Regulator cited in United-PacifiCare merger

A California agency moves to fire an attorney who helped it approve the 2005 merger. But it says the deal won't be undone.

By Jonathan G. Bethely — Posted Nov. 13, 2006

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A public records request brought by the California Medical Assn. led to the suspension of a top health plan regulator in the California Dept. of Managed Health Care. The request revealed the regulator owned UnitedHealth Group stock as he reviewed the 2005 United-PacifiCare Health Systems merger.

Kevin Donohue, an attorney and deputy director of the managed care department, was placed on administrative leave pending a civil service disciplinary hearing after it was determined he didn't recuse himself from involvement in the merger approval process.

Department spokeswoman Lynn Randolph said Donohue has been served with a notice of termination effective Nov. 15. Donohue has said publicly that he committed no wrongdoing and would likely appeal any dismissal from his $110,472-a-year job.

"We are going to take some other steps because we want to make sure that there are no outstanding issues on the minds of the public," Randolph said. "We are going to hire an independent review of the merger itself to make sure that there were no undue influences. We're also taking internal steps to help our employees educate themselves about what is required by law."

Peter Warren, a spokesman for the CMA, said the association wasn't looking specifically at Donohue's relationship with UnitedHealth when it filed a request to obtain public records regarding the $9.2 billion deal. Warren said the association had become increasingly concerned about many of the decisions made by the managed care department involving for-profit health plans. For example, it was the state's insurance commissioner, and not the managed care department, that originally blocked 2004's Anthem-WellPoint merger until Anthem gave concessions to the state.

"The decision-making didn't make public policy sense in the best interest of those concerned," Warren said. "We requested a lot of information about conversations, meetings, e-mails and letters among public policy-makers."

Records showed Donohue reported stock ownership in United worth $10,000 to $100,000. To comply with conflict-of-interest laws in California, Donohue reported the financial details of his stock ownership beginning in 2002. He did not have to detail the specified amount of stock, only the range of its value.

"You would think they would have known," Warren said. "It's not clear to me from the public statements what the truth is regarding Kevin. We have to get answers and take a look to see what's there."

Randolph said the department did not review Donohue's conflict-of-interest statements when they were filed because by law they are only required to review a random selection of 20% of the filings. None of those 20% reviewed included Donohue's filings. Randolph said the onus is on the employee to bring to light any conflicts of interest that may compromise his or her job.

However, she said it is unlikely the revelation of Donohue's stock ownership will result in the United-PacifiCare deal being undone.

Warren said CMA is still awaiting more public records from the managed care department, but so far they have not come out publicly with a statement regarding the department's findings.

At least one advocacy group in California, the Foundation for Taxpayer and Consumer Rights, has called for a statewide investigation.

"There are a lot of things that we are concerned about," Warren said. "Maybe what we've got here is a three-legged watchdog whose teeth have fallen out."

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