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Just Who's Minding the Store?

California should clarify and reform its HMO oversight

May 25, 1997

In recent months, state legislators have heard countless hours of testimony about how the agency that regulates HMOs, the Department of Corporations, has been remiss in its oversight of the $34-billion-a-year industry. Earlier this month, for instance, consumer advocates described instances in which the department had failed to challenge some HMOs when they denied medical care that their own doctors deemed necessary. And earlier this year, Sen. Herschel Rosenthal (D-Los Angeles) said that the department was not investigating HMOs' failure to comply with a law that Rosenthal authored, requiring plans to tell members about a statewide toll-free complaint line.

The lightning rod for criticism has been the agency's acting director, Keith Bishop, whom legislators recently were threatening to oust, charging him with laxity. Last Thursday, however, one day after Gov. Pete Wilson proposed increasing the department's budget for oversight of HMOs from $8.9 million to $15.4 million, the state Senate confirmed Bishop as its director. The increase drew enthusiastic support from traditional critics like Rosenthal, who called it "long overdue"; the funding increase may also have smoothed the way for Bishop's confirmation.

While the Department of Corporations now has more means, it's still unclear that it has enough will. The department began regulating HMOs in 1976, long before they became the apparent successor to traditional health insurance. But Bishop's office has been anything but aggressive in determining the merit of patient complaints. Legislators should seek a commitment from Bishop to keep a sharper eye and a firmer hand on HMOs. They also should give serious consideration to several bills recently introduced to transfer HMO oversight to one of three other state departments: Health Services, Insurance or Consumer Affairs.

There are good arguments in favor of transfer. One holds that a business regulatory body run largely by securities lawyers is not the best agency to oversee medical care. Another maintains that California's regulatory lapses stem largely from the oddity of regulating HMOs in one agency and traditional health insurers in another, the Department of Insurance. Most states regulate all health care providers under their insurance departments, though in California there are good reasons to consider transferring some HMO oversight functions to Health Services and Consumer Affairs as well.

Given the soaring growth of California's HMO industry, it's vital that the Legislature study all of the reform bills. Perhaps from this thicket a real solution will emerge.

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