State moves to subject HMOs to closer scrutiny.

Agency to conduct stricter, more-frequent audits

Regulatory oversight of health maintenance organizations promises to get tighter starting this year, with stricter and more-frequent audits by the California Department of Corporations.

The DOC, the state body charged with regulating HMOs, has traditionally been required to perform on-site audits of each health plan in the state every five years to ensure they meet quality guidelines. But under a law signed last year by Gov. Pete Wilson, the DOC has to do the job every three years as of Jan. 1.

Rather than perform the audits itself, the agency is apparently looking to hire someone else to do the job. In November, the DOC sent out requests for proposals to seven organizations based in Illinois, California and Washington, D.C., to take over the HMO audits.

DOC supervision of the state's health plans came under heavy fire during last year's legislative session, when several bills were introduced to reform the massive regulatory deficiencies identified in a 1992 report by the state Auditor General's Office. According to the report, the DOC frequently failed to perform its HMO audits, and even when deficiencies were identified, the department often failed to take any disciplinary action.

Legal crackdown

Senate Bill 689, introduced by state Sen. Herschel Rosenthal, D-Van Nuys, and signed into law by Gov. Wilson, clamps down on HMO regulation with a series of major reforms. Besides creating a toll-free "800" number for enrollee complaints, the law mandates more-frequent audits of health plans by the DOC, requires public disclosure of any deficiencies identified in these audits, and forces the DOC to conduct follow-up investigations within 18 months of each audit to ensure that any deficiencies have been corrected.

Before the passage of SB 689, the Department of Corporations did not publicly disclose any deficiencies identified in its audits as long as the health plan agreed to correct the shortcomings within 30 days. Under the new law, all deficiencies must be publicly disclosed, and the DOC is empowered to impose administrative penalties of up to $250,000 against HMOs that fail to correct problems within the 18-month deadline.

To pay for these reforms, the annual assessment imposed on California HMOs was increased by 4 cents per enrollee. That translates to about $2 million in additional funding for the DOC to carry out its enhanced oversight mission, according to Michael Shapiro, a spokesman for Rosenthal.

But the DOC apparently prefers to find someone else to perform the auditing job. Damian Jones, a spokesman for the department who works in its Los Angeles office, said the DOC had considered contracting out the audits even before the passage of SB 689. Still, the department is not totally committed to the idea, and the requests for proposals were sent out simply to discover whether any qualified agencies could meet the DOC's requirements and budgetary constraints, Jones said.

The proposals were due to be submitted to the DOC by Dec. 20, 1995. Four of the seven requests were returned, although they have not yet been reviewed by the DOC, according to spokesman Jones.

Experience sought

The requests for proposals were sent out to organizations that already perform health care audits, such as the Washington, D.C.-based National Committee for Quality Assurance, an accrediting group that provides a kind of seal of approval for health plans meeting its qualifications, and California Medical Review Inc. of San Francisco, a nonprofit organization that contracts with the federal Health Care Finance Administration to oversee the delivery of services to Medicare patients in California.

Jack Christy, general counsel and spokesman for California Medical Review, said his organization was interested in performing the HMO audits but did not have time to meet the deadline for responding to the DOC's request for proposals.

"We're very supportive of the notion of doing this; I think it's long overdue," Christy said. "The DOC's oversight has traditionally been based on financial performance and solvency, as opposed to a measure of the quality of care provided."

HMO officials also said they are supportive of the reforms and the notion of contracting out the DOC auditing function. The California Association of HMOs, a trade association based in Sacramento, withdrew its opposition to SB 689 after some elements of the original version of the bill were amended out.

"Anything that can get a better line of communication between us and the regulator is a good thing," said Don Prial, a spokesman for Woodland Hills-based health plan Health Systems International Inc. "If they want to do it every three years, that just means they're dealing with more current information."

Prial shrugged off the notion that additional oversight from regulators would cause problems for Health Systems, saying the company is already audited continually by a host of organizations and agencies, including the Securities and Exchange Commission, the Health Care Finance Administration, the Internal Revenue Service, the NCQA and others.

"We have people in our hair every single day of the year," Prial said. "One more makes no difference."