Federal investigators served a subpoena on Zoom Health Plan on Thursday, four months after former employees reported the failed insurance company to the FBI for possibly fraudulent activity, according to state officials and a former high-level insider who has cooperated with the investigation.
The exact nature of the investigation into Zoom Health Plan is not clear, but the former high-level employee – who spoke at length with The Lund Report on condition that they not be named – alleged that the insurance company’s leaders prepared fraudulent books in order to avoid making risk-adjustment payments that would have benefited less profitable insurance companies.
“We are still trying to figure out what the investigators are trying to get at and we don’t have anything to say on the record,” said Len Bergstein, a Zoom Health spokesman. “We are not going to comment on what any former employees might have to say.”
Employees of the health plan on Friday were urged to stay focused on their jobs.They were told the investigation would not affect daily operations, and that business would continue as normal as Zoom Health cooperated with the investigation.
Zoom is also being investigated by state insurance regulators, who have placed the health plan in receivership, and who have sued Zoom Management in state court for $3 million over its handling of its finances.
“We can confirm that our receivership offices for Zoom Health Plan were visited by federal investigators and that they interviewed select staff,” said Jake Sunderland, spokesman for the Oregon Department of Consumer and Business Services, which houses the state Insurance Division.
Lisa Morawski, a spokewoman also with DCBS, said the Insurance Division is still working to get a full picture of the financial operations of Zoom Health Plan, and could not provide specific details about allegations shared by former employees.
But according to The Lund Report’s primary inside source, Zoom Health Plan CEO Dave Sanders directed workers to hide reimbursement information from government officials, patients, and even many employees of the health plan and its sister company Zoom Management Inc. The goal of this secrecy was allegedly to avoid large payments required of health plans sold on Affordable Care Act exchanges that spend less than 80 percent of premium dollars on medical care.
“Zoom’s cost of care was low, with a medical loss ratio of around 30 percent,” the former health plan employee said. “So 30 cents of every dollar in premiums was spent on medical expense. The other 70 percent goes toward the bottom line. There are administrative components, such as rent, etc., which was about 45 cents of the dollar. That left 25 cents for profit. The way the ACA works, you have to account for 80 cents of every dollar on medical spending, one way or another. The carriers who do not have high risk have to pay into the pot, and the pot is shared to level the playing field, so nobody is significantly profitable.”
The risk-adjustment provisions of the ACA have been disastrous, at times, for insurers that spent far more than anticipated on medical care. Oregon’s Health CO-OP and Health Republic both closed down, in part, because payments they had hoped to receive did not materialize in full. And Moda Health significantly scaled back in Oregon and left both Washington and Alaska for similar reasons. In each of these cases, the financial hardship of the health plans was compounded by a congressional vote not to fully fund risk pools, which under the original language of the ACA would have initially received funding both from insurers and from the federal government.
But Zoom was on the other end of the equation, with far lower medical costs than much of the competition.
The former employee attributed these lower costs to the nature of Zoom’s integrated network of clinics with its health plan.
“Blue Cross has a strong name in the marketplace, and they will have a higher population with chronic conditions – they have cardiologists on staff, pulnomologists that Zoom wouldn’t have. If I have chronic heart disease, I wouldn’t even choose Zoom. If I’m a normal 40-something or 50-something or beyond, I need medical care from specialists. I go to the Zoom site and don’t see anyone listed that I recognize, and I go for a different plan,” the insider said. “But if I’m a millennial, I pick Zoom, because I don’t have a complex condition, and I can get my needs met there.”
The result for Zoom Health Plan was a far younger and healthier population than nearly any other insurance plan in the state – resulting in very low medical costs that would have automatically triggered a risk-adjustment payment if the plan’s finances were reported correctly, the source said.
To make up for this, Zoom Health Plan paid inflated rates for care to the sister company that ran its clinics, the former insider said.
These clinics, which operate under the Zoom Plus brand, tout their transparent pricing as a key feature for patients. Yet for a service that any walk-in patient would pay $100 for, for example, Zoom Health Plan might transfer $110 or $130 to Zoom Management as compensation, the former employee said.
“A hundred dollar service is now $130 – it’s just a ledger adjustment. In one swoop, you mark the ledger to pay yourself more. Now you technically have a higher dollar amount doing to yourself,” the former employee said. “You can’t do that.”
In addition, Zoom Health hid these higher payments from its patients and its own employees, the source said.
Sending explanations of benefits to insurance members with reimbursement amounts, or displaying financial information on screents that customer service reps might see and speak about, could have revealed Zoom Heallth's activities.
Even though it would be normal to share this information at most insurers, "Dave Sanders said not to do it," the former employee said. "Completely mask it so that nobody would know what we were doing.”
According to Zoom Health Plan’s 2016 financial report to federal insurance regulators, the company collected $4,721,047 in premiums last year, and paid $6,389,435 in medical spending – with about $3,044,214 of that spending on hospital and medical benefits, and $2,631,597 going to other professional services. The company reported a net loss of $4,746,487. It’s not clear how those figures might be revised after state insurance regulators complete their review of the books.
If Zoom Health had accurately reported its medical spending – and thus had been charged a risk-adjustment fee – its capital and financial position would be even more precarious, the former employee said.
For their part, regulators have raised a parallel set of concerns – over a sum very similar to the amount Zoom claims it spent on hospital and medical spending.
“$3 million was supposed to be paid by Zoom Management Inc. to Zoom Health Plan in exchange for a surplus note,” Morawski said. “The lawsuit filed by the state aims to collect this money for the health plan so it can meet its obligations to policyholders.”
In its annual financial statement, Zoom Health said it had capital and surplus of $2.87 million at the end of last year – but because it did not transfer those funds, its capital and surplus was actually negative $126,832, according to the lawsuit filed by the state.
Zoom Health Plan is owned jointly by funds run by venture capital firm Endeavour Capital, which holds a 20 percent stake, and by Sanders and Dr. Albert DiPiero, who split ownership of the remaining 80 percent, according to regulatory filings. Endeavour funds holds 38.2 percent of Zoom Management’s equity, with Sanders and DiPiero each owning about 27.1 percent of the company. DiPiero and Sanders each hold 50 percent of ZoomCare P.C.
Several insiders said that across the companies – especially Zoom Health and Zoom Management – finances have been tight for a number of months, with as many as 100 or more employees laid off, and some commissions or bonuses not paid.
Reach Courtney Sherwood at [email protected].