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Mar 23, 2000

HMO Reforms Could Be Foiled In Regulatory Process Without An Effective HMO Czar

by Jamie Court
The little told story of the true balance of power in American politics is that even when big corporations lose legislatively they get another bite at the apple by using their considerable money and might in the regulatory process to foil reforms. Paper-pushing, litigious corporations and their lawyers are, in fact, what has given government bureaucrats a bad name.

California's new regulatory regime for HMOs, scheduled to take effect this year, is threatened with ineffectiveness under just this age-old standard. Governor Davis must move swiftly to apply drastically more resources and attention to his newly created Department of Managed Care if it is not to buckle under tremendous HMO industry pressure.

Last year's much-celebrated legislative overhaul of HMO regulation was provoked by the concise record of the Department of Corporations, the previous regulator, which issued only one fine for a quality of care violation in a patient's case during its twenty three year history. The first evidence that recently enacted HMO reform statutes could be rendered meaningless by an ill-equipped regulatory structure, overwhelmed by a powerful industry, is a recent report by the non-partisan state Legislative Analyst's Office (LA0). It found Davis' budget request for the new Department was so vague as to be unfeasible, particularly given that no executive order establishing the Department has yet been issued and no organizational structure has been finalized. The LAO instructed the legislature not to fund Davis' budget request until more details were forthcoming.

Fortunately, Davis made a courageous appointment to head the new agency in AIDS activist Daniel Zingale, who comes from the patients' side of the equation. However, since Davis has yet to issue an executive order establishing a Department, Zingale is not even officially on the job. Zingale's chance to become an effective regulator has also been undermined by the Department's paltry budget. The $27.9 million annually set aside for the Department of Managed Care's first full year of operating is miserly when compared to the nearly $150 million budget of the Department of Insurance. The entire HMO regulatory budget is little more than Davis collects at a fundraising bash.

Mostly striking is that the new Office of Patient Advocate, envisioned by the legislature as a 'voice' for patients within the new Department, is budgeted for only $900,000 in its first full year -- that's about two cents each to protect every patient in California. Put another way, the C.E.O. of Wellpoint Health, Leonard Shaeffer made 1500% more in one year in salary alone, or $14.2 million, not including stock options, than the entire annual budget of California patients' Advocate Office.

Governor Davis must put his money where his mouth is and transfer some of the state's general fund surplus to HMO regulation if the new Department of Managed Care is not to be merely a clone of its former self.

Perhaps, the biggest challenge is whether Davis, a notorious micro-manager, will let Zingale truly be the HMO Czar. Consumer advocates pressed hard last year for the new Department to be moved from under the cabinet-level Business, Transportation and Housing Agency, due to the Agency's culture of promoting business growth, rather than protecting consumers. Davis refused. Zingale now reports to Business, Transportation, and Housing Secretary Maria Contreras Sweet, a former board member of California's second largest managed care insurer, Blue Cross of California. Given Davis' prodigious fundraising among HMO industry executives, his much-criticized kitchen cabinet of HMO insiders, and Contreras Sweet's insurance credentials, Zingale must be given the money and autonomy to take on HMO abuses without interference from above. This will be the true test of the Davis Administration's mettle to combat HMO abuse.

Jamie Court is co-author of Making A Killing HMOs and the Threat To Your Health (Common Courage Press, 1999) and advocacy director of the Foundation for Taxpayer and Consumer Rights in Santa Monica. Internet: Email:

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