While poor families juggled doctor visits and homeless people died on Orange County’s streets, the local agency they relied on for their public health plans sat on $1.2 billion in unspent cash as of last year, according to the state auditor.

And the agency potentially broke state government ethics law when its board of directors hired a former fellow board member as CEO in 2020. 

That’s according to a Tuesday report from State Auditor Grant Parks, which looked into government activity between the years 2014 and 2022 at CalOptima, the Medi-Cal managed care plan for roughly one million low-income people in OC, whose leaders get paid more than presidents and governors

What auditors found:

The agency stockpiled a surplus that state auditors said could have been used to improve health plan benefits for the county’s poorest and most vulnerable residents.

While the agency set aside what auditors deemed a “prudent” reserve amount of $570 million, there was still $675 million in surplus cash sitting around as of June 2022, according to the report. Last month, CalOptima officials told the state auditor they’ve started spending that surplus money. 

The report says the agency failed to ensure people got “timely access” to care, citing a state health care services department survey conducted between 2021 and 2022. 

“CalOptima’s primary care and specialty procedures did not meet CalOptima’s standard for timely access to routine or urgent appointments,” reads the report, which adds that another state survey showed “CalOptima performed below the national average for getting care quickly to both adult and child patients.”

State auditors also found:

“When CalOptima’s board chose to hire one of its own members to be the CEO, it created the appearance that the board was acting in the best interest of the individual involved rather than the best interests of the individuals CalOptima serves,” the report reads.

That former CEO in question?

Richard Sanchez, who was hired shortly after the pandemic began in early 2020 and isn’t named in the report. He retired from the position in November 2021.

When reached by Voice of OC over the phone on Tuesday, Sanchez declined to comment on the report, saying he hadn’t read it and no longer worked at the agency, then hung up.

The auditor’s office has since referred the matter to the state’s Fair Political Practices Commission, while CalOptima leaders – in their own April 7 response to the audit’s findings – acknowledged the problem with Sanchez’s appointment in writing. 

And that it may have broken state ethics law.

“CalOptima acknowledges that, when appointing [Sanchez] in April 2020, its Board — at that time — may have failed to observe the provisions specified in Government Code section 1090 as a result of previous in-house legal counsel concurring with the action and the Board relying on such concurrence,” CalOptima’s letter reads.

It adds that the agency expects to add a new hiring policy – after reiterating the state ethics law at a board meeting in April – and incorporate “additional best practices” with the board of directors’ approval at their next meeting on May 4. 

This is after the state auditor’s office said it found CalOptima lacking a written hiring policy – and that the agency did not follow the hiring process it described to state auditors for three of six executive hires who state auditors reviewed.

In their written response to the state audit, CalOptima leaders said they’ll implement the report’s recommendations on issues like hiring practices and either agreed or partially agreed with all of the findings.

While also chalking the problems up to past leadership that’s no longer in place. 

“While we understand the audit scope required your office to look back nearly one decade, we cannot speak to all the decisions of past leadership,” reads the April 7 response letter signed by current CEO Michael Hunn and board members Corwin and Blair Contratto.

Yet those steering the ship today – namely CEO Hunn, who makes an annual $840,000 salary – also face questions about how to explain their sizable compensation to the low-income families they serve.

Requests for comment from Hunn went unreturned on Tuesday.

Much of the recent scrutiny over CalOptima surrounds the distribution of resources by an agency that serves the region’s least wealthy and most vulnerable, but is overseen by executive staff who get paid more than U.S. presidents. 

Namely, the audit came at the request of state Assemblywoman Sharon Quirk-Silva, who raised concerns last year over pay spikes for executives under CalOptima’s former board of directors chair, OC Supervisor Andrew Do, who resigned from the position in February following news that a state audit was underway.

In a written statement, Quirk-Silva called the audit’s findings “unconscionable” when, on average, “45 people who are experiencing homelessness and in need of vital healthcare services are dying each month in Orange County.”

“The failure of CalOptima to use these funds to improve healthcare services for the most vulnerable members of our society can only be characterized as a dereliction of duty, and their conduct warrants serious scrutiny and accountability,” she added in the statement.

Clayton M. Corwin, the president of a commercial real estate company, now chairs CalOptima’s board.

On average last year, CalOptima paid executives more while requiring less experience of them, compared to four other county-organized and nonprofit health care systems in California, according to the auditor’s report.

“I think it told us, sadly, what I already knew, which is, there’s been some irregularities at this agency,” said Quirk-Silva in a Tuesday phone interview.

Despite raising concerns over pay spikes under former board chairman Do in calling for the state audit last year, Quirk-Silva said she wasn’t disappointed that the audit didn’t wade into the issue. 

“They’re not specifically calling out pay spikes. I’m not necessarily disappointed because once they get their hiring processes and minimum qualifications listed, that will rectify some of this,” she said. “I think if they start to follow the recommendations in this audit, whether it be under hiring, whether it be under the reserves, we will see improvement.”

Regardless of rules requiring CalOptima to use surplus funds for specified purposes like improving health plan benefits for those in need, Parks’ report says the agency allowed its surplus funds to increase by hundreds of millions of dollars from 2014 to 2022. 

In CalOptima’s response letter, agency leaders said it wouldn’t be “fiscally prudent” to “continuously spend down unallocated surplus funds,” citing scenarios in which funding for Medi-Cal managed care plans might stop during state budget debacles.

The auditor’s report also notes that the agency “accelerated” its surplus spending since Hunn took over as CEO in November of 2021, with CalOptima leaders in their own response letter pointing to more than $200 million allocations in recent fiscal years toward programs like street medicine, hospital quality and CalFresh enrollment outreach, among other things.

“The best step they can take is to follow the recommendations and not try to explain their way out of them, because these are public tax dollars,” Quirk-Silva said on Tuesday. “The biggest issue for me is the surplus funds, because we see millions of dollars that should have been spent directly on some of the poorest people in Orange County.”

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