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News Release: 99-10

GRAY DAVIS, Governor
Date: 06/25/99

WILLIAM KENEFICK, Acting Commissioner

Department of Corporations Takes Control of Ailing Orange County Health Plan

Court Appointed a Conservator to Operate Greater Pacific HMO, Inc.

 

Santa Ana, June 25, 1999 — The Orange County Superior Court today granted a request by the Department of Corporations to appoint a conservator for the assets of Greater Pacific HMO, Inc. Greater Pacific is a full service health plan with approximately 2,200 enrollees operating in Orange County. The conservator's primary responsibilities include the uninterrupted provision of health care services to Greater Pacific enrollees, payment of provider claims, and the winding-up of the health plan's business operations.

The department's action follows Greater Pacific's filing of its monthly financial statements reporting a net loss of nearly $50,000 for the month ended May 31, 1999. In addition, the health plan, by its own calculations, reported a deficiency of tangible net equity required by state law to ensure financial viability. Tangible net equity is a financial measure of a health plan's ability to provide health care to its enrollees.

In a non-routine financial examination that began on June 14, 1999, the department found other violations of the Knox-Keene Health Care Service Plan Act of 1975, the law that regulates managed care plans in California. The department's examination revealed:

  • Greater Pacific's books and records failed to meet standards established in the Knox-Keene Act.
  • Greater Pacific's records indicated late payments for capitation to its health care provider groups, claims, and other accounts payable.
  • The health plan failed to report a change of ownership and acquisition.
  • The plan is currently operating without a medical director and claim decisions are being made in violation of the Knox-Keene Act.
During the course of the investigation, Department of Corporations examiners learned that James L. Graf, who currently holds the title of vice president of operations and has been directing plan operations, was sanctioned in October 1998 by the California Department of Insurance. Records show that a Cease and Desist Order was issued against Graf for operation of an insurance company without a license and diversion of approximately $380,000 in premium income.

The department continues to investigate other suspicious fund transfers that may be diverting health plan assets for personal use.

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Editor's Note:

As of July 1, 2000 the Health Plan Program and the administration of the Knox-Keene Health Care Service Plan Act of 1975, as amended by the 1999 HMO reform legislation, has transferred to the new Department of Managed Health Care (www.dmhc.ca.gov).