Employee Health Systems sues DMHC over cease-and-desist order

At the end of last year, the Department of Managed Health Care sent a cease-and-desist order to nine health plans that contracted with Employee Health Systems Medical Group (EHS). The plans were to cancel their contracts with EHS and transfer EHS’ 600,000 patients to other providers.

DMHC sent the order because of EHS subcontracts several management services to SynerMed, which is in the process of being shut down. SynerMed allegedly improperly denied care to patients.

According to the cease-and-desist order:

“On June 21, 2017, SynerMed’s CEO, James P. Mason, issued a “Contracting Playbook” in an e-mail which listed five directives aimed at lowering specialist costs for EHS. These directives included: “Re-narrow the specialty network via termination and removing them from the portal.”

In implementing the “Contracting Playbook”, SynerMed staff was affirmatively directed to hide, or “suppress,” providers from the referral system based in whole or in part on the cost of the services rendered by those providers. Using a data analytics program called “Tableau,” SynerMed Provider Networking staff examined EHS ‘s provider list to identify and suppress “high-cost” providers, beginning with cardiologists, within EHS’s network.

In suppressing providers from SynerMed’s referral system, SynerMed actively and secretly restricted “high-cost” specialists who maintained contracts with EHS from delivering care to enrollees assigned to EHS. These specialists continued to maintain contracts with EHS to provide services. However, as a practical matter, enrollees assigned to EHS by Respondents had no access to these numerous suppressed providers, which SynerMed unilaterally deemed to be high-cost. As a result of this conduct, SynerMed narrowed the specialty network available to Respondents’ enrollees and to EHS’s contracted PCPs.

EHS, through SynerMed, therefore redirected Respondents’ enrollees to a limited set of specialty providers through an otherwise undisclosed, narrow network, restricted substantially based on cost.”

In a letter to SynerMed employees on December 9, 2017 employees were informed that SynerMed would continue providing management services to EHS until at least March 31, 2018.

In a recent press release, EHS says that the contract with SynerMed was terminated upon learning of the allegations of improperly denying care. The letter of termination sent to SynerMed set a termination date of 180 days from November 3rd, or “as soon as reasonably practicable.”

According to spokesperson Kassy Perry:

“EHS terminated their contract with SynerMed Nov 3rd after reading the story in the LA Times and talking to SynerMed. They worked with state regulators to develop a corrective action plan, but the DMHC Director went ahead with the Cease and Desist Order on December 26th. Nowhere in the Order does it say that patients were in danger. In fact, they were not. The violation they cite in the Order is that the DMHC was not notified of SynerMed’s plan for economic profiling. That’s a paper violation. Every health plan engages in it and they simply are required to share their plan with the DMHC. It’s the health plans’ responsibility to do so.”

In response to the cease-and-desist order, EHS has filed suit against the DMHC and Director Shelley Rouillard. The lawsuit claims that the cease-and-desist order exceeds DMHC authority, violates due process, and discriminates against minority-owned EHS.

“The DMHC and Director Rouillard’s illegal targeting of EHS is simply unconscionable,” said EHS spokesperson Denise Ng.  “Despite the fact that EHS had no knowledge of SynerMed’s alleged wrongdoing and that our medical professionals have proven over decades their deep commitment to our patients and the underserved, the DMHC Order outrageously smeared our physicians and damaged our company in violation of state and federal law.

“State regulators never contacted us about the allegations in the Order. And, there has been no investigation of the findings. There have been no complaints about our company or the care we provide.

“We are hopeful the court will see that the DMHC Order is illegal and damaging, and immediately put an end to this government overreach and discrimination,” said Ng. “Moreover, Governor Brown, the Department and Director Rouillard must be held accountable so that they can never unfairly target businesses in the future.”

The following is a summary of the six claims in the lawsuit:

Claim One – Injunctive Relief from Order (Against DMHC and Rouillard): The DMHC Order violates a California law stating that health plans may not transfer or redirect more than two thousand members at a time without 75-day notice. The DMHC Order called for health plans contracting with EHS to move patients immediately, jeopardizing patient continuity of care and health.

Claim Two – Violation of Due Process (Against DMHC): Although targeted, EHS was not made a respondent in the DMHC Order and therefore has no legal right to appeal the Order or request a hearing, a violation of due process per the fifth and fourteenth amendments to the U.S. Constitution.

Claim Three – Violation of Excessive Fines (Against DMHC): The DMHC Order alleges SynerMed engaged in economic profiling without appropriate notice having been filed by the health plans, as required by law. By removing patients from EHS care, DMHC wrongly penalized and has done irreparable harm to the company.

Claim Four – Declaratory Relief (Against DMHC and Rouillard): The suit claims DMHC and Rouillard acted in a wrongful manner, causing damage to EHS. The suit asks for an official declaration of the rights and interests of parties in the matter.

Claim Five – Discrimination (Against DMHC and Rouillard): Although SynerMed provided similar services to other medical groups, DMHC and Rouillard did not issue Orders against those companies. In targeting minority-owned EHS and depriving them of their interests, DMHC violated California’s equal protection law. The suit asks the Court to void the Order.

Claim Six – Discrimination in Violation of the Federal Civil Rights Act (Against Rouillard): The suit points out the DMHC licenses and regulates health plans, not independent practice associations (IPAs) like EHS, pursuant to the Knox-Keene Act governing California managed health care. Despite this, Brown appointee Rouillard has undertaken two actions against IPAs, both of which were owned and/or operated by physicians of Asian or South-Asian descent. During the same period, DMHC initiated no actions against medical groups owned or operated by non-minority physicians.  Rouillard’s actions as alleged were intended to, or have had the effect of depriving minority-owned EHS their right to be free from racial discrimination pursuant U.S. Civil Rights Act.