Couple Makes Millions Off Medicaid Managed Care As Oversight Lags

Evidence is mounting that Medicaid's rapid expansion under the Affordable Care Act has far outstripped the government's ability to monitor the taxpayer money it turns over to insurers.

This article first appeared February 22, 2018 on Kaiser Health News.

By Chad Terhune

CHULA VISTA, Calif. — Norma Diaz and her husband, Joseph Garcia, have dedicated their careers to running a nonprofit health insurer that covers some of California’s neediest residents.

For three decades, they have worked for a Medicaid managed-care plan, Community Health Group, serving nearly 300,000 poor and disabled patients in San Diego County under a state contract funded entirely by taxpayers. They’ve earned above-average ratings for patient care.

And in the process, they’ve made millions of dollars.

Together, Diaz and Garcia made $1.1 million in 2016 and received more than $5 million since 2012, according to the health plan’s tax returns and company data. Diaz’s compensation as CEO exceeded the pay of several peers at bigger plans in 2016.

Garcia, married to Diaz since 1997, is an outside consultant who serves as chief operating officer. Their health plan, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

“This is not only a conflict of interest but egregious overpayments,” Frank Glassner, chief executive of Veritas Executive Compensation Consultants in San Francisco, said after hearing of the payments from a reporter and reviewing the tax returns. “It’s the family-and-friends plan.”

Last year, federal auditors examined compensation for the 133 top paid executives at managed-care organizations in seven states, focused on health plans that get more than half of their revenue from Medicaid.

For 2015, the top executives earned $314,278, on average — more than double what state Medicaid directors earned, according to the report. Auditors didn’t find major differences in pay between for-profit and nonprofit Medicaid plans.

Executive compensation has risen as Community Health Group recorded hefty profits.

State officials had raised the rates paid to Medicaid plans in anticipation of the Affordable Care Act rollout in 2014, but the costs for newly insured patients weren’t as high as predicted. After the KHN investigation into insurer profits published in November, California’s Medicaid director, Jennifer Kent, vowed to recoup billions of dollars in excessive payments from insurers in coming months.

From 2014 to 2016, Community Health Group recorded profits of $344.2 million, according to state data obtained and analyzed by Kaiser Health News. Diaz said her insurer expects to return more than $100 million to the Medicaid program.

Robert Stern, a government ethics expert and former general counsel of California’s Fair Political Practices Commission, welcomed the scrutiny of Medicaid profits. But he said the business practices at Community Health Group suggest there is much more to be done.

“Taxpayer money should be spent as wisely as possible,” Stern said. “It’s not their money. It’s our money.”