brady, spokeswoman for PacifiCare--which the Johnsons are suing--told me this past week: “We’ve provided the Department of Corporations everything they asked us to send them. We believe the case is closed and inactive.”

However, William M. Kenefick, acting commissioner under the new Davis administration, told me, “It’s still open.”

It’s now 28 months since the Johnson investigation began, and there isn’t much sign of progress. Brady says PacifiCare hasn’t heard anything about it from the department for months, and neither have the Johnsons.

Kenefick volunteered no assurances that it would be expeditiously pursued.

“My husband and I would very much like closure on this,” Terry Johnson said. “Our feeling is, we turned to the Department of Corporations and it has fallen short in helping us.”

It is not only the length of the Johnson inquiry that illuminates the department’s shortcomings.

Its avid pursuit, until very recently, of confidentiality policies also is revealing.

Last April, Commissioner Bonner informed the Johnsons that no matter what enforcement or disciplinary action the department might take, if their complaint was found justified, it would probably not be revealed to them.

Bonner wrote, the “files are confidential in accordance with California Government Code Section 6254.”

I asked the state attorney general’s office whether it agreed that Section 6254 justified such confidentiality.

Sandra Michioku, spokeswoman for the office, said it did not.

“Generally, government agencies engaged in licensing and investigations may, at their discretion, withhold information while the matter is pending,” she said. “But this is generally not an absolute requirement.”

Michioku added that the department was not required to withhold its disciplinary actions once its inquiries are complete.

Bonner and Kenefick agreed it is actually more policy than law that has kept the department from releasing information. In the past year, they said, the department has tried to be more open.

Beginning last summer, Bonner told me, “We did try and open up a little more on the conclusions we reached . . . talk a little bit about the basis of the conclusion.”

The first such letters have been going out to complainants, but Bonner and Kenefick say there have been objections from some of the health plans and doctors.

The critics say that if the department speaks too frankly about what it has found, it might prejudice lawsuits. They also warn against implying that doctors are guilty of malpractice when such conclusions should only be reached by the state Medical Board.

Kenefick is cautious. Certainly, he said, “We don’t issue a press release on all our orders” of fines or suspensions.

This column isn’t about press releases. I want mainly to make the point that people like the Johnsons are entitled to know the outcome of their complaints. If the Department of Corporations is making progress toward that end, it’s to be welcomed, even in the few months remaining of its health care responsibilities.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060, or by e-mail at: ken.reich@latimes.com