First, its founding chief executive resigned over allegations of a conflict of interest. Then, its acting chief executive and longtime financial officer resigned suddenly without explanation.

Now, embattled L.A. Care, the nation’s largest public Medicaid managed care program in the country, is the subject of rumors that Blue Cross is looking to take over its programs.

The company strongly denies it, but a meeting between the head of the state’s Medi-Cal program and company representatives including Anthony Rodgers, the recently ousted head of L.A. Care and now a Blue Cross consultant is stirring up anger within an agency already in turmoil.

Board members say the conflicts are not directly affecting patient care. But Jim Lott, executive vice president of the Healthcare Association of Southern California, said that if firm leadership is not put in place by next year when new contracts are negotiated with insurers, it’s bound to have repercussions. “We would have a major problem,” he said. “They are the ones who oversee the insurers.”

Lott added that while Blue Cross officials deny raising the issue of taking over the Medi-Cal program in Los Angeles County at the meeting, they won’t say whether or not it’s a company goal. “They have been asked point blank,” he said. “They won’t deny, and they won’t affirm it.”

Blue Cross has refused comment on the controversy, and did not make Rodgers available for comment.

L.A Care, created in 1995 to oversee the movement of county Medi-Cal recipients into managed care, saw Rodgers, its founding chief executive, resign in February following the disclosure he had married a Blue Cross employee but failed to tell the agency board.

(Under the county’s complex Medi-Cal system, the WellPoint Health Networks subsidiary is one of seven contractors that service L.A. Care’s nearly 700,000 members, and the marriage was seen as a conflict of interest.)

Then, L.A. Care’s long-time chief financial officer, John Smits, resigned from L.A. Care in early May after serving as acting chief executive for less than three months. That prompted the board to order a management audit by PricewaterhouseCoopers.

The board has hired another acting chief executive and plans to announce a new permanent chief this month. But several board members are concerned of a possible Blue Cross takeover following a June 4 meeting of Rodgers, John P. Monahan, chief of Blue Cross’ Medi-Cal programs, and Gail Margolis, a deputy director in the state Department of Health Services.

The board members said they heard that Blue Cross suggested it would be more effective in managing the $700 million Los Angeles program.

Newsletter reports meeting

The rumors became so rampant that the Healthcare Association of Southern California published an account of the meeting to that effect in its June 22 newsletter. The account was written by Anthony Abbate, an association executive who also serves as an L.A. Care board member.

Abbate declined to be interviewed, but other board members decried the possibility of a for-profit company like Blue Cross managing their program, which also involves financially assisting clinics that serve low-income patients.

“I think it would be a dreadful mistake,” said board member Robert Tranquada, a former dean of USC’s medical school.

The newsletter account prompted Monahan to write a letter to the association criticizing the account as unsubstantiated rumor, and maintaining that the meeting was only held to discuss the company’s Medi-Cal contracts in light of the economic downturn, the energy crisis and other issues.

“Within the context of the broader discussion, we touched upon our participation in Medi-Cal managed care in L.A. County and recent events that impact the program,” according to a copy of the July 10 letter released by Blue Cross.

Margolis, who was chairwoman of L.A. Care’s board during its founding and hired Rodgers before her current appointment, gave a slightly different account of the meeting in an interview last week.

Different account

She said that the Blue Cross representatives wanted to meet with her to discuss “the future” of the state’s Medi-Cal program in Los Angeles and other large counties where it is similarly operating. But she also maintained they did not specifically lobby to take over L.A. Care’s business.

“I just don’t think that is going to happen,” she said. “It’s a vibrant model.”

Under the model, 13 counties have what is called a two-plan system, in which a “local initiative” L.A. Care in Los Angeles competes with a commercial health plan in serving Medi-Cal patients.

But the model is extremely convoluted in Los Angeles, whose $1 billion Medi-Cal market is the largest in the country.

Blue Cross, a for profit company, is the largest of seven plans that serve L.A. Care under contract, along with Kaiser Permanente, Maxicare, and others. Blue Cross’ 257,000 patients at the end of the first quarter was more than double of the second largest contractor, Community Health Plan, which had 105,000.

The official commercial plan in the market is Health Net Inc., which in turn subcontracts its Medi-Cal patients to two other health plans.

Still, under the model, L.A. Care is charged with more than simply administering a managed care program. It also has a responsibility to assist area health care providers who have historically cared for Medi-Cal recipients or the indigent.

Apology issued

Monahan’s letter to the hospital association prompted it to respond with a written apology, conceding that it had published what was a rumor.

“It was not appropriate for us to report something we had heard third-hand in that newsletter,” Lott said. “It may very well be true, but we had no first hand knowledge of it.”

Still, there is no love lost between Blue Cross and the association, which has completed surveys it says show the company holds back 20 to 25 percent of the Medi-Care premium for overhead and profit. The association says plans should keep no more than 15 percent.

“We think that is inappropriate and Blue Cross leads our list of those plans we have looked into,” said Lott, who added the association would strongly disapprove of Blue Cross taking over L.A. Care’s operations.

The criticism was echoed by Mandy Johnson, executive director of the Community Clinic Association of Los Angeles County, an association of 38 community clinics that serve Medi-Cal and indigent patients.

Johnson said that while she is very concerned about the management turmoil at L.A. Care, and considers the agency inherently compromised by its structure, having Blue Cross take over its function would be far worse.

The insurer has made it difficult for association members to get contracts and has been slow on paying for services rendered. “Blue Cross has been the most difficult of all the plan providers to work with,” she said.

However, such a move would have some precedent. Blue Cross actually operates as the “local initiative” health plan under the state system in other counties with the two-plan model.

Still, any move by Blue Cross to take over L.A. Care’s function would be difficult, since the agency has a contract with the state that runs at least through April 2003. It also was established under an act of the Legislature.

L.A. Care board member Carl Coan, chief executive of the Eisner Pediatric & Family Medical Center, maintained that while the agency may be going through a tough period, it is performing its primary duties, seeing to it that Medi-Cal patients and the indigent receive medical care.

“Even though we have had some turmoil have lost some key players the organization is functioning and functioning well,” he said.