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Read Making a Killing

home / healthcare / in the media

San Francisco Chronicle Commentary
May 17, 2000

by Jamie Court

Special Foundations Shortchange The Public

THE RESULTS of the scandal engulfing Insurance Commissioner Chuck Quackenbush should be to penalize any misconduct by the insurers and Quackenbush. However, "Insurancegate" should also teach Californians that public money and resources reserved for government should not be diverted to private foundations because the public is too easily shortchanged, and industries meant to be penalized too often benefit from the deal.

Testifying before a legislative oversight panel last month, Quackenbush tried to turn scrutiny of his mishandling of Northridge earthquake claims abuses by the insurance companies into a debate over the value of soliciting contributions from insurers instead of regulators imposing fines against them.

Though recommended billions of dollars in fines against insurers evaporated into mere millions in foundation contributions, which mostly paid for TV advertisements promoting Quackenbush, the commissioner announced he was "proud of the foundation concept" and had appointed a panel headed by the former state auditor "to make the foundation concept an accountable and viable option."

Quackenbush suggested that other state agencies divert fines to charities. However, history has shown such special foundations, essentially quasi-governmental structures, are completely unaccountable and can abuse their public trust.

Public relation firms and for-profit consulting companies have been principal beneficiaries of the foundations set up by Quackenbush. The same is true for at least one other private foundation set up when some health insurers went "for profit," which resulted in one of the largest transfers of taxpayer assets to private foundations in history.

Among the most unregulated billion-dollar industries in California are the charitable foundations formed in the 1990s, when the state's largest not-for-profit HMOs became for-profit, investor-owned entities. The resulting Wall Street HMOs were forced by the state to endow purportedly independent charitable foundations. The theory was that these would pay the taxpayer back for years of tax breaks, which helped build the for-profit enterprises.

The more than $4 billion available through these "conversion" foundations was supposed to fund charitable activities in health care for the public benefit.

In examining the role of at least the largest of those foundations, collecting the money directly in taxes and using it to insure more Californians with universal health insurance would have been a preferable option.

When Blue Cross of California became a for-profit company, one of the two private foundations endowed with the company's untaxed assets -- the Oakland-based California Healthcare Foundation -- was established with a board of directors made up mostly of former Blue Cross board members.

This $2 billion foundation's pattern of giving reflects the priorities of the HMO rather than those of the public, which was supposed to benefit. Among the first groups to receive a grant was the California Association of HMOs, the HMO trade lobby. More recently, some of California's biggest commercial HMOs and their affiliates have received large grants from the foundation, including more than $1 million to Kaiser Permanente and $75,000 to PacifiCare. These are commercial businesses engaged in private industry.

Other for-profit companies that benefited from large direct grants from the California Healthcare Foundation included one of the nation's largest accounting firms, Coopers & Lybrand, and the large benefits consulting firm of William M. Mercer Inc. An allocation was made to the public relations firm of Stoorza, Ziegaus & Metzger, which was described by the Los Angeles Times as "the brainchild" of one of the Quackenbush charitable funds, having "pitched the idea for the foundation to the Department of Insurance in spring 1999."

For-profit companies and public relations firms, such as those producing Quackenbush's TV ads and subsidies for the health industry, should never be allowed to be grant recipients of such not-for-profit dollars.

A grant from the California Healthcare Foundation supported last week's symposium of insiders from the health industry at the four-star Palace Hotel in San Francisco. Participants paid $945 each. Scholarships were available for those indigent patients who really wished to listen to the heads of all of California's major HMOs and their benefit consultants presenting such consumer issues as "Kaiser's Strategies in Pharmaceutical Cost Management: Clinical Discipline and Purchasing Power." Such contributions seem anything but charitable.

Former Attorney General Dan Lungren determined that the initial grant to the HMO trade association was within the broad charter of the foundation. However, the more recent direct grants to the HMOs, seemingly to pay for improving services that they are already supposed to provide contractually to Medicare recipients, could prove more problematic. The California Healthcare Foundation has refused to publicly disclose the actual grant agreements, so it is difficult to know. Only an investigation, currently under way, by the attorney general can determine whether taxpayers are being bilked.

Special oversight is needed of quasi-governmental institutions formed from the diversion of public monies intended for government.

These include sunshine laws to make all grant agreements public record. There must be a guarantee that the people and industries that created such quasi-governmental foundations never control them or benefit from them at the expense of the public trust.



Consumer advocate Jamie Court is co-author of "Making a Killing: HMOs and the Threat to Your Health" (Common Courage Press, 1999). His organization, the Santa Monica-based Foundation for Taxpayer and Consumer Rights can be found at www.consumerwatchdog.org.

GRAPHIC: PHOTO, Northridge quake victims demanded that Chuck Quackenbush be impeached for letting insurers avoid billions of dollars in potential fines for mishandled claims. / Associated Press

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