Roberto Barrag & #225;n became president of the Valley Economic Development Center Inc. under less than auspicious circumstances almost two years ago. After widely publicized allegations of fraud and the resignations of both the president and board chairman, Barrag & #225;n took over as head of the largest non-profit small business development organization in metropolitan Los Angeles. Besides low morale and a poor reputation in the business community, he also had real problems involving both employees and the companies and organizations worried about their investments in VEDC. Barrag & #225;n spoke with Business Journal editor Michael Hart recently about the challenges he had in his first days as VEDC president. “Out of four situations where I’ve been the CEO, I’ve had three turnarounds and one start-up. When I first became president here was my most difficult experience in several years. There was a lot of negative press, we had a management turnover, we were experiencing cash flow issues and there were even some contract losses. You ask yourself, what do I do first? “Personnel and people became really important. The people most worried are the people who work for you and the people who pay you. You’ve got to make sure your staff is in place and your funding is in place or you can’t stem the tide. “Before you do anything, you talk to employees and give them a sense of stability by being up front with them. You tell them what the issues are and make them part of the solution. “I gave half-hour slots to every employee when they could tell me what they thought about everything. They’re able to give you some sense of urgency as to what’s important. That helped a lot. We had just gone through a period when nobody was being listened to. “On the contract side, whether it’s government funders or private clients, you need to give them all a comfort level. I went out to meet with people and heard about problems I never even knew about. The funders became less concerned because they were heard from. “Whether you’re talking to customers or clients or funders, preventative medicine is better than getting a dirty letter saying you’ve been canceled. In the end, I was pleasantly surprised. The good thing about a turnaround is it gives you an opportunity to start with a clean slate.”

VICA Likes Ahmanson (Re: “Babbitt Is Controversial Choice for Ahmanson Role,” June 25) When it comes to the Ahmanson Ranch, former Interior Secretary Bruce Babbitt is certainly in the right place at the right time. Respected by environmentalists and business leaders alike, Babbitt is the right mediator to get this project moving. He’s a strong listener and promotes consideration of the facts, not hyperbole. Based on the facts and public policy considerations, the Valley Industry & Commerce Association supports Ahmanson Ranch. Opponents decry the project as destroying plants and wildlife. Yet, consider the facts. As a result of this project, 10,000 acres of open space will be preserved for generations to come. And the spineflower and red-legged frogs found on the property will be preserved and nurtured. Although plants and animals are very important, so are people. We’re in the middle of a housing crisis, both of affordable stock and available properties, and this forces longer commutes. The Ahmanson Ranch gets at both these issues by providing more than 3,000 homes in a smart-growth environment, near major employment centers. So go to it, Mr. Babbitt. Not everyone will be convinced, but a lot of people will get it right. Cathy Maguire Chairman of the Board VICA

Every Picture Tells a Story The three founders of North Hollywood-based post-production company AnEFX Inc. may look a combined 200 years old in photos on their company Web site, but it’s all in fun, says company president Jack Levy. “I found these pictures of GM’s board of directors from the 1940s and I thought I’d use them,” said Levy, whose company provides post-production services for shows like “The Invisible Man,” “Pacific Blue” and the new series, “The Faculty.” The black and white pictures accompany the biographies of Levy, Daniel Colman and Frank J. Nolan, all in their thirties. But the stern-looking photographs of the former General Motors board members have not fooled many. “I liked the way they looked. Sort of stern, but very respectable. Like us,” he quipped. The company Web site can be found at www.anefx.com. D & #233;j & #341; Vu All Over Again It’s going to be interesting to see how this one pans out. After years of political wrangling over the expansion of the Burbank airport terminal, the airport and the cities of Burbank, Glendale and Pasadena appear to have kick-started a new round of peace talks that includes joint meetings with Airport Authority members. But it appears as though the factions have arrived carrying old baggage. To get talks moving along, Burbank created a “10-Point Tri-City Principles” list outlining its position on how discussion ought to go. Not surprisingly, the airport fired back with a list of its own: “Principles for Airport and Terminal Development Issues.” And, according to a memo from Pasadena Mayor Bill Bogaard to Glendale Mayor Gus Gomez, the lists don’t quite gel. “As you can see from the Commission’s outline, there are important points of agreement between Burbank and the Authority even while there remains substantial disagreement on major issues,” Bogaard wrote. Surprise, surprise. Where’s Nielsen? For advertisers looking for those little insights to help describe television viewers and radio listeners, here’s one: Leigh Ann and Charlie, morning show hosts on Glendale-based KBIG 104.3-FM, got a call the other day from a listener who reported that she had just received a bill for service to a cell phone that had recently been stolen. Among the calls detailed on the invoice was a charge for 40 minutes of phone time the thief had apparently logged in to the radio station’s morning show. No word on whether her wireless service company advertised on the show, though. Wait ‘Til Next Year Peter Abrahamson, owner of Ronin FX, a special effects company in Burbank, could only grit his teeth when his robot Ronin lost its match during a recent taping of Comedy Central’s “Battlebots.” The show pits radio-controlled robots that try to tear each other apart during three-minute bouts. Abrahamson, who built the $60,000 robot, was philosophical after Ronin was flipped over and incapacitated in the first minute of its match. “Stuff like that happens, Abrahamson said.

