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Read Making a Killing

home / healthcare / in the media

Riverside Press-Enterprise
Nov 09, 1999

by Mike Schwartz

Band-Aids Suggested for Ailing Health Care

Recent trends within the health-care industry may help avert a collapse of the medical-group system and a mass disruption of patient care:

New legislation. Gov. Davis on Sept. 27 signed a sweeping package of HMO reform bills, including one that sets fiscal solvency standards for medical groups that contract with HMOs for capitated rates, that is, a flat monthly fee for each patient's care.

It requires HMOs to give groups monthly enrollee and quarterly financial risk data to aid their cash-flow planning, and it prohibits insurers from forcing financial risk onto medical groups.

Davis also signed a bill that will allow patients to sue their HMOs for denying them medically necessary treatment, and another that creates a new Department of Managed Care.

The department's mission is to resolve complaints over bills and denials of care; protect consumers from fiscally unstable doctors and groups; and ensure that HMOs maintain high standards of care and educate consumers on their rights.

Higher premiums. Although patient advocates laud the new legislation as trend-setting, employers and insurers warn that it could drive up premiums beyond increases already expected next year.

In July, the Pacific Business Group on Health (PBGH) and 11 HMOs agreed to raise premiums by 10 percent in 2000 compared with a 5 percent net increase over the previous five years.

"We're disappointed with this cost spike," said Claire Carter, who chaired the PBGH Negotiating Alliance, which represents 400,000 managed care members. "While some increase is justified, we're not confident the return of double-digit premium inflation is justified."

In May, the California Public Employees' Retirement System, which covers more than 1 million government workers and retirees, agreed with 10 HMOs to raise premiums an average of 9.7 percent next year.

"When CalPers lets HMOs jack up rates rather than squeeze down overhead and profit margins, you can bet smaller purchasers will pay even more," warned Jamie Court, advocacy director for the Foundation for Taxpayer and Consumer Rights in Los Angeles. Nevertheless, the CMA insists that raising private HMO premiums from an average of $ 120 a month to the national average of $ 127 could inject another $ 1 billion a year in the California health-care system.

Likewise, premiums, co-payments and drug costs are going up next year for many of the more than 6 million Medicare patients enrolled in HMOs. Some Medicare HMOs are raising fees charged to patients to cope with limited government funding and higher costs, especially prescription drugs.

Better-run management companies. A new generation of health care management companies, which own or manage many independent practice associations or medical groups, are trying to avoid the mistakes of failed predecessors like MedPartners and FPA Medical Management.

The fastest-growing of these megagroups is run by physician-entrepreneur Kali P. Chaudhuri, who on Sept. 1 purchased 85 fiscally moribund MedPartners' clinics throughout Southern California for $ 24 million.

The purchase raised to nearly 1 million the number of patients cared for by doctors under two separate companies the ambitious Chaudhuri has set up: KPC Global Care, based in Riverside, and KPC Medical Management in Long Beach.

Chaudhuri, a Hemet orthopedic surgeon, added about 80,000 former MedPartners' patients to more than 220,000 in the Inland Empire already served by KPC Global Care. KPC Medical Management, the larger, more complex organization, serves patients in Los Angeles and Orange counties.

Industry observers hope the two KPC operations will bring financial stability to Southern California's ailing health-care system.

Unlike MedPartners, which ran its California empire from Birmingham, Ala., two KPC companies in the region will allow local managers to spot and nip problems as they arise. It also shields KPC Global, the more established company, from harm if KPC Medical runs into trouble.

Chaudhuri, chief executive officer of all KPC operations, contends "doctors need to change their clinical behavior." He plans to foster self-discipline by giving them the latest computer information systems for making -- and monitoring -- financial and clinical decisions.

Both companies are closing certain unnecessary clinics. Other clinics are being reorganized into "hubs" around hospitals to promote a friendlier rapport and sharing of limited resources.

KPC's key goals: to reduce overhead by eliminating as much administrative duplication as possible, and to help doctors, clinics and hospitals earn a more equitable share of the premium dollar.

"We've shown HMOs that we can manage better," Chaudhuri says. "So we are able to write better contracts with health plans." Nevertheless, some experts speculate that KPC -- like MedPartners -- is growing too big too fast, a recipe for possible trouble. Chaudhuri acknowledges that the MedPartners' clinics were losing about $ 9 million a month at the time he bought them, and that consolidations alone won't stem the losses.

No one, he said, can lose that much money for long and survive.

"We've made a business plan for one year," he said. "It's not an easy job. We need help from the HMOs, doctors, hospitals, the state and federal government. If we do not get all this help we won't be able to do it."

Dr. Kenneth Lane, president of the San Bernardino County Medical Society, said doctors across the region are rooting for Chaudhuri.

"We're all hoping it works," said Lane. "We want to see him succeed."

Physician-owned medical groups. Reversing a decade-old frenzy of medical-group consolidations, doctors are starting to buy back their independence from medical-management companies that had gobbled them up.

Dr. Steven Larson, board chairman of the Riverside Medical Clinic, and his colleagues repurchased their group's management contract from MedPartners just before that company quit the medical-management business several months ago.

In September, doctors at the Beaver Medical Group in Redlands, which serves 112,000 patients, similarly bought back the interest it sold five years ago to UniHealth, a practice management company, which -- like MedPartners -- bailed out of the managed-care industry.

Chaudhuri of KPC Global Care says he wants to help physicians buy back their own practices and take more active roles in running them. A group of the company's doctors already has purchased three former MedPartners' clinics in Fontana, Rialto and San Bernardino, with more buybacks expected this year.

Still, some industry observers contend medical groups are in the throes of a painful "shaking out" process in which lower flat fees favor larger, better-managed groups. They speculate that HMOs ultimately may restrict their dealings to a smaller number of top-quality groups who will be rewarded for good financial -- as well as clinical -- performance.


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