The California Department of Managed Health Care is moving to fire its deputy director for holding stock in UnitedHealth Group while he helped review the insurer’s $9.2 billion acquisition of PacifiCare Health Systems last year. The department placed Kevin Donohue on administrative leave Oct. 24 after an internal investigation determined that Donohue violated state conflict-of-interest laws by failing to recuse himself from the merger-approval process despite having a financial interest in UnitedHealth. Department spokeswoman Lynne Randolph described Donohue as being "directly involved" in negotiations that sought to ensureCalifornia consumers wouldn’t end up shouldering the cost of the controversial merger through higher premiums. The deal was approved Dec. 20, 2005, after four months of regulatory review. Randolph said the department has hired an outside consultant to determine whether the findings could lead to the merger being overturned. "So far, a preliminary analysis that we’ve done internally doesn’t show that his involvement would have had any impact on the eventual outcome," she said.
Donohue, who receives an annual salary of $110,472, denied the allegations and said he would appeal his dismissal at an upcoming administrative hearing. Donohue said he had complied with California conflict-of-interest laws by reporting his UnitedHealth holdings in annual filings beginning in 2002. He also said he had no need to recuse himself because the decision to approve the merger had already been made by his superiors, including the managed-care department’s director, well before he became involved. Donohue estimated that at the time of the merger approval he held about 320 UnitedHealth shares, which according to Modern Healthcare calculations would have been worth roughly $20,000.