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Press Release
Jun 08, 2005 - 01:00 AM

CONTACT: Jerry Flanagan - 310-392-0522 x319

Schwarzenegger's HMO Regulator Considers Giving Industry Group Authority to Conduct Audits

Sacramento, CA -- At a poorly noticed public hearing today the lead agency responsible for policing HMO quality will discuss turning over its investigative powers to an industry-funded private company, according to the Foundation for Taxpayer and Consumer Rights. Governor Schwarzenegger, who appointed the current Department of Managed Health Care (DMHC) director and whose Administration orchestrates the agency's policy decisions, has received $529,800 in campaign contributions from HMOs to his various fundraising committees.

"Allowing HMOs to conduct their own audits is like asking a film director to write the movie review," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "Turning over the DMHC's audit authority to the industry is a long time wish list proposal of the HMOs. California patients need an independent watchdog to guarantee that HMOs do not cut back on quality and access to boost their profit margins."

Audits conducted in the past by the Department of Managed Health Care have resulted in the takeover of several HMOs that posed a eminent threat to patient care based on financial mismanagement and fraudulent activity, including Tower Health and Lifeguard. DMHC investigations also uncovered the practice at Kaiser Permanente of telephone clerks overturning emergency room doctor treatment requests. That practice ran counter to the Knox-Keene Act, the key legislation governing HMOs in California, prohibition against medical decisions being influenced by fiscal and administrative decisions.

NCQA was founded and primarily funded in 1979 by two HMO industry trade groups to counter federal and state government regulatory oversight. According to former U.S. Justice Department anti-trust attorney Kenneth Anderson who believes that the NCQA is an example of collusion in the managed care market:

"...NCQA criteria by which performance is measured are initially framed by those entities -- HMOs, managed care companies and employer payers -- who have a strong incentive to define 'appropriate' level of care in narrow economic (e.g. cost) terms... The NCQA effort is, in part, essentially a massive public relations program orchestrated by the managed care industry in hopes of averting the establishment of a truly independent and objective mechanism ... to define what quality health care really is... ."

Source: Making a Killing, Jamie Court & Frank Smith, Common Courage Press, 1999, pg. 163

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The Foundation for Taxpayer and Consumer Rights (FTCR) is California's leading nonpartisan consumer advocacy organization.

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