J. Mario Molina Describes His Removal as a ‘Palace Coup’

The former CEO of Molina Healthcare, J. Mario Molina, says that he and his brother, former CFO John Molina, were totally taken off-guard when Molina Healthcare’s board of directors on May 2 removed them from the business their father started. J. Mario Molina thought that he was just attending a routine meeting with the board when the ax fell, the Wall Street Journal reports.

“I had no clue,” J. Mario Molina recalled.

The shakeup has generated some speculation on exactly where Molina Healthcare, which focuses mainly on Medicaid beneficiaries, might go from here.

The WSJ reports: “Since the change was announced, the company’s shares have surged 31%, partly on speculation that it is now more likely to be acquired without the founding family in management.”

The board of directors acted quickly that day, first voting to remove the Molina brothers from the board, and then voting to remove them from their jobs. (The brothers voted against.) It hurt, to say the least. J. Mario Molina told the WSJ that he’d known some of the board members for decades.

The exit of the Molina brothers means that the health care industry lost two of the more outspoken supporters of the ACA. J. Mario Molina argued that despite his company’s recent disappointing financial performance, Obamacare needed neither repealing nor replacing, just a tuneup. Going against the grain of some large insurers (Aetna, UnitedHealthcare, and Humana) who’ve either exited or are planning to exit the ACA exchanges, Molina Healthcare intends to stay in the exchanges. 

Molina Healthcare services 4.8 million members in 12 states and Puerto Rico. The company’s relatively small size was viewed by some experts as an advantage. Josh Weisbrod, a health care consultant with Bain & Company, told Kaiser Health News in March: “It’s easier to work up from a low-cost position than it is to work down from a higher-cost position. For an insurer that is used to selling employer plans with rich benefit designs and broad networks, it is difficult for them to transition that to a narrow network of lower-cost providers.”

Now, some are saying that Molina’s small size might be a disadvantage, the WSJ reports. “Many insurers lost money on the ACA plans due to higher-than-expected costs and the complicated, evolving rules under the law. Molina’s smaller size and thinner margins compared with rivals left it exposed when it ran into problems, analysts said.”

In February, Molina Healthcare showed a net loss of $47 million in the fourth quarter of 2016 compared with a $30 million profit in the fourth quarter of 2015

J. Mario Molina argued that the reversal was due to what he saw as a structural flaw in the ACA known as risk transfer. It’s one of the subsidies accorded insurance companies who wind up losing money for serving a sicker, poorer population. Except this subsidy doesn’t come from the government directly but from other insurers who don’t have as many sicker, poorer patients.

“Let’s put it this way,” he told Kaiser Health News in March. “Currently, Molina Healthcare is returning 25% of our premiums to the government, which are then distributed to our competitors. So we are really subsidizing our competitors and helping them, rather than forcing them to compete.”

As if things weren’t dicey enough for Molina Healthcare, the company closed its online portal for claims information last Friday, fearing a breach of cybersecurity that may have exposed the medical information of some of its members.

The story came to light thanks to Brian Krebs, a cypersecurity expert who runs a website called Krebs on Security. In April, a Molina beneficiary contacted Krebs and explained that he found a flaw when checking his online medical information. He changed one numeral in the patient identification code, and another patient’s information came up.

Krebs told Kaiser Health News: “It’s unconscionable that such a basic, security 101 flaw could still exist at a major health care provider. This information is more sensitive than credit card data, but it seems less protected.”

By law, a health care organization must contact federal officials when there is an online security breach. But Kaiser Health News reported Tuesday: “Molina emphasized that it was still investigating the matter so had not yet reported it. Federal regulators can levy significant fines for violations under the Health Insurance Portability and Accountability Act, also known as HIPAA.”

Source: Wall Street Journal