Mystery Check Leads to More Secrecy Issues at CalOptima

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Behind-the-scenes politics at CalOptima, Orange County’s $1.5-billion health plan for low-income and disabled residents, took a mysterious turn in late March with delivery of a $90,391 cashier’s check, but the sender refused to reveal who supplied the money.

A cover letter from Richard Afable, CEO of the recently formed Covenant Health Network indicated the money was from prominent county health and government organizations that once formed a group to create health programs to help the poor. But he wouldn’t say who donated, and influential members of the group denied pitching in.

It turns out, according to what Afable told former CalOptima Chairman Ed Kacic, the contributions may have come solely from Afable’s hospital group, an affiliation of St. Joseph Health and Hoag Memorial Hospital Presbyterian.

“Rick told me all the money came from St. Joe’s and Hoag,” Kacic said. “He said no other entity put money in.”

The mysterious check stems from an accusation made last year by the CalOptima board that two of its former chairmen — Kacic and Michael Stephens — misused CalOptima resources.

In September, the board demanded about $90,000 for what Janet Nguyen, who is both a county supervisor and member of the CalOptima board, told the Orange County Register is compensation for the use of “staff time or resources without the explicit authority of the board.”

Kacic, president of the Irvine Health Foundation, and Stephens, who is a former Hoag CEO, have steadfastly denied misusing any CalOptima resources.

The demand by the board, which originated with an anonymous complaint, and prior attacks aimed at Kacic’s reputation were “all about taking over CalOptima” and included tactics intended to be “personal,” Kacic said.

He said he didn’t believe Afable was part of the earlier attacks and didn’t intend for his payment to make Kacic and Stephens look bad, although it had that effect because it appeared by give legitimacy to the CalOptima board’s demands.

At the time of the demand last September, former CalOptima CEO Richard Chambers said he authorized the staff work and resources as part of an effort by an organization known as Managed System of Care, which ultimately brought CalOptima $12.4 million in intergovernmental transfer funds. No board approval was needed for the work, he said.

A spokesman for Afable said last week he would have no comment.

Why Afable sent the cashiers check still isn’t clear. In his cover letter, he said the check was sent because CalOptima was “deserving of reimbursement for contributed services.”

But he sent the check in spite of a grand jury finding that, rather than an actual debt, CalOptima’s attempt last fall to collect the money from Kacic and Stephens had “all the earmarks of retribution.”

And regardless of why the check was sent, the secrecy surrounding it and the source of the money have raised ethical concerns among good-government experts.

“It’s bizarre,” said Bob Stern, a longtime California political ethics expert. “The question is really, what are they hiding and what was the point of doing it [the cashiers check] this way?”

Judy Nadler, senior fellow in government ethics at the Markkula Center for Applied Ethics at Santa Clara University, echoed Stern.

Nadler, the former mayor of Santa Clara who has been providing expertise on ethical issues for a decade, said when dealing with public agencies “the most important thing is transparency.”

The Check

Afable mailed the cashiers check on March 28 to Michael Schrader, CEO of CalOptima, saying it came from unidentified “representatives” and former “members” of Managed System of Care.

In a separate public statement in April, Deborah Proctor, president and chief executive officer of St. Joseph Health, said the money came from “previous members” of Managed System of Care. Neither Afable nor Proctor would identify the groups that contributed the money.

St. Joseph Health and Hoag joined this year to form Covenant Health Network and Afable is head of the combined organization that includes Proctor’s hospital system.

Managed System of Care was created in 2010 by top executives in the county’s medical establishment, including St. Joseph’s and Hoag, to provide more care to low-income and elderly residents than CalOptima alone could offer.

The 20-member organization wound up obtaining an intergovernment transfer of $12.4 million to CalOptima, even though it was unable to obtain an additional $10-million federal grant. Managed System of Care disbanded last year and closed its financial accounts. Current CalOptima executives are seeking more transfers like the $12.4 million.

But 16 of the 20 former Managed System of Care members have told Voice of OC they didn’t contribute to the $90,391 cashiers check and don’t know who did. Two others still are checking their records.

Among those who didn’t contribute were Kaiser Permanente; UC Irvine; Children’s Hospital of Orange County (CHOC); Integrated Healthcare Holding Inc. (IHHI); the U.S. Department of Veterans Affairs; Monarch Healthcare; Memorial Health Services; Prime Health Care; AltaMed; Greater Newport Physicians; CalOptima itself; and the county’s Health Care Agency.

