State takes over California HMO

SACRAMENTO, Calif. -- Health officials took control of a doctor-owned HMO Friday, saying its financial situation was so grave it posed an imminent threat to its 111,000 patients.

Tower Health had $600,000 in cash at the end of July and over $13 million in liabilities, said Daniel Zingale, director of California's Department of Managed Health Care.

Most of the HMO's enrollees are in Los Angeles, Orange, Riverside and San Bernardino counties, and patient care won't be affected by the state's takeover, Zingale said.

State regulators went to Tower Health's offices Friday to change the locks and freeze the bank accounts.

"We also take away all decision-making authority from the owners and begin immediately making decisions with patients' best interest in mind," said Zingale.

Tower Health officials said they had been working with the department for a month, and had submitted a restructuring plan.

"We were surprised at the action today, because even though we never recieved an approval or denial of the plan from the department, we were making meaningful and substantial progress on completing it," said David Blackman, the plan's vice president and chief operating officer.

By taking over the HMO, the state can direct remaining funds to patient care.

"If we hadn't stepped in, the funds could have gone to shareholders," Zingale said.

The HMO had some management issues and systemic problems related to the rising cost of health care, he said.

This is the third HMO that the state department has taken over since it was formed last year to regulate health plans.