A secret $300,000 study commissioned in 2011 by the CalOptima board of directors showed no serious management problems at the county’s health plan for low income, disabled and elderly residents.

At the time of the study, which was obtained by Voice of OC, Supervisor Janet Nguyen was pushing to take over the health plan’s board of directors. The study was conducted by the Costa Mesa law firm Theodora Oringher. Todd Theodora is one of Nguyen’s campaign contributors.

Despite being briefed weekly on the lack of findings during the study, Nguyen repeatedly claimed publicly there were severe problems at the $1.5-billion county health plan.

Those problems, she told her Board of Supervisors colleagues, justified a new county ordinance remaking the CalOptima board and giving control to the medical industry and county government.

A three-member majority of the Board of Supervisors, including Nguyen, Supervisor Bill Campbell and Supervisor Pat Bates, ultimately adopted the new ordinance but never did a public analysis of alleged management wrongdoing at the agency.

CalOptima provides health plan coverage for more than 450,000 county residents, most of them children.

The CalOptima board of directors commissioned its 2011 confidential study to determine the truth of more than 100 accusations of top level wrongdoing and mismanagement brought to the board by two in-house CalOptima lawyers.

But the “final” Theodora Oringher report determined the accusations were wrong and, in fact, half of them were dropped by the CalOptima lawyers themselves, just as the investigation was beginning.

CalOptima last year denied a public records request from Voice of OC for the full Theodora Oringher and Shorr reports, saying the documents were not public information.

(Click here to read the Theodora report and here for the Shorr report.)

The “final report” and an attached letter from health consultant Arthur Shorr now provide context to three years of upheaval at CalOptima, during which nearly two dozen top and key executives left the once highly-rated health plan for jobs in private industry or with other government agencies.

The report states that “we uncovered no flagrant misconduct by any CalOptima executive, no gifts of public funds, and no conduct that exposes CalOptima to immediate significant liability to regulators or third parties.”

CalOptima is the county’s largest agency and, according to the report:

  • Like any big agency, there were administrative areas that needed improvement. But, the report declared, management already was adjusting those issues or was willing to.
  • The real problem at CalOptima, the report states, was the two inexperienced in-house lawyers who had difficulty getting along with others and apparently feared losing their jobs.
  • The report strongly recommended hiring a well-qualified, outside general counsel to closely oversee the work of the two in-house lawyers, something Nguyen’s new board of directors never did.

Just one month after writing nothing was seriously amiss at CalOptima, Shorr, the health care subcontractor for the Theodora Oringher study, wrote a new letter.

Without new interviews with top management, Shorr reversed his earlier position and declared there were significant administrative issues. That letter — but not the full “final report” — was leaked to the Orange County Register and appeared to support Nguyen’s contentions.

According to Leadership and Ethics Professor Ann Buchholtz, Research Director of the Institute for Ethical Leadership at Rutgers University, the Theodora Oringher reports and surrounding events raise serious ethical issues concerning the Board of Supervisors and the way they handle public finances and policy.

Lack of “transparency and due diligence,” are the main ethical failings of the three-member Board of Supervisors majority that voted in December 2011 to overhaul the CalOptima board of directors, said Buchholtz.

“The board (of supervisors) is ethically responsible” for making sure CalOptima is well-run,” she said. “You would not want to make major changes without evidence. They should have insisted on someone getting in there and finding out what is going on” before voting to support Nguyen’s new ordinance. And, she said, those findings should have been public.

The Theodora Oringher Report

In January 2011, in-house CalOptima lawyer Gary Crockett went to the CalOptima board of directors with more than 100 complaints about some of the health plan’s senior executives, according to the “final” Theodora Oringher report. More complaints came from CalOptima’s other in-house lawyer, Diana Hoffman.

On May 5, the CalOptima board voted to hire the Theodora Oringher firm to investigate the allegations. The law firm reported on its progress each month to the full CalOptima board of directors.

The board also created a three-member ad hoc committee to coordinate with the Theodora team, and according to the “final report,” the committee was briefed weekly on progress. Its members were Nguyen, CalOptima board Chairman Ed Kacic and the county Health Care Agency’s then director, David Riley.

According to Nguyen’s campaign reports, on June 29, 2011, Todd Theodora and his wife Tracy each gave Nguyen $1,800 campaign contributions, the maximum allowed by law at the time.

Eight days later on July 7, 2011, Nguyen voted to approve a $200,000 addition to Theodora’s contract, CalOptima board minutes show.

At the beginning of October Nguyen proposed an ordinance putting her permanently on the CalOptima board and rearranging its membership.

The proposed changes caught other members of the CalOptima board by surprise and were strongly opposed by Kacic, Supervisor Shawn Nelson and Supervisor John Moorlach.

But Bates and Campbell backed Nguyen, although they ultimately opted to give her a two-year term rather than a permanent seat.

Nguyen argued the changes were needed because of problems within CalOptima.

“There is an internal investigation going on at CalOptima that I can’t discuss,” she told Voice of OC in mid-October.

Nguyen said the probe was being conducted by an outside law firm, involved “legal issues, compliance issues, operational issues” and “should be finalized soon.”

“These are all accusations,” she added. “I can’t tell you if they’re factual or not” because they are still being investigated.

Days later on Oct. 27, Shorr, who runs a Woodland Hills health care consulting business, gave Theodora Oringher a letter containing his subcontracted report which included a review of CalOptima documents and interviews with members of CalOptima’s senior management as well as the two in-house lawyers. He also had read a draft of Theodora Oringher’s proposed “final report.”

