Former managed care official fined in United-PacifiCare merger

A California commission cited the director for participating in merger discussions while owning stock in UnitedHealth Group.

By Emily Berry — Posted Nov. 6, 2009

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An attorney for the California agency that was considering whether to approve a merger of UnitedHealth Group and PacifiCare was ordered to pay a $3,000 fine for violating a state conflict-of-interest law.

California's Fair Political Practices Commission approved an order Oct. 8 finding that former Dept. of Managed Health Care Deputy Director Kevin Donohue had violated the state's conflict-of-interest statute. The order said he participated in the decision on whether to approve a United-PacifiCare merger while he owned stock in United. Donohue agreed to the order but did not admit any wrongdoing.

Donohue was not assigned to the team directly responsible for considering the merger application in 2005, but he did advise colleagues who were, the commission's order said. At the time, he owned stock in United as part of a managed investment account, worth more than $2,000 but less than $25,000. Donohue admitted stock ownership when he declared it a year earlier in a required financial disclosure form.

That counted as a mitigating factor, the commission said, since Donohue apparently did not intend to hide his investment.

The conflict of interest was "at best inadvertent and at worst negligent," the order said, "It appears the resulting conflict was at no time deliberate."

United and PacifiCare ultimately did merge in a deal valued at $8.1 billion. United's stock price rose about 19% from $53.50 a share on July 6, 2005, when the companies announced their intent to merge, to $63.79 on Dec. 21, when the deal was finalized.

The department has placed a "renewed emphasis" on reporting or avoiding any financial relationship with health plans or the health plan industry, department spokeswoman Lynne Randolph said. Efforts include more training and more one-on-one counseling with the department's ethics officer.

Donohue still works for the department as a staff attorney but is no longer deputy director.

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