California Watts Foundation HMO Seized by State Regulators Over Financial Concerns

California regulators on Aug. 8 "seized" Watts Health Foundation after concluding that its HMO, which covers 96,000 "mostly poor and elderly people" in the Los Angeles area, had "severe cash flow and liquidity problems," the Los Angeles Times reports. The move by the Department of Managed Health Care, the agency responsible for overseeing health plans in California, came two weeks after the not-for-profit foundation agreed to shore up its finances by adopting a number of accounting reforms, including "spinning off" the 70 clinics it operates. However, the DMHC said the accounting changes "would have done little to improve" the HMO's financial situation, prompting the seizure. "The debt overwhelms the assets," DMHC Director Daniel Zingale said, adding, "No matter how you shuffle the deck, it does not add up to a stable environment." According to documents released by the department, Watts Health had liabilities of $59.1 million as of June 30, with current assets of $15.9 million. The DMHC also said that Watts Health was "consistently" late in paying claims. The Times reports that 80% of members in the foundation's HMO, known as UHP Healthcare, are enrolled in Medi-Cal, the state's Medicaid program, and 10% are in Medicare. The seizure is "not expected to affect the HMO's patients." Watts Health President and CEO Clyde Oden Jr. said the agency had "act[ed] prematurely," adding that he expected the foundation to "post a surplus" in 2001 (Gellene, Los Angeles Times, 8/9).