Don’t tell the owners of multifamily housing units in the San Fernando Valley that the economic boom has gone bust. Rents for Valley apartment units continued their upward climb in the second quarter, increasing anywhere between 4.7 percent and 8.6 percent, depending on size, over the comparable period last year, according to figures just released by RealFacts, a Novato-based service that tracks rental trends. In a sample that included most Valley zip codes, the report found the average apartment rental in the Valley rose 6.1 percent to $1,170 per month, compared to $1,103 for the second quarter last year. The steepest increases occurred in rents for singles and two-bedroom, one-bath units. On average, rents for singles in the period were $758 per month, an 8.6-percent increase over the second quarter of 2000 when rents for the same-size unit averaged $698 per month. Two-bedroom, one-bath unit rentals rose 8.5 percent, averaging $1,163 per month, compared to $1,072 per month last year. Average rentals for one-bedroom units increased 6.5 percent to $1,002 per month, and average rentals for two-bedroom, two-bath units rose 7.7 percent to $1,305 per month, the RealFacts report revealed. In general, Valley rental rates remained below the averages in Los Angeles County, but not by much. On average, L.A. County units rented for $1,200 in the second quarter, up 9.6 percent from the second quarter of last year. In the Valley, the rise in rental rates corresponded to occupancy trends showing that units have remained virtually fully occupied for nearly two years now. In the second quarter of 2001, occupancy rates in the Valley stood at 96.4 percent, down slightly from 97.7 percent in the same period last year, but still reflecting the shortage in housing supply. The RealFacts report surveys only larger apartment complexes, and the company’s data tends to skew somewhat higher than the actual market as a result, RealFacts officials caution. Brokers say that while they too are seeing a continuing increase in apartment rentals, the growth is not occurring across the board. “We think they’re going up slightly for most properties, but for the luxury, high-end, newer properties, those are not going up and, if anything, they’re flattening,” said Katherine Bergh, a broker with Marcus & Millichap Real Estate Investment Brokerage Co. in Encino. “Some clients are having to reduce rents.” Bergh said the softness has not resulted in substantially higher vacancy rates, but units are staying on the market longer. “I think people are cutting back spending,” she said. “Class A has been bumped up to the max over the last few years, and it’s harder to get those rents today.” That situation, however, has not translated to more properties coming on the market for sale, Bergh said. For several years now, as the apartment market has rebounded, the number of properties for sale has been in short supply, and landlords are still reluctant to give up what they believe will continue to be cash cows. “Owners still believe, like people believed in the late ’80s, that prices will go up and up, and they don’t want to leave money on the table,” Bergh said. “I don’t know where they think the people are going to come from that keep paying these rents.” Verizon Sells Building Verizon is selling its 426,000-square-foot office building in Thousand Oaks to Baxter Healthcare Corp. Terms of the deal, expected to be completed sometime next year, were not disclosed. Verizon will move 1,100 employees currently working at One Verizon Way to two of the company’s other properties nearby. In addition, some of the workers will remain at the One Verizon Way building under a lease deal with Baxter. “Consolidating our employees in buildings that Verizon already owns or leases saves money and lets us improve efficiency and maintain high quality customer service,” Tim McCallion, Verizon Pacific regional vice president, said in a statement. The sale requires the approval of the California Public Utility Commission. Industrial Strength Striks Properties has begun construction of a 43,000-square-foot industrial center in North Hollywood. The $3-million development will consist of three buildings, two in the 7,000-square-foot range and one of 25,316 square feet. The development is on a 1.8-acre parcel at 7324 and 7336 Bellaire Ave. and 12638 Saticoy St. The property is being marketed by David Hoffberg at Delphi Business Properties and will be available beginning in the fall. L.A. Law The Law Offices of Kulik Gottesman & Mouton leased 10,000 square feet of space at the Imperial Bank Building at 15303 Ventura Blvd. The firm will be relocating from Century City. The firm made the decision to relocate