Calif. Seizes Failing Health Insurance Provider

May 21--ALAMEDA -- The state has seized an Alameda County health insurance provider that covers more than 200,000 residents, most of them on Medi-Cal, saying it was at risk of going under.

As more Californians fall under Medi-Cal, the state's health care program for the poor, the Alameda Alliance for Health was one of a handful of local providers poised to cover them after the new national health law took effect this year.

But the financial problems of the Alameda Alliance are a "calamity" and a "debacle" for its mostly low-income enrollees, the state Department of Managed Care said in court papers this month after naming a conservator to oversee the nonprofit public health care provider. The health plan and its prominent East Bay backers are fighting to return it to local control, accusing a state consultant of an "irreconcilable conflict of interest" and asking for more time to sort out a backlog of unpaid medical claims.

Both sides now await a ruling that could come as early as this week by an Alameda County Superior Court judge affirming or denying the state takeover.

"The crisis is not simply a matter of bookkeeping woes," said a court memo by Carol Ventura, deputy director of the state Department of Managed Care, which regulates health plans. Ventura wrote that the Alameda-based insurer could also be committing "serious violations" of state law by not promptly paying back some 280,000 backlogged claims.

The state earlier this month named J. Mark Abernathy as a temporary conservator. Abernathy works for Emeryville-based Berkeley Research Group, the same consultant that had been monitoring Alameda Alliance's finances since November.

"A conservatorship is absolutely the last step, but we need to make sure the enrollees continue to receive quality care," said Marta Green, spokeswoman for the state agency. "Their care will not be interrupted while the conservator brings Alliance into a solid financial condition."

State officials also recently fired Alliance CEO Ingrid Lamirault and other top executives and escorted them out of the health plan's office near Oakland International Airport.

Lamirault did not return a phone call made to her home Tuesday.

Abernathy said in court documents that Alameda Alliance has not been able to control its medical costs.

"The Alliance has no controls over its spending," he wrote. He wrote that Alliance increased staffing faster than membership growth, and spent more on furniture, equipment and software than comparable providers.

"The Alliance is top heavy in leadership and is also heavily staffed for the size of its membership," he wrote.

Alliance attorneys fired back last week, accusing the state of "railroading their governmental agency into a loss of local control based on the recommendation of the Berkeley Research Group."

Because the consulting group knew it would be tapped for the conservator job if the Alameda Alliance failed to meet its benchmarks, the group "refused to allow the Alliance" to correct its own problems, wrote Oakland lawyer Douglas Habig.

Alameda County Superior Court Judge Evelio Grillo was supposed to rule on the dispute but recused himself last week because he belongs to the same service club as one of Alameda Alliance's board members who wrote a joint letter protesting the state takeover. Grillo extended the temporary conservatorship until Thursday so the case could be reassigned to another judge.

Founded in 1996, the Alameda Alliance provides health care for 204,000 people, 194,000 of whom are on Medi-Cal, and local health officials described it earlier this year as "an important part of Alameda County's safety net system." The plan was one of several that formed the Covered California health insurance network before the state dropped it from the list last fall.

The Alameda County Board of Supervisors awarded Alliance a $5 million emergency loan in late February after then-CEO Lamirault spoke publicly about the financial problems. Supervisors appoint the health plan's governing board members.

"Let me stress: No care has been impacted, nor do we anticipate anyone under the plan being impacted," said Alex Briscoe, director of the Alameda County Health Care Services Agency who was appointed to the board in January. "We believe our plan was well on the way toward fixing the problems, and the state's takeover was unnecessary. On the other hand, they acted within their regulatory authority."

He blamed a combination of factors, including problems with the new mandated computer system, a huge number of new members in January and underpayment by the state for care of seniors with disabilities.

Several other board members declined or could not be reached for comment Tuesday, including chairwoman Jane Garcia, director of La Clinica de la Raza; Bert Lubin, CEO of UCSF Benioff Children's Hospital Oakland; Wright Lassiter, CEO of the Alameda Health System; and Alameda County Supervisor Wilma Chan.

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