GREATER PACIFIC HMO: Audit Results in State Seizure
At the request of the Department of Corporations, state regulators seized control of Irvine-based Greater Pacific HMO Inc. Friday after an audit found "financial losses and 'suspicious' fund diversions," the Orange County Register reports. Covering 2,200 enrollees, Greater Pacific was placed under the control of a court-appointed conservator. The state audit found $775,000 of $1 million in equity required by California law to ensure plan viability missing, leading regulators to investigate whether the plan's funds were being used for personal use. Auditors also discovered that James Graf, the plan's director of operations, received a cease-and-desist order in 1998 by the Department of Insurance stemming from allegations that he diverted $380,000 in premium income and was operating another plan, Prime Care Health Network, without a license. Graf also failed to inform the state that his company, American Health Systems Inc., had purchased Greater Pacific HMO. Additionally, Greater Pacific, which reported $50,000 in losses in May, "has been late in payments to care providers" and is operating sans medical director (Crabtree, 6/26).
Pleading difficulties in caring for rural patient populations, Health Net, which covers 2.2 million Californians, "has filed a notice of material modification with the state Department of Corporations to withdraw from its service areas in Calaveras, Shasta and Tuolumne counties," the Stockton Record reports. The withdrawal is expected to affect 9,400 subscribers, who represent less than 1% of Health Net's membership, but the plan is Calaveras County's "only full-blown HMO". Health Net plans to halt sales of its HMO products in those areas immediately, while existing subscribers will have to find alternate insurers by Jan. 1. Ron Yukelson, a Health Net spokesperson, said, "The nature of managed care is coverage for populations rather than individuals. Certainly we can do more efficient business by insuring more people. To be profitable in those three counties, we would have to raise the level of premiums so high, no one would want to do business with us." Yukelson also noted that the plan found "maintaining a stable provider network in small, rural counties" difficult as only seven primary care physicians and three specialists in Calaveras County maintain contracts with Health Net. According to the San Andreas-based Health Insurance Counseling and Advocacy Program, consumers are "very upset" about the withdrawal and fear a loss of coverage. However, Health Net has promised to "meet all legal requirements for transition of care" and ensure a smooth transition. Dr. Peter Oliver, chief of staff at Mark Twain St. Joseph Hospital, noted that such a change could prove beneficial, as "Health Net was not well managed in Calaveras County and required many patients to leave the area for services" (Garland, 6/25).