to Sherman oaks because several of the partners reside in the area. Gina Guarino, a broker with Douglas, Emmett and Co., represented Douglas Emmett, which owns the Galleria. Mark Berman, a broker at Coldwell Banker Commercial WESTMAC, represented the tenant. Land Grab D & L; Studio Transportation, a movie equipment storage company, leased 10.7 acres of industrial land in Lakeview Terrace. The 10-year lease is valued at $3.25 million. D & L;, which does business as Desmond’s Studio Production Services, will occupy the property at 12000 Paxton St. Darrin Nickerson, real estate manager for Investment Development Services Inc., represented D & L.; Michael Hooker at Delphi Business Properties represented the landlord, Woods-Hayden Partnership. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].

$70 Million in VC Funds for Valley Six firms in the Conejo and San Fernando valleys were recipients of venture capital funding totaling more than $70.1 million in the second quarter of the year, according to a study just released by Los Angeles consultancy Growthink. Celetron International Ltd., an electronics and optical manufacturing services provider in Simi Valley, received the lion’s share of the funding that went to the area, $48 million, from a group that included New Enterprise Associates, Golden Gate Capital, Baring Asia Private Equity Fund II and Alta Partners. The other companies to receive a round of financing were: Accumux Technologies Inc. in Camarillo, Aprisa Inc. and Jones & Associates Inc. in Westlake Village, Car Rental Direct in Van Nuys and SigmaOne Communications in Woodland Hills. Accumux is an optical components supplier, Sigma One is a networking company; Aprisa is a web-based engineering services provider; and Car Rental Direct is a Web-based service headed by Ramy El-Batrawi, the controversial Genesis International CEO. Valley companies received only a small portion of the more than $884 million in funding that flowed into Southern California during the second quarter, according to the Growthink report. Power-One to Cut 1,000 More Jobs Power-One Inc. will fire 1,000 employees after the Camarillo-based maker of parts that convert electrical currents for telecommunications equipment reported a wider-than-expected second-quarter loss. The cuts will occur this year, mostly at plants in Mexico and the Dominican Republic. Power-One had 7,500 employees before firing 2,400 in the second quarter. Customers such as Cisco Systems Inc., Nortel Networks Corp. and Lucent Technologies Inc. canceled orders in the first quarter and slowed purchases in the second quarter. Power-One had previously moved production to plants in the Dominican Republic, Slovakia and Mexico from facilities in Boston, Irvine, and Uster, Switzerland. LAFCO Moves to Glendale The Local Agency Formation Commission has approved plans to move its offices to Glendale this fall because it needs to expand its operations. LAFCO currently has a small office for four staff members in the county’s Kenneth Hahn Hall of Administration on West Temple Street in downtown Los Angeles. But under a new state law passed last year, the agency has expanded duties and needs to hire three more staff members. The commission will rent space at 700 N. Central Ave. in Glendale, at a base rent of $55,632 a year, after also considering two other downtown Los Angeles locations. The commission itself will continue to meet on the second and fourth Wednesdays in the Board of Supervisors hearing room in the Hahn building in downtown L.A. Amwest Files for Bankruptcy Amwest Insurance Group Inc. of Calabasas has commenced Chapter 11 bankruptcy proceedings. The company will be a debtor in possession and will file a plan for the reorganization of its debts. The filing arose as a result of the June 8 takeover by the Nebraska state director of insurance of the company’s principal operating subsidiary, Amwest Surety Insurance Co. The state of Nebraska has placed Amwest Surety in liquidation. CSUN Receives Grant Money The Asian Business Association, through its small business members and corporate sponsors, will provide grant and scholarship funds totaling $6,000 to the Asian American Studies department at Cal State Northridge. The grants are earmarked for a study to identify opportunities and challenges facing the next generation of Asian-American entrepreneurs and for seed money to develop an Asian-American Center for Entrepreneurial Development, said David Honda, president of the Asian Business Association. The financing was raised through a number of association members, including Toyota Motor Sales U.S.A., Southern California Edison and American Honda Motor Co. Syncor Acquires Inovision Syncor International Corp. has agreed to acquire Inovision Radiation Measurements LLC and its affiliate Victoreen LLC. The companies manufacture radiation measurement equipment and related accessories used in medical diagnostic imaging and radiation therapy.