Kacic said last week he requested a meeting with Afable in April after he learned about the cashier’s check. During the meeting, he said, he asked where the money came from.

According to Kacic, Afable said one of his Covenant employees, Lee Penrose, president and CEO of St. Jude Medical Center in Fullerton, contacted him and urged him to make the payment to CalOptima.

Penrose is vice chairman of the CalOptima board of directors. He did not return calls seeking an interview.

Penrose told Afable that unless the money was paid, there could be “no reconciliation” with CalOptima, Kacic said. What was meant by “no reconciliation” wasn’t made clear, according to Kacic. “It wasn’t clear to me.”

Stephens, who preceded Afable as CEO of Hoag and recently joined the Hoag board of directors, said Afable hasn’t contacted him since sending the check. He didn’t know where the money came from, he said.

“I have absolutely no idea or knowledge of what it’s all about,” he said.

The Power Play

In the fall of 2011, Nguyen abruptly proposed a major revamping of the CalOptima board, giving hospitals a stronger voice.

Kacic was the chairman of CalOptima at the time, and he and Stephens, among others, opposed the changes.

Nguyen, backed by Supervisor Pat Bates and then Supervisor Bill Campbell, approved the new board lineup and appointed new members. Campbell recently joined the board of directors of St. Joseph Hospital in Orange, part of the Covenant hospital group,

In early 2012, the same Board of Supervisors majority delayed renewing Kacic’s full term on the new CalOptima board, citing an anonymous letter that was faxed in February 2012 to CalOptima board members and news organizations.

A grand jury report this January asserted that the letter was an attempt to discredit Kacic and was faxed from the Orange County offices of the Hospital Association of Southern California (HASC). The person or persons who wrote the letter — and what they stood to gain — still are unknown.

The report declared the effort made it appear that Kacic owed the money and bore “all the earmarks of retribution by the retooled Board of Directors against the (former) Chairmen for fervently opposing” a change in the way CalOptima’s board is structured.

A year ago CalOptima’s compliance officer, Denise Corley, began an investigation of separate complaints that came to her about another, still-unidentified member of the CalOptima board of directors.

The allegations against the unidentified member, Corley told the CalOptima board, were unprecedented. She said they covered “lots of different kinds of complaints involving conflicts of interest and Brown Act violations and things like that.”

The CalOptima board voted to hire an outside law firm to advise it on how to proceed with the anonymous letter complaint against Kacic and the complaints against the unnamed board member. But according to the grand jury report, an unidentified CalOptima board member privately interceded and without the knowledge of the rest of the board stopped the hiring.

Instead, the investigation was conducted in-house by staff. No public report ever was issued on any findings.

The $90,391 Question

Then last fall, CalOptima raised the $90,391 issue, accusing Kacic and Stephens of unauthorized use of a CalOptima staff member and office space on behalf of Managed System of Care.

Again, Kacic, his board at the Irvine Health Foundation and Stephens strongly rebutted the accusations, pointing out that CalOptima was a member of Managed System of Care, that its then CEO Richard Chambers authorized the assistance and that the group’s work ultimately brought CalOptima $12.4 million.

CalOptima never responded to Kacic and Stephens and seemed to drop the issue until Afable mailed his cashier’s check.

“In making this payment,” Afable wrote in his cover letter to CalOptima CEO Michael Schrader, “the coalition representatives are acknowledging that CalOptima is deserving of reimbursement for contributed services and, thus, is requesting payment. The coalition members are making no statements of obligation or responsibility by submission of this payment, and this action should not be taken as evidence of such.”

Still unclear is who behind-the-scenes caused Penrose to solicit the money from his boss and why. Penrose did not return phone calls.

Prof. Ann Buchholtz, professor of leadership and ethics and research director of the Institute for Ethical Leadership at Rutgers University, said secrecy is the underlying theme throughout the $90,391 check issue.

“They’ve got to stop hiding what they’re doing,” she said. “In the absence of that, everybody will keep struggling to find out what’s going on.

“Sunlight is the best disinfectant,” she added, paraphrasing U.S. Supreme Court Justice Louis Brandeis. “Everybody behaves better when they think someone is watching, and you can’t watch when it’s behind closed doors.”

Please contact Tracy Wood directly at twood@voiceofoc.org and follow her on Twitter: twitter.com/tracyVOC.

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