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State audit criticizes CalOptima spending in Orange County
Orange County May 04, 2023
State Auditor Grant Parks. | Photo courtesy of the state of California
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By Paul Anderson
A state audit of CalOptima released Tuesday criticized Orange County’s insurer for the needy for being slow to spend money and possibly violating state law in its hiring of a CEO in 2020.
“We determined that CalOptima accumulated surplus funds it should have used to improve services, retained a larger share of funds obtained through a process known as intergovernmental transfer than other managed care plans we reviewed, and did not follow best practices when hiring for some executive positions,” State Auditor Grant Parks wrote in a letter for the report to Gov. Gavin Newsom and the state Senate.
“CalOptima had accumulated more than $1.2 billion in unrestricted funds as of June 2022,” Parks wrote. “It set aside $570 million of these funds as a reserve, which we determined was prudent, but the remaining $675 million represent surplus funds. An Orange County ordinance requires CalOptima to implement a financial plan that provides for using surplus funds on specific purposes, such as improving benefits, but CalOptima does not have a plan for spending all of its surplus funds and has struggled to use them in a timely manner.”
The county has also “retained a larger share of (intergovernmental transfer funds) than other managed care plans we reviewed,” he added. “Although it allocated a significant portion of its retained (intergovernmental transfer) funds for health care initiatives focused on members experiencing homelessness, it did not consistently monitor the effective use of those funds.”
The agency’s “executive turnover rate”‘ is higher than other managed care plans, Parks said.
“However, it did not follow best practices when hiring three of six executives we reviewed, and one of its former board members may have violated state law when he entered into an employment contract to serve as the organization’s chief executive officer,” Parks said.
“CalOptima lacked a written policy that could have guided its approach to hiring in these instances. As a result of its practices, CalOptima has limited its ability to attract and select the most qualified candidates, and it has opened itself to criticism about the objectivity, appropriateness and transparency of its hiring process.”
The county hired Richard Sanchez, then the Health Care Agency director, to take over CalOptima in March 2020 as the coronavirus pandemic began. Sanchez had intended to retire a year prior, but Orange County CEO Frank Kim said at the time that he had “begged” him to stay.
Sanchez took over for Michael Schrader, who had taken a similar job with another health insurance company at the time. Sanchez was viewed as an expert familiar with CalOptima and the Health Care Agency as the county was working to implement a state plan to merge care and services for physical and mental health, officials said.
Sanchez’s hiring also came at a time when Orange County Supervisor Andrew Do was pushing CalOptima to free up spending to provide more services for the homeless.
Board of Supervisors Chairman Don Wagner, who joined the board in 2019, told City News Service that the agency has “significant reserves, but I do believe (CalOptima CEO) Michael Hunn is working to spend it down to in my mind is an appropriate level.”
As for the way Sanchez was hired, Wagner said, “I don’t think they’ll make that mistake again. I hope they’ve learned their lesson, which I believe from Michael that they have.”
Supervisor Doug Chaffee issued a statement saying that since he began serving on CalOptima’s board about a year ago the agency has implemented a plan “that focuses on improving access to high-quality health care services for all members. These programs include $108.1 million in COVID-19 supplemental payments to health care networks and qualified providers, $50.1 million toward a five-year comprehensive cancer screening and support program, $8 million for a street medicine program serving individuals experiencing homelessness, $7 million toward the OC Health Care Agency’s outreach and engagement team, $5 million toward a National Alliance for Mental Illness support program, and $700,000 toward a Homeless Clinical Access Program extension.”
Orange County Supervisor Vicente Sarmiento, who was recently appointed to the CalOptima board, issued a statement saying, “The public’s trust is important when it comes to any public agency, especially the county’s publicly funded health plan. Although I am a new member on the CalOptima board and the issues identified in this audit precede my time, I am nonetheless fully committed to working with the other directors and staff to take the corrective actions necessary and ensure that CalOptima is operating transparently and according to best practices going forward.”
CalOptima officials issued a statement saying many of the recommended reforms from the audit were already underway.
“As the largest health insurer in Orange County serving our most vulnerable populations, opportunities to increase transparency and improve services provide a major benefit to CalOptima Health and the patients we serve,” Hunn said in a statement about the audit.
“CalOptima Health would like to thank the Joint Legislative Audit Committee, as well as Assemblymember Sharon Quirk-Silva, and the California State Auditor’s office for working with CalOptima Health while performing a comprehensive audit covering January 2014 through June 2022. We were pleased to learn that there were very few findings in the auditor’s report. Actions are already underway to implement all recommendations.”
Quirk-Silva, D-Fullerton, was critical of the agency for being slow to spend its funds.
“When, on average, 45 people who are experiencing homelessness and in need of vital healthcare services are dying each month in Orange County, it is unconscionable that CalOptima, an organization entrusted with the health and well-being of our community, has amassed an unplanned surplus of over $675 million,” Quirk-Silva said.
“The failure of CalOptima to use these funds to improve healthcare services for the most vulnerable members of our society can only be characterized as a dereliction of duty, and their conduct warrants serious scrutiny and accountability.”
Quirk-Silva added that county residents “deserve better than this. CalOptima must take immediate action to address the issues identified in this audit. The health and well-being of our community depends on it.”
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