Assisted Living Care Fascilities

Despite a low turnout of volunteers so far and a fairly small piggy bank, secession advocates have launched what they are calling a grassroots campaign to educate the public on the pros and cons of the San Fernando Valley breaking away from the city of Los Angeles. Organizers claim a high-priced, and likely wildly confusing, political campaign will come later. In the meantime, they insist, the point of putting placards in front yards, holding petition drives at local shopping centers and a methodical door-to-door campaign will be to educate people about the effort to get a secession initiative on the ballot in 2002, not persuading them to vote one way or the other. Valley VOTE has appointed Chatsworth resident Laura DiGilo to head up the group of volunteers that will do the canvassing. DiGilo, Valley VOTE chairman Richard Close said, was the top signature gatherer during the petition drive for the secession feasibility study, the findings of which were released in March in a nearly 400-page report by the Local Agency Formation Commission (LAFCO). DiGilo said her goal as head of the Valley VOTE Volunteer Corps is to get as many people as she can to walk the neighborhoods and share the findings of the report. “Our message to the citizens of the Valley is sort of built around a slogan I’ve been using called ‘Don’t be DUM,”‘ said DeGilo. ” It means don’t be denied, uninformed or misled. We feel that, as in the past, the politicians have misled us. They’ve kept us uninformed and they have denied us the truth. And we don’t want that to continue.” DeGilo admitted the volunteer effort has gotten off to a disappointing start. Only 50 volunteers showed up for the group’s first meeting in late July. “I was disappointed. I would have liked to have seen 500 people there,” she said. Other Valley VOTE members say they aren’t concerned about the turnout because they are working to get their message out in other ways. Richard Leyner, president of the United Chambers of Commerce and a Valley VOTE board member, is setting up speakers’ meetings around the Valley. He said the clock is ticking and, with the 2002 election a little more than a year away, an information campaign needs to be in place quickly. “We are starting to make some noise around the Valley,” said Leyner. “But this is just an educational process. We are not trying to sell secession, we just want to inform.” How much will the grassroots campaign cost? DeGilo isn’t sure. Leyner said contributions collected so far have been minimal. “We pick up a few hundred dollars here and a few hundred dollars there,” he said. Critics are already voicing concerns about potential mass confusion over the issues at stake. There may be as many as 14 council seats and a mayor’s office to fill (in case secession is approved by voters in both the Valley and the rest of Los Angeles), plus the secession question itself. Some want a vote on secession first, followed by a separate vote on council and mayoral seats. If the secession initiative were to fail, there would be no need for municipal races. Leyner said charges that having all the questions on one ballot would confuse the voters is nonsense. “The message we want to get out there is that you better start thinking who in your community you’d like to be your representative, that’s part of it,” said Leyner. “It’s Valley VOTE’S job to get an initiative on the ballot. But it’s the people’s job to elect the candidates of their choice.” Candidates are not likely to come forward until LAFCO has established potential city council districts, something not expected before this fall. Public hearings will follow and then LAFCO will decide whether to put a secession initiative on the ballot, with or without ballot choices for elected officials. The volunteer effort, said Close, will also focus on preparing residents for the upcoming public hearings. He likened the strategy to another movement he was instrumental with during the 1970s when, despite strong initial opposition, Proposition 13 was approved, lowering and capping property taxes for homeowners. “I’ve found it easier to get people involved when you are talking about an issue rather than a candidate,” said Close. “These campaigns are won and lost in the neighborhoods. You can have the best paid political consultants out there, but if they aren’t making the connection at the neighborhood or grassroots level, it doesn’t matter.”

