Wilson Acts to Increase Oversight of HMOs

Conceding that the explosive growth of HMOs has outstripped the state’s ability to police abuses, Gov. Pete Wilson moved Wednesday to dramatically beef up enforcement by the beleaguered agency charged with protecting the 18 million Californians who belong to the low-cost health plans.

Wilson, on the eve of the threatened legislative ouster of his top health care regulator, proposed a 73% increase in the health-related budget of the state Department of Corporations. It was quickly approved by a Senate subcommittee and praised by the governor’s critics.

Wilson’s action comes as a debate rages in California and nationally over the growing dominance of medicine by the managed care industry and government’s proper role in overseeing that the industry’s cost-cutting practices do not jeopardize the quality of medical care.

Disclosures of a string of alleged abuses, including what regulators last week called a “chilling” tale of dangerous practices at a big chain of dental clinics that were allowed to continue for years, had created intense pressure to bolster the state’s role.

Wilson’s budget request is seen as a concession to critics who have warned for years that the Department of Corporations is severely understaffed.

“We’ve had an agency with an $8.9-million budget to oversee a $34-billion industry in California,” said Julie Stewart, a spokeswoman for the agency. “That is clearly not enough.”

Indeed, HMOs have added 2 million members in California in the last two years alone, and about 44% of Californians now belong to these plans. That number is expected to grow sharply as the Wilson administration moves 1.5 million Medi-Cal beneficiaries into HMOs over the next few years. Medi-Cal is the state’s version of the Medicaid health insurance program for low-income families.

The decision to recommend pumping more money into health care regulation was made easier by the state’s budget surplus, which also enabled Wilson to urge adding millions of dollars to education.

The unexpected budget proposal probably clears the way for the Senate Rules Committee today to vote to confirm Keith Bishop as commissioner of corporations. It is the last day Bishop, the acting commissioner, can hold office without Senate approval.

Bishop’s confirmation became the pressure point for action by Wilson. Senate President Pro Tem Bill Lockyer (D-Hayward) threatened to embarrass Wilson by denying confirmation unless the governor promised to beef up the consumer protection activities at the agency.

Bishop and the little-known agency he heads have come under fire from Republicans and Democrats, as well as patient advocate groups, who complain that the agency has failed to adequately police the industry.

The budget proposal would add $6.5 million to the agency’s $8.9 budget for overseeing the state’s 115 medical, dental and vision care plans.

It would fund 54 new jobs at the Department of Corporations’ health care division, which now employs 62. It would roughly double funding for the agency’s enforcement unit responsible for reviewing consumer complaints.

The size of Wilson’s proposed budget increase for the agency surprised even legislative critics of the governor’s policies toward the HMO industry.

The proposal drew enthusiastic support from Sen. Herschel Rosenthal (D-Los Angeles), a dogged critic of Wilson administration policy toward the managed care industry. The increase in funding for HMO regulation is “long overdue,” he said, while praising the governor for a “thoughtful and comprehensive overhaul” of the agency.

The department and Bishop aren’t out of the woods yet. But the budget boost and recent moves by Wilson to appoint a health care ombudsman to monitor consumer complaints have greatly enhanced his prospects, legislative sources said.

Bishop has also announced several high-profile enforcement actions against HMOs in recent months as his confirmation hearing neared. Last month, Bishop filed a lawsuit seeking to put Western Dental Services in receivership for serious deficiencies in its care. He also is seeking a $3-million fine against the large dental HMO.

As a result, “[Bishop’s] prospects are brighter tomorrow,” said Sandy Harrison, a spokesman for Lockyer.

Lockyer and other legislators have also proposed that perhaps the agency is ill-suited for the job of regulating HMOs, even with a bigger budget. Besides its HMO duties, the department regulates securities, mortgage brokers and other businesses. Five legislators--four Democrats and one Republican--have introduced legislation to strip the agency of its authority over HMOs.

While patient advocate groups generally applauded Wilson’s budget proposal, they remained skeptical of the department’s willingness to take a more aggressive consumer watchdog role.

“Just because Bishop has more resources, it doesn’t mean that he will enforce the law,” said Jamie Court, a spokesman for Consumers for Quality Care, a Los Angeles consumer group.

Beth Capell, a lobbyist for Health Access California, a patient advocacy group, called the governor’s budget request “too modest” and said it “doesn’t enhance the ability of [the agency] to enforce the law but just lets it do the minimum it needs to do to meet the law.”