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Hatch's threat forced Medica board's ouster
By Laura McCallum, Minnesota Public Radio
August 3, 2001
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A year and a half after Attorney General Mike Hatch began investigating Minnesota's largest health plan, Allina Health System is splitting into two companies. The board of its Medica HMO has been replaced by an entirely new slate and the Allina board could be next. Some observers have wondered why the company appears to be giving in to Hatch's demands without a fight.

Minnesota Public Radio has learned that the possibility Hatch's office might put the company into receivership put pressure on some board members to go along with the attorney general's recommendations.

Attorney General Mike Hatch has alleged Allina has wasted millions of dollars on executive perks and consultants and improperly used Medica members' premiums. The company has denied the allegations.

SOURCES CLOSE TO THE SITUATION, who asked not to be named, tell Minnesota Public Radio that in meetings between the attorney general's office and Allina officials, Hatch's office told Allina that one option Hatch could pursue if Allina misused its nonprofit status was putting the company into receivership.

Board members were told that the prospect would mean they would no longer be covered by Allina's liability insurance and if sued, would have to personally defend themselves.

The attorney general has alleged Allina has wasted millions of dollars on executive perks and consultants and improperly used Medica members' premiums. The company has denied the allegations.

John Pratt, executive director of the Minnesota Council of Nonprofits, says the attorney general has oversight responsibility over charities in the state, and can seek court approval to appoint a receiver to preserve the assets of a company. Pratt was appointed receiver of a small homeless charity that was fraudulently misusing funds, but says receivership is highly unusual.

"The only case I know of in the last nine years was this one organization, so it's just - the ability to do this and take this step, for most organizations, they wouldn't want to get anywhere close to that," Pratt said.

Sources say some Allina board members were intimidated by the possibility of receivership, and the thought of being personally liable for any decisions they had made. Half of the 28 Allina board members are physicians; the remaining 14 members include business leaders and citizen representatives.

Allina has publicly embraced its recent changes - the company says the decision to split into two companies made good business sense, although officials admit the timing was prompted by Hatch's audit. News of the new Medica board was announced at Allina's corporate headquarters. The new board is headed by former Fingerhut CEO Ted Deikel, who along with four of the other eight Medica appointees had contributed to past Hatch campaigns.

Allina CEO Gordon Sprenger said Hatch was a major player in the process. "If you know the attorney general, he is involved in whatever he's involved with to a great extent, and so he certainly welcomed any names that we brought forward and he also sought out names in the community that he could bring forward, and, I think as Mr. Deikel said, ended up with this board," Sprenger said.

But sources say none of Sprenger's recommendations actually made it onto the new Medica board. Hatch declined to comment for this story, but his office said the board is of the highest integrity. Following the announcement of the new board, Hatch said he didn't handpick the board members. "No, there are a lot of people who participated in it. There was lots of people," said Hatch.

Hatch has said publicly that receivership was an option for Allina. He says it's not necessary now, because Allina is making changes on its own in response to his audit. Allina officials wouldn't comment for this story, except to say that the company is working cooperatively with the attorney general's office to bring the audit to a conclusion. Hatch plans to release his findings later this month, and has indicated changes in the Allina board are expected next week.

Editor's Note: David Strand, chief operating officer of Allina, is the chairman of the Board of Trustees of Minnesota Public Radio. Two other MPR board members also serve on the board of Allina, and one other MPR board member was recently appointed to the board of Medica, which is being spun off from Allina. MPR maintains an editorial firewall between its board and administration, on the one hand, and its news division, which makes independent editorial decisions, on the other.