Due to an apparent softening of the market for industrial projects, Zelman Development Co. has scrapped plans to build a 630,000-square-foot industrial park on land in Burbank formerly owned by Lockheed Martin Corp. Ben Reiling, president of the Los Angeles-based company, said he will hold off on building the industrial park until the market for industrial space improves. Instead, he plans to put in a public parking garage to serve the Burbank airport. Zelman is proposing a single-story, 3,732-space parking structure on the 30-acre A-1 North property on Empire Avenue between Hollywood and Airport ways. “The market is certainly beginning to slow down for industrial-related projects, and that’s tied to what’s happening with the economy right now,” Reiling said. “So we started exploring other uses for the property that would not be so speculative.” Although, across the Valley industrial vacancy rates have remained on the tight side at between 3.5 and 4 percent, lenders are skittish. Because of the downturn in the economy over the last year, they are being particularly careful about funding industrial projects, especially larger ones, like Zelman’s. California’s tanked dot-com sector, coupled with the fallout from the energy crisis, are sending up red flags to lenders across the country, also making funding for projects difficult to secure. “There is a slowing, but it’s really hitting certain segments of the market,” said Greg Barsamian, a broker with CB Richard Ellis. “Lenders are very gun shy right now because of what’s happened over the last year with the economy and particularly the problems California has had. And, the other angle is that they are particularly taking their time on the larger projects, or those buildings that are between 50,000 and 75,000 square feet.” Zelman’s parking lot is expected to cost roughly $7 million to build. That’s a drop in the bucket compared to the $65-million project initially on the table, and would be much quicker to get off the ground: It’s expected to be up and running by December. Burbank City Manager Robert “Bud” Ovrom said the city is disappointed in Zelman’s decision, but said there is “so much activity going on in Burbank” that putting the project on the back burner for five or 10 years won’t have too negative an impact. And because parking lots are cheap to build and operate, they make good alternatives to vacant land that is not generating income. “Usually, holding land is expensive, so if you are going to hold it, this is a good way to do it,” said Ovrom. “They (parking lots) are little cash registers.” Cash registers for Reiling, who is in the middle of purchasing the land from Lockheed for an undisclosed sum, and cash registers for the city, which will collect 10 percent in tax revenue for each car parked. Is there a need for more parking at the Burbank airport? That depends on whom you ask. “There is absolutely a need there, otherwise why would be opt to do it?” asked Reiling. Airport officials, however, say they don’t need new spaces, they just need to reconfigure the established lots to offer more options for valet service. “In terms of the total inventory, we seem to generally have enough capacity,” said airport spokesman Victor Gill. The airport owns and operates two short-term parking lots, three economy lots for long-term stays and three valet parking sites with a total of 4,562 spaces. There is also private parking available at the Airport Hilton Hotel and Carter’s V S P Airport Parking nearby. The airport has filed applications to reconfigure three of its lots, but those plans are problematic because they include extending on to portions of the B-6 property where the airport had hoped to build a new terminal. That property is now up for sale as a result of a breakdown in negotiations between the city and the airport over the terminal issue. “The issue we are facing at the airport is that some of that parking (or proposed parking) is going to disappear because of the sale,” Gill said. Ironically, having the B-6 property, now owned by the Airport Authority, on the market also is a problem for Zelman. If the city and airport don’t reach a compromise on the land, it could be sold to a third party, and that could affect what Zelman does with the property in the long term. Since it hit the market it’s been getting a lot of attention if not firm offers from commercial developers and lenders, which made it more difficult for Zelman to secure funding for his industrial project. “It’s not just the marketplace, but what’s going on in the area,” said Sue Georgino, Burbank’s community development director. Georgino said that, even though the city has seen demand for industrial space taper off, some requests for space are still coming in, particularly from film studios. Nevertheless, because the city has roughly $190 million of commercial and office development underway, she said, there is perhaps less pressure to develop industrial space right now. “It’s clear that the industrial market has cooled off, but we aren’t panicking,” Georgino said. “I think it’s a good time for us to not be in the heated frenzy we were in this time last year, so that we can accommodate the additional growth when it comes.” Meanwhile, Reiling is preparing for the opening of some of the retail facilities in his Empire Center on Lockheed’s former Skunk Works site, also near the airport. Target, Costco and a Best Buy are among the stores that will open this fall in the $200-million, 900,000-square-foot retail and office complex. And Gary Kaiser, project manager for Burbank-based Howard LLC, said plans for the second phase of his company’s 225,000-square-foot industrial park on Ontario Street near the airport are still on track. The first phase of that project was completed roughly a year ago. Existing tenants include Airborne Express, Kodak and Technicolor.

