Politics has stymied a closely watched move by California lawmakers to pool state oversight of managed-care plans under one new state agency.
Democrats, with backing from consumer and labor groups, and Republicans, with support from the managed-care industry, couldn't agree on a governance formula for the proposed Department of Managed Care.
The new agency would have taken on regulatory duties currently performed by the state's Department of Corporations, which has been targeted by consumer groups as a notoriously lax managed-care watchdog.
Proponents say the new department would have centralized and toughened regulation of the state's HMOs, but critics insisted it would have had little if any real impact.
The proposed agency would have been the first state agency in the country designed to oversee only HMOs.
The state Department of Insurance, under an elected commissioner, regulates other types of health-insurance plans in California.
The plan was the brainchild of Republican Gov. Pete Wilson, who based it on a recommendation made last December by a special state task force looking at how best to regulate HMOs operating in California (Dec. 22-29, 1997, p. 21).
Specifically, Wilson's plan would have transferred responsibility for regulating HMOs to the new agency, under an appointed commissioner. Like the Department of Corporations, the new agency would have remained under the aegis of the umbrella Business and Transportation Agency. Some industry leaders wanted to move the oversight of PPOs and some elements of workers' compensation to the new agency as well, but that was not part of the Wilson proposal.
Wilson's proposal was not made in a specific piece of legislation but in a reorganization plan that needed the approval of both houses of the Legislature.
On July 2, though, the plan fell apart.
It was defeated in straight party-line voting in the state Senate, with the 22 Democrats voting against the bill and the 15 Republicans supporting it.
State Sen. Herschel Rosenthal (D-Los Angeles), a legislative leader on health issues, claimed Wilson was offering "a Band-Aid solution," when regulation of the state's HMOs requires major surgery.
But after the recent vote, the Wilson plan "is flat-line," said Bruce Spurlock, M.D., executive vice president at the Sacramento-based California Healthcare Association, which represents hospitals and health systems. The association was neutral on Wilson's proposal.
About 220 state employees who now work on HMO regulation within the DOC would have moved to the new agency under the plan.
Democrats and their consumer-group allies don't object to the idea of a new department per se, but they want it to be headed by either an elected commissioner or an appointed board that includes members likely to represent consumer interests. Either alternative, Wilson's opponents say, would be less susceptible to industry pressure.
Under Wilson's plan, the new agency's director would have been appointed by the governor-a sticking point that led directly to the plan's defeat.
Statewide healthcare groups such as the Sacramento-based California Association of Health Plans and the Pleasanton-based Integrated Healthcare Association, on the other hand, can't stomach the thought of HMOs being regulated by an appointed board likely to be split between pro- and anti-managed-care factions. Such an unwieldy regulatory structure would create both significant delays in the regulatory process and a lack of accountability to elected officials, they say.
"We're adamantly opposed to that," said Maureen O'Haren, executive vice president of legislative affairs for the California Association of Health Plans.
She said "it was a foregone conclusion" that Wilson's proposal would be defeated, because the Democrats control the state Senate and have no desire to compromise on the heavily politicized issue.
Industry observers don't expect the proposal to resurface this session, unless Democratic legislators submit a revised plan that almost certainly would inspire a Wilson veto.
The chances of a negotiated compromise on the issue are virtually nil, they say.
"I think we'll end up this year in a political stalemate, and we'll have to wait for a new governor," said Beau Carter, executive director of the Integrated Healthcare Association, which represents 32 health plans, healthcare systems and physicians groups.
The current legislative session ends Aug. 31.