The California Department of Managed Health Care (DMHC) issued a cease-and-desist order on December 26, 2017, requiring nine health plans to terminate their contracts with Employee Health Systems (EHS) Medical Group Inc. This order comes after SynerMed—a company closely affiliated with EHS—was accused of blocking patient access to specialists to hold down costs.

EHS has 600,000 patients statewide—90 percent of whom are Medi-Cal managed care patients. The health plans affected by this order must transfer all EHS patients to different health care providers by early February 2018. The plans were required to submit a transition plan to DMHC by January 3, 2018, with a “Final Proof of Compliance” confirming termination of the plans’ relationships with EHS due by February 5, 2018.

In the cease-and-desist order, DMHC describes how SynerMed secretly and systematically blocked patients and providers from accessing contracted specialists deemed too costly. As part of its administration of the EHS provider network, SynerMed provides an electronic online provider portal where contracted physicians can view the available EHS-contracted medical specialists in their region.

In June, SynerMed’s CEO issued a “Contracting Playbook” that listed five directives aimed at lowering specialist costs for EHS. In implementing this playbook, SynerMed staff were affirmatively directed to suppress “high cost” providers from the referral system, including cardiologists, diagnostic radiologists, dialysis providers, hematologists, oncologists, nephrologists, ophthalmologists and rheumatologists. According to DMHC, SynerMed actively and secretly restricted “high cost” specialists who maintained contracts with EHS from delivering care to EHS enrollees. Though these specialists continued to maintain contracts with EHS, enrollees as a practical matter had no access to these suppressed providers, which SynerMed unilaterally deemed to be too expensive.

Under California law, health plans must notify the state of any policies that deny patients access to contracted providers based on cost — a practice called ""economic profiling."" Plans must demonstrate that their economic profiling practices would be consistent with the requirement that medical decisions be rendered by qualified medical providers, unhindered by fiscal and administrative management.

While there is no indication that the health plans were privy to SynerMed’s effort to narrow EHS’s specialist network, DMHC has found the plans to be in violation of the state law because none of them filed the requisite economic profiling policy.

The health plans are working with DMHC to minimize disruption of care, but it is unknown at this time where affected patients will be transferred. It is also unclear how claims processing functions, including preauthorizations, will be handled during the transition. The California Medical Association is working to obtain additional information and will publish an update as soon as we have more details.