AAL Group Core Business: Public relations for technology firms Revenue in 1991: $500,000 Revenue in 2000: $5.3 million Employees in 1991: 1 Employees in 2000: 7 Goal: To provide effective public relations strategies for clients Driving Force: The need for cost-efficient and effective public relations for tech firms in a slow economy Public relations firm with technology specialty finds it takes more and more imagination to make clients’ phones ring Barbara Lopez knows all she needs to about the tech industry’s declining fortunes. “What else can you say? It’s just plain bad,” Lopez said. But not so bad her AAL Group in Woodland Hills can’t do something about it. The public relations firm specializes in providing advice to technology firms. And making lemonade out of a lemon-like economy is becoming status quo in the company’s recent efforts to bolster its clients’ brand names and products. Take Santa Barbara-based Blue Nile Technology and its AdiX system, a new Web-based software application geared for advertising firms. “We knew the client didn’t have a big budget for advertising, so we had to figure something out,” Lopez said. Just days after a story appeared in Advertising Week magazine claiming that many agencies did not have the computer-based management tools they need to deal with clients or field offices, Lopez saw a way to capitalize on it. “We sent an e-mail out to the CEOs of the top 25 advertising agencies in the United States with the news release referencing the Ad Week story,” she said. Within days, ad agencies were calling Blue Nile. The application, dubbed AdiX, for Advertising Information Exchange, allows clients and employees alike to access a company Web site to check for messages, the status of accounts, updates on projects or other vital information by merely logging onto the site. The system also automatically e-mails company departments about the completion of various stages of a project, thus improving productivity. “Nobody had anything like that and it struck a chord,” she said. The company is now in the midst of negotiating with a major multinational advertising firm to use the application in all of its offices worldwide, Lopez said. Dean Benjamin, Blue Nile’s COO, said he was surprised by the effectiveness of AAL’s campaign. “We hadn’t done PR before and there was a reticence about how effective it was going to be, but I’m a believer now. I’ve seen it work,” Benjamin said. Likewise, Sarah Waffle, a marketing specialist with EnGenius Technologies of Costa Mesa, said AAL was pivotal in the marketing of the company’s new long-range cordless phone, the FM90. With AAL’s help, Waffle said, the company’s new phone, with a range of eight unobstructed miles, was featured in the June issue of Playboy magazine as part of a feature on gadgets for Father’s Day and graduation gifts. When CNN, CBS and Fox Broadcasting followed up with taped segments for their morning shows, sales increased dramatically, Waffle said. The AAL Group has grown since its inception in 1991 from a staff of two to seven now. It had $170 in net income on revenues of $500,000 its first year, $44,198 in net income on revenue of $5.3 million in 2000. Born in Detroit, the then-Barbara Boyle moved to Los Angeles in the 1970s to join what was then Chiat/Day where she learned the ropes from advertising gurus Jay Chiat and Guy Day. By the mid-1980s, Lopez had left to go into business with a colleague and then in 1991 she had her own company, hoping to take advantage of what she thought was going to be the future. “I wanted to handle tech firms from the beginning,” she said. But as last year’s tech downturn became a nosedive, Lopez knew she had to adjust. “We had smaller budgets to work with and a tougher job of marketing these brands,” she said. Lopez had to let one staff member go and look forward to decreased revenues. She also knew more imagination than she had ever exercised before would be required if she was going to push her clients’ brands. And it worked. Westlake Village-based Chatsworth Products Inc., for instance, had trouble selling its rack and network connecting systems through its usual trade-show channels. “We saw their trade show booth and saw the problem,” she said. “People would see all this network equipment mounted and they thought they made the server when in effect they made the rack and cable management products.” AAL staff members came up with a solution: feature large, poster-sized photographs of the networking equipment, showing it before and after the racks and network cabling equipment were installed. “People immediately got it,” Lopez said. Peter Jancourtz, director of strategic planning for CPI, said his company relies on public relations now more than ever. “Barbara is a risk taker and she knows this business,” Jancourtz said.

