DMHC Takes Over Control of ‘Financially Troubled’ Tower Health
The Department of Managed Health Care Friday seized control of financially troubled Tower Health, the third managed care company to be taken over by the agency this year, the Los Angeles Times reports. State regulators have been monitoring Long Beach-based Tower Health since at least September 2000 and had given the HMO about one year to solve its financial problems. The managed care company has 111,000 members in Los Angeles, Orange, San Bernardino and Riverside counties. According to documents released Friday, by July 2001, the HMO "failed to demonstrate a fiscally sound operation." As of July 31, Tower had a negative net worth of $985,000, even though it is required by the state to maintain a "financial cushion" of at least $1.46 million, the Times reports. Auditors said that the HMO was holding $5 million in claim checks to doctors and hospitals that would have bounced if they had been deposited. The Times reports that state auditors found that Tower Health's finances were "potentially strained" by internal deals. For example, in fiscal year 2000, the HMO's working capital was "drained" when it forgave $19.5 million in loans to shareholders and affiliated companies. Daniel Zingale, director of the DMHC, said there is "no information" on whether the HMO's financial situation has impacted patient care. He added that more details would not be available until the state-appointed conservator reviewed Tower Health operations. "What we know is that when finances are this bad, at best hospitals and doctors are not getting paid. We know that financial problems lead to problems with quality of care," Zingale said.
The DMHC also seized control of Watts Health Plans and Maxicare Health Plans earlier this year. However, Zingale said that the takeovers are not indicative of "broader weaknesses in the industry." He added, "There are management issues in all three cases. I still can't predict that this is a trend" (Gellene, Los Angeles Times, 9/15).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.