A Minnesota judge ruled earlier this month that state Attorney General Mike Hatch should continue to oversee the six-member board of Medica, a regional health plan, in a decision that a healthcare lawyer said might give state attorneys general more clout in their governance of not-for-profit healthcare providers.
Medica had petitioned the Hennepin (Minn.) County District Court in May to dismiss a 2001 settlement reached with Hatch that called for the attorney general to oversee the board by appointing eight special administrators. The two sides agreed to the settlement after Hatch audited the system and revealed wasteful spending, excessive corporate travel and executive perks (March 26, 2001, p. 4).
At a court hearing in May, Medica said it had adopted new bylaws, while keeping spending in check and adopting the personnel and expense policies requested by Hatch (May 26, p. 14). In May, the health plan also satisfied one of Hatch's demands by appointing David Tilford as chief executive officer, filling a position that had been vacant for 15 months.
In its request to have the settlement dismissed, Medica contended that Hatch has overstepped his authority by micromanaging executive hirings and firings. "We continue to believe that Medica is independent, no longer subject to the court's jurisdiction, and acting in the best interests of the company and its members," said Robert Longendyke, a Medica spokesman.
But in his ruling, Judge David Duffy ordered that Hatch continue to oversee Medica's board because it is "a time where there is some question and certainly much dispute as to the degree of Medica's success in overcoming deficiencies in its management and administration."
Minnetonka, Minn.-based Medica, which has more than 1.1 million members, plans to appeal the ruling, Longendyke said.
"In the last two years, Medica has achieved the highest quality rating in the health plan industry; held its premium increases below the industry average; and substantially reduced operating costs," Longendyke said.
The health plan reported net income of $28.9 million on total revenue of $2.18 billion in 2002.
Hatch was pleased with the ruling, his spokeswoman Leslie Sandberg said. "He hopes to work with the special administrators to return Medica to its policyholders," she said.
Medica and 14-hospital Allina Hospitals & Clinics announced they were breaking ties in 2001. Allina said the reason was that too few Medica enrollees were using its hospitals to make integration work. Executives said later that Hatch's investigation accelerated the system's decision.
The judge also voided an election held by Medica's members, who installed four of Hatch's special administrators as permanent board members-the first move in Medica's quest to be independent. They may run for board positions after their status as the attorney general's special administrators is terminated and the case has been dismissed, the judge ruled.
The ruling could send a signal to not-for-profit hospitals and systems, who may find that attorney general supervision is far-reaching, a healthcare lawyer said.
"This confirmed that the attorney general has a right to have an ongoing interest," said Michael Peregrine, a healthcare lawyer with Gardner, Carton & Douglas in Chicago who was not involved in the case. "Merely adopting policies is not going to be enough" to end the supervision of attorneys general, he said.
Medica and Hatch will be required to file joint reports with the court every three months detailing Medica's turnaround efforts. In his ruling, Duffy urged each side to conclude their efforts within one year.
In another decision involving a Minnesota not-for-profit health plan, Hatch was recently denied in his attempt to appoint two businessmen to the board at HealthPartners in Bloomington. After a critical audit, Hatch said the HealthPartners board was "weak and inattentive" and needed the appointees (June 23, p. 44).
A Hennepin County District Court judge instead ruled in June that only one businessman was needed to serve as a special administrator and make recommendations on travel, entertainment and executive compensation.