Patients’ rights legislation continues to be one of the most critical, highly charged issues to confront business in decades, and it is more likely than ever that Congress will agree on some version of a Patients’ Bill of Rights (PBOR) this session. Ironically, patient protection is not the primary issue being debated. This is because most of the “patient protection” issues covered in the various PBOR bills have already been addressed by all of the major health plans. Because health care standards and practices have always been regulated at the state level, there are also innumerable state laws in place to protect patients and insure quality of care. Their provisions vary, of course, and some states are more regulated than others, but a majority of states, including California, already have legislation in place governing such issues as internal/external appeals, emergency medical care, access to specialists, continuity of care, utilization review activities, patient access to information, prompt payment of claims, prohibition on “gag” provisions, improper physician incentives, and provider nondiscrimination. The debate is focused on certain provisions in both Kennedy-McCain and the Ganske-Norwood-Dingell proposals related to the gross expansion of liability for health plans and employers. Currently, all employer-sponsored health care plans fall under the rules and regulations of the Employee Retirement Income Security Act of 1974 (ERISA). Although ERISA subjects employer-sponsored benefit plans to federal oversight, in the event of denied benefits, it also protects such plans from being sued, beyond reinstatement of those denied benefits, for emotional distress and punitive damages. Under Kennedy-McCain/Ganske-Norwood-Dingell, the liability provisions are a trial lawyer’s dream! Individuals may sue employers and/or health plans (whoever is deemed a decision-maker) for medically reviewable decisions (e.g., medical necessity, experimental/investigational denials) in state courts and for non-medically reviewable decisions in federal court. In general, employers could be sued if the individual alleges that the employer actually made or exercised control in making a decision. On the face of it, employers could insulate themselves from liability by appointing a “designated decision-maker” However, Kennedy-McCain/Ganske-Norwood-Dingell provide a complicated set of exceptions to the definition of “direct participation” in decision-making, including an employer’s decisions with respect to selecting a plan or insurance coverage, and modifying or terminating the plan or benefit. Also, even though the insurer would clearly be the designated decision-maker for a fully-insured group health plan that insurer may not necessarily have “exclusive authority. Over and above increasing the direct litigation costs for employers, the expanded liability provisions will significantly impact the cost of doing business for health plans, who will have to cover at least some of these costs through premium increases. The low-end cost estimate of Kennedy-McCain/Ganske-Norwood-Dingell provisions on employers and health plans is anywhere from $7.9 billion to $16.3 billion. Using current liability suit judgment awards and allowable attorney’s fees, plaintiff’s attorneys stand to receive $1.4 billion to $2.8 billion annually from new PBOR suits. At the same time, expansion of liability will not improve quality of care. Instead, it harms quality because judges, not science, will decide what treatments should be covered. Cal Lockett is staff vice president of public affairs for WellPoint Health Networks Inc. He also serves on the board of the VICA and co-chairs its health committee.