by John M. Curtis
(310) 204-8700

Copyright August 23, 2001
All Rights Reserved.

lacing California’s 106,000 doctors on the endangered list, the state Department of Managed Care reported that 25% of physicians’ groups do not meet the minimum financial standards to stay in business. Jolting the medical community, the DMC’s report drives home the failing health of medical groups around the state. “This demonstrates the grave instability in the for-profit HMO system that threatens to affect patients,” said Daniel Zignale, director of the newly minted California Department of Managed Care—the state agency responsible for regulating HMOs. For-profit HMOs contract with doctors’ groups and hospitals to provide coverage to their subscribers. Understating the issue, Zignale minimized today’s undeniable reality that patients already suffer from rationed care. Living on fixed income known as capitation, physicians have long complained that they cannot meet their overhead without rationing care. Slaves to the bottom line, HMO doctors cut corners, preventing patients from using appropriate medical benefits. Denying costly care, doctors try to protect the bottom line but frequently go over budget.

       Applying the DMC’s standard, about 25% of California’s medical groups have assets worth less than 70% of the amount owed others. Even worse, about 20% of the groups are bereft of any assets, operating on the brink of insolvency. Fifty-six percent of the medical groups surveyed are deficient in at least one measure of fiscal solvency. Unlike