“It is clear from review of the documents noted above and interviews conducted with the management principals of Cal Optima [sic] that Theodora Oringher’s report is a thorough, complete and comprehensive analysis which fully addresses all issues, concerns and ostensible legal exposures raised in Mr. Crockett’s January 2011 complaint,” Shorr wrote.

He said he concluded “with a high degree of confidence and assurance that the issues, some of which have legitimate operational issues to be solved, did not pose a threat to the organization and surely did not raise concerns about fiduciary duty of the members of the board or the Chief Executive Officer. The [Theodora Oringher] report also made it clear that even inferences of personal wrongdoing, self-dealing or diversion of public funds was not an issue whatsoever.”

In his October letter, Shorr said Crockett, one of CalOptima’s in-house lawyers, “disclosed that the primary motivation and triggering mechanism” that caused him to take his 100 complaints to the CalOptima board was “a specific conversation with the executive recruiter” hired by CalOptima to identify candidates to replace its former general counsel. The general counsel would oversee legal work, including Crocket and Hoffman.

“Mr. Crockett claims that he was advised that the fundamental agenda for recruiting a new external General Counsel was to ‘clean house,’ in essence threatening his tenure with the organization,” Shorr’s letter added. “He believes that such a goal is in effect a form of proactive retaliation that he felt he had a duty to neutralize in his own best interest.”

The Second Shorr Letter

On Nov. 3, 2011, in closed session, Theodora Oringher gave the CalOptima board of directors its “final report,” including Shorr’s letter stating there was nothing seriously wrong. The 2012-2013 Orange County grand jury, which had a copy of the final report, referred to it in its highly critical report of how the supervisors handled CalOptima but did not make it public.

The grand jury noted: “The [Theodora Oringher] report stated none of the CalOptima lawyer’s allegations were founded and that he retracted over 50 allegations prior to any executive interviews. The report listed several procedures and policies requiring improvement.”

On Nov. 9, six days after the CalOptima board received the Theodora Oringher final report, Crockett, the CalOptima lawyer, made more allegations of wrongdoing against CalOptima managers. Those allegations ultimately also were found to be without merit, but to investigate them the CalOptima board again retained Theodora Oringher, who once more subcontracted with Shorr for some of the work.

Shorr wrote in October: “As the reader will undoubtedly note, the overwhelming issues appear to fall into the category of relatively minor administrative procedural issues that can be addressed by refining and fine-tuning the management process.”

But four weeks later on Nov. 27, 2011, he sent Theodora Oringher another letter that, according to the Orange County Register, contained strong criticisms of at least seven management areas, including accusations that the organization was dysfunctional. That letter too was given to the CalOptima board in closed session.

The Board of Supervisors voted Dec. 6, 2011, to adopt Nguyen’s ordinance remaking the CalOptima board of directors, giving control to the medical industry and county government. Two days later on Dec. 8, the second Shorr letter, but not the full Theodora Oringher “final report” with Shorr’s original assessment, were reported in the Register, appearing to support Nguyen’s argument that there were serious problems at CalOptima.

Kacic, then chairman of the CalOptima board, said when he learned that the out-of-context second Shorr letter had been leaked, “I was extremely upset.” He believed only the nine CalOptima board members and Theodora and his assistants had access to it and wanted to find out who violated confidentiality laws and leaked Shorr’s second letter.

Kacic said he and the other CalOptima board members had been warned during CalOptima closed sessions they would be violating the law if they disclosed any of the reports or discussed them with anyone outside of the CalOptima board.

“I called Todd Theodora and asked him what the process was to file a complaint with the attorney general,” said Kacic.

That, he said, is when he learned that Nguyen, without notifying him or others on the CalOptima board, took Shorr’s second letter to Orange County Counsel Nick Chrisos. Theodora told Kacic there was a telephone call between Chrisos, Theodora and District Attorney Tony Rackauckas in which they decided Nguyen could distribute the second Shorr letter to the other Supervisors’ offices and it still would be confidential under California’s Brown Act and it would maintain its status as an attorney-client privileged communication. Neither Kacic nor other CalOptima board members were told in advance about Nguyen’s actions or the telephone conversation between Theodora, Chrisos and Rackauckas.

Within months, Nguyen had the entire CalOptima board of directors replaced. Since joining the CalOptima board and reshaping its structure in favor of hospitals, medical providers and county agencies, Nguyen’s campaign contributions from the health industry spiked from around $15,000 to more than $95,000.

Nguyen’s dominance over CalOptima affairs was on full public display last month, when a severe federal audit shut down new enrollment for CalOptima’s OneCare program that provides health coverage for 16,000 elderly county residents.

Nguyen single-handedly ordered CalOptima staff not to provide information to Supervisor Todd Spitzer, the Board of Supervisors alternate on the CalOptima board.

Nguyen also announced publicly from the supervisors’ dais last week that she called CalOptima board Chairman Mark Refowitz, head of the county’s Health Care Agency, and CalOptima CEO Michael Schrader into a weekend emergency meeting to brief only her.

The full CalOptima board still hasn’t met on the issue, more than a week after the federal action.

But ultimate responsibility, said Buchholtz, the ethics expert, lies with the county Board of Supervisors.

“There ought not to be hidden reports,” she said. “Overall, what we have here is a real lack of transparency.” In addition, she said, the three supervisors who voted in 2011 to remake the CalOptima board without facts to support their decision instead should have taken time and “carefully assessed” the full situation. “And that,” she said, “is an ethical issue.”

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

Join the conversation: In lieu of comments, we encourage readers to engage with us across a variety of mediums. Join our Facebook discussion. Message us via our website or staff page. Send us a secure tip. Share your thoughts in a community opinion piece.