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DMHC Actions, Fines Drop Significantly

Group Blames Former Insurance Lobbyist’s Appointment

By Ron Shinkman

Feb 27, 2013

California Region

Brent A. Barnhart

Between 2009 and 2011, the Department of Managed Health Care issued nearly 1,000 enforcement actions against health plans, fining them nearly $9 million for a variety of misdeeds and demanding they take corrective actions to protect the interests of their enrollees. 

But after Aug. 11, 2011, when Gov. Jerry Brown appointed former health plan lawyer and lobbyist Brent A. Barnhart to head the agency, enforcement actions dropped almost immediately. The DMHC issued only 74 such actions during the remainder of the year, compared to 433 in the portion of 2011 prior to his appointment – although an agency official said that number should be condensed.

In 2012, the DMHC issued 90 enforcement actions, well below its historical average dating back more than a decade. The most significant action of the year was taken not against a health plan, but against the Accountable Health Care IPA, a medical group that had been using non-physicians to make medical coverage determinations.

Sources close to the agency have said that it has softened its stance against health plans since Barnhart's appointment.

Moreover, financial penalties levied by the DMHC dropped dramatically in 2012. Last year, $451,000 in fines were issued, or just over $5,000 per enforcement action. That's a stark contrast to 2010, when $2.2 million in fines were issued, an average of more than $20,000 per action. In 2008, fines exceeded $18 million, which included several significant enforcement actions against insurers.

DMHC spokesperson Marta Green disputed the numbers arrived at for this article by Payers & Providers, which relied on the publicly available database on the DMHC website for its reporting. She also declined to make Barnhart available for an interview.

Regarding the drop in fines, Green said in an email that “for some enforcement actions, a monetary penalty is appropriate.  For others, an order barring a plan, medical group or provider from engaging in an illegal practice is a more appropriate and effective strategy...the most potent strategy may be to force a plan to reimburse consumers for care that was denied or delayed or providers for inappropriate claims payment.”

As an example, Green cited a settlement late last year with Accountable Health Care, which included its making a $500,000 contribution to six organizations that care for uninsured or underinsured individuals. Although the DMHC may approve the recipients, the contributions are to be parceled out over a period of three years and are entirely voluntary on Accountable Care's part, according to the settlement. 

Green noted that 358 of the actions taken in 2011 represented a wide-ranging settlement with five different health plans – Aetna, Anthem Blue Cross of California, Blue Shield of California, Health Net and Kaiser Foundation Health Plan – regarding grievances filed in late 2010. Each grievance was accounted as a separate enforcement action with a specific fine – typically $3,000 – in the database. A similar omnibus action took place in 2009 involving Anthem Blue Cross of California, where 241 grievances dating back to 2007 were settled, also for about $3,000 per case. 

When those settlements are condensed, the averages are reduced to 124 enforcement actions issued per year between 2008 and 2011, compared to an overall average of about 167 actions per year since 2001. 

However, the volume of the 2012 cases still remain about one-third below that adjusted average and about 45% below the overall average.

Meanwhile, the volume of enforcement actions have also been particularly low over the past six months –only 21 have been issued, about two-thirds below even the adjusted average. And so far in 2013, the agency has yet to take a single action against a health plan. 

Green suggested a settlement of a dispute with Kaiser Foundation Health Plan regarding  coverage of medically necessary physical and occupational therapy announced in May 2012 should be added to those numbers.

“Not only does (such a settlement) more clearly discourage a plan from engaging in illegal behavior, but typically equates to a much larger financial impact than a simple penalty,” Green said.

She noted that it covered grievances filed by more than 100 enrollees, although it is not recorded as an enforcement action.

Green also cited an enforcement action against plastic surgeon Jeannette Martello, M.D. for balance billing patients. Although a preliminary injunction the agency obtained against her in 2012 was reported as an enforcement action, it stems from a lawsuit the DMHC filed prior to Barnhart's appointment. 

That the DMHC appears to be easing up on the more than 100 medical, dental and optical insurers it regulates is occurring at a critical time for healthcare consumers. Enrollment in commercial health plans is expected to spike with the opening of the Covered California health benefits exchange in October to provide coverage starting in 2014 to individual enrollees as part of the Patient Protection and Affordable Care Act. Projections suggest as many as 1 million Californians will purchase individual coverage via the exchange. Millions more may be enrolled in Medi-Cal managed care plans that serve low-income Californians on a county-by-county basis and are also regulated by the DMHC.

A major consumer advocacy group blames the appointment of Barnhart, who came out of retirement to take the appointment.

“I have let his actions speak louder than his credentials, and unfortunately, the keys to the chicken coop went to the fox,” said Jamie Court, president of Consumer Watchdog, a Santa Monica-based advocacy organization that often tangles with health plans. “The governor wanted to believe that Barnhart would be a public servant, but he acts like a Kaiser lawyer.”

Prior to retiring, Barnhart had served as senior counsel for Kaiser Foundation Health Plan and a lobbyist for Anthem Blue Cross of California and the Association of California Life and Health Insurance Companies. The 69-year-old Barnhart had replaced longtime director Cindy Ehnes, who had been appointed by Brown's predecessor, Gov. Arnold Schwarzenegger, a Republican. 

Court is typically an outspoken and blunt critic of health plan regulators. Just weeks before Barnhart's appointment, his organization had called on Brown to clean house at the DMHC, angered that the agency had changed regulations in 2009 to make it more difficult for health plan enrollees with autism to receive specific treatments. He held his tongue when Barnhart was appointed, but his organization continues to be locked in litigation with the DMHC over autism coverage.

Court claimed that health plan oversight at the DMHC has grown so lax that some health plans have been changing or closing their health plans governed by the California Department of Insurance in order to add more lives to plans regulated by the DMHC. According to his organization's data, 23 individual health plans were closed to new enrollees by San Francisco-based Blue Shield of California last July that are regulated by the DOI.

Steve Shivinsky, Blue Shield's vice president of corporate communications, confirmed the closure of the plans to new enrollees, as well as the opening of some new plans under DMHC regulation, but did not provide more specifics. Shivinsky added that the DOI regulates four times as many of its individual and small group enrollees than the DMHC.

Department of Insurance Deputy Commissioner Janice Rocco did not respond to a request for comment before publication deadlines.

The other major advocate group for health plan enrollees in California, Consumers Union, declined comment for this article. It received a contract from the DMHC last summer to assist the agency in reviewing insurer premium hikes.

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