CalOptima’s Compliance Problems Were Fueled by Politics

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CalOptima’s oversight shortcomings, highlighted earlier this month in a federal audit that halted new enrollments in a program for 16,000 elderly Orange County residents, were an internal concern for at least four years, according to CalOptima documents.

As far back as 2010, according to the documents, plans were under way to expand compliance programs at the $1.5-billion health plan that now covers about 470,000 low-income county residents, most of them children.

An office even was set aside for a new executive director to head the expanded department.

But immediate changes, including adding the top-level executive, were delayed initially by a shortage of funds as the state battled huge budget deficits.

And then county supervisors opted to redo CalOptima’s governing ordinance and board without any study in late 2011 on a split 3-2 vote.

Led by Supervisor Janet Nguyen, county supervisors Pat Bates and Bill Campbell supported a total makeover of the CalOptima board of directors by adopting a controversial ordinance.

Supervisors Chairman Shawn Nelson and John Moorlach both vocally opposed the ordinance change.

At the same time, in-house lawyers leveled more than 100 unfounded accusations against management, fearing they would be fired by top management or the old board of directors, according to documents.

Amidst the “toxic” atmosphere developing inside CalOptima, demand for experienced, well-qualified health plan professionals increased in private industry and other government agencies.

Roughly two dozen top and key executives left CalOptima in less than two years.

“Many things got in the way of getting things done generally, including the beginning of the turmoil, frankly,” said former CalOptima board Chairman Ed Kacic in an interview last week.

Kacic resigned from the CalOptima board in July 2012, and his resignation letter cited the “severe disruption” occurring to both the board and CalOptima staff.

While tasked with absorbing an influx of thousands of new patients that came with the national Affordable Care Act, known politically as Obamacare, CalOptima’s administration was repeatedly roiled by political drama over the past three years.

Lobbyists for the Hospital Association of Southern California or HASC played an integral role in the upheaval, according to a grand jury report and other documents, including helping draft Nguyen’s changes to the CalOptima board, which gave hospitals a permanent seat.

The changes removed from the board of directors virtually all groups that represented users of CalOptima, replacing those seats with people representing the medical industry or the county. The lone seat specified for patients was then left empty for the next two years.

During that time, Supervisor Nguyen collected more than $95,000 in campaign contributions from the health industry. Before going on the CalOptima board she got just $15,000.

Nguyen declined to be interviewed about CalOptima.

During the Board of Supervisors hearing this month, CalOptima CEO Michael Schrader conceded turmoil created since 2011 by Nguyen’s changes in the CalOptima board and the departure of top and key managers were part of the problems highlighted by the federal audit.

“That turmoil definitely had an impact in terms of operational focus,” Schrader said after being pressed by Supervisor Todd Spitzer.

What Is Compliance?

CalOptima’s $1.5 billion comes almost entirely from federal and state taxpayers, and to make sure it is spent properly and programs are conducted correctly, the health plan has a compliance system.

The federal audit conducted in November spanned all of CalOptima’s operations, including 11 health networks and the company that manages its prescriptions.

As a result of the audit, among other action CalOptima is rebuilding its compliance department.

Compliance does everything from ensuring CalOptima is protected from Medicaid fraud and other crimes — a $60-billion a year problem nationwide, including locally — to making sure vendors such as doctors, clinics, pharmacies and hospitals correctly provide services to individuals enrolled in the health plan.

The agencywide work means the compliance department must be aware of all federal and state laws and regulations, from how a patient is admitted to a hospital to how much and when vendors should be paid.

At the same time, all CalOptima employees must thoroughly understand and follow the compliance rules that affect their individual jobs, from overseeing medical providers to following the details of contracts.

Because of its size, CalOptima contracts with companies to manage many areas.

Philadelphia-based PerformRx, for example, manages all of CalOptima’s prescription drugs, working with local pharmacies, doctors and patients. But CalOptima is responsible for seeing that it’s done right.

Schrader, who became CEO 14 months ago, has substantially beefed up the compliance department, bringing in three new executives in the past six months.

In an email reply to Voice of OC questions about the role all the internal vacancies and changes played in compliance problems, a spokeswoman stated that according to Schrader, “it may have played some role, but fundamentally the oversight and verification systems to monitor delegated functions needed to meet today’s CMS [Centers for Medicaid & Medicare Services] expectations, were not in place before the transition period.”

By 2010, CalOptima had more members than the health plans of 18 states and was still growing.

But for more than eight months — until Schrader began his new job in late 2012 — CalOptima had no CEO.

That vacancy overlapped the 577 days the office of chief operating officer sat empty, according to CalOptima’s records.

The chief medical officer resigned in late 2012, leaving an opening that wasn’t filled for six months.

Less prominent vacancies occurred in lower-ranking levels, and junior executives found themselves filling in for former bosses at the same time they were trying to keep up with their own jobs and train new workers.

For example, OneCare, the program for low-income elderly county residents that was the specific subject of the November 2013 federal audit hasn’t had a permanent director in 31 months. Other executives have assumed those responsibilities.

The CalOptima board this month voted to spend $940,000 to hire outside consultants and conduct test audits to ensure that they pass the next federal examination later this year. That follow-up audit will determine whether problems identified in the November 2013 audit have been fixed.

The HASC Connection

In October 2011, Nguyen surprised the then CalOptima board of directors by abruptly introducing an ordinance to remake the CalOptima board, giving control to medical providers, including hospitals, and county agencies.

HASC officials helped draft the proposed ordinance while the existing CalOptima board and at least some other supervisors were kept in the dark until just days before supervisors voted.

When the 2012-2013 grand jury reported HASC’s involvement, Nguyen told a news conference it was “outright wrong” that HASC lobbyists “helped rewrite” the ordinance.

“The lobbyists did not help to write the amendment that changed the composition of the CalOptima board,” she said.

But Kacic said that just days before the proposed ordinance went to the supervisors for a vote on Oct. 4, 2011, HASC lobbyists Julie Puentes and Jim Lott told him and CalOptima board Vice Chairman Jim McAleer “in a face-to-face meeting” that the “draft had considerable input from HASC.”

Moreover, in an Oct. 1, 2011, email to Kacic, Lott stated that the HASC board already had voted 21-1 “in favor of the proposed ordinance change,” even though it just had become public.

Not long after supervisors gave the changed ordinance their final approval, HASC helped organize a fundraiser for Nguyen at the home of Dan Brothman, CEO of Western Medical Center in Santa Ana.

A copy of the fundraiser invitation provided to Voice of OC stated RSVPs should be directed to a phone number that also is listed as the Orange County contact for HASC, which represents 26 hospitals in the county.

At the time, Puentes said, “I told Dan Brothman that we would be happy to help him with that.”

The Orange County Register reported that two days after the February 2012 fundraiser, Nguyen voted in a CalOptima closed session to pay $750,000 to Brothman’s hospital group, Integrated Healthcare Holdings Inc., to settle a lawsuit over unpaid bills.

Compliance and the Grand Jury

Compliance and the actions of Nguyen and an in-house CalOptima lawyer were a significant issues to the 2012-2013 county grand jury.

A “CalOptima board member [Nguyen] and two CalOptima [staff] lawyers have been disruptive and created an atmosphere that according to current and former CalOptima employees is ‘unsafe for senior executives,’ ” the grand jury decared.

In early 2012, then compliance officer Denise Corley went to CalOptima chairman Kacic, saying she had received complaints about possible conflicts of interest involving a different member of the CalOptima board. Others recently identified that board member as Nguyen.

Next, according to the grand jury, an anonymous letter was faxed to news organizations by the Orange County office of HASC. The trade group never has publicly explained its actions.

The anonymous letter accused Kacic of conflicts of interest. Kacic, who ultimately was cleared by the state Fair Political Practices Commission, removed himself from dealing with the issue and turned it over to the vice chairman, McAleer.

Corley and McAleer sought advice from an outside law firm, but Nguyen objected, so the issue was put on the agenda for the CalOptima board in a March 2012 public meeting.

Corley and McAleer said they needed the outside legal advice from attorneys with no connections to Orange County or any CalOptima board members to make sure any investigation was impartial.

They told the board they were trying to determine the best way to handle the conflict of interest allegations against Kacic and the other, at that point, unnamed board member.

“I felt very strongly that at this point we needed to be very sensitive to the allegations and be sure there was no impropriety or even potential for impropriety as we did this look,” Corley told the CalOptima board.

“I felt we needed some real expertise that was not affiliated here in the county, that did not have any ties here, did not have any conflicts here. That we needed to have someone who was very expert in public agency law, Brown Act law, and that was my recommendation.”

But Nguyen told McAleer, “You’ve been conducting business on behalf of this board without this board’s authorization. This should have been brought to the board’s attention in a closed-session item.”

She said the CalOptima board should have voted on whether to hire the outside firm and CalOptima’s internal lawyer, Gary Crockett, should have been included in discussions.

“That would have been the process at the county Board of Supervisors,” she said. “Any allegation. Any complaints. That’s how we do public work.”

At the time it wasn’t publicly known, but Crockett was one of two in-house lawyers criticized for fomenting management turmoil, according to a confidential report to the CalOptima board of directors the previous fall by the Costa Mesa-based law firm Theodora Oringher.

While he was at odds with others, documents and interviews indicate he worked well with Nguyen.

In the end, the CalOptima board voted 8-0 to go ahead and hire the outside firm and to include Crockett in discussions only on the scope of work the outside law firm would perform.

But according to the 2012-2013 grand jury, “The law firm was never hired since while preparing to sign the agreement, the Interim CEO received a call from a Board member instructing him not to sign it …”

The grand jury didn’t identify the CalOptima board member who overrode a public vote of the CalOptima board of directors, but others say it was Nguyen.

And because of that interference, McAleer resigned from the CalOptima board.

“I was told by internal legal that the supervisor didn’t mean what she said when she made the motion to approve the contract for outside counsel to identify conflict of interest issues,” McAleer said in an email. “It was clear to me that on that basis, the board’s wishes would not be honored. There was clearly no way for me to continue to serve in integrity. I had to resign from a board and from service I loved.”

No report has been made public on the compliance investigation of Nguyen or why Crockett, who only was supposed to advise on the scope of work to be done by the outside firm, wound up closely involved in the actual investigation.

CalOptima also never has released the results of its investigation of Kacic.

However, the new board that Nguyen created did publicly go after Kacic and another former CalOptima board chairman, Michael Stephens, for about $90,000 worth of “unauthorized use of resources.”

Both men denied the allegations and refused to pay, and Kacic demanded a retraction and apology from the CalOptima board. The board never followed through on its demands, nor did it apologize to Kacic.

This week CalOptima’s lawyers rejected a Voice of OC request for the investigation report, saying it was not a public record.

The CalOptima board also held a special closed-door meeting Feb. 6 to discuss Crockett. Afterward, they issued a statement that declared: “The Board reaffirms its recent positive performance evaluation of the Chief Counsel [Crockett] and will issue a statement to CalOptima staff to that effect.”

This week, county supervisors also will consider the future of CalOptima with Chairman Shawn Nelson scheduling a full reconsideration of the controversial ordinance changes adopted in 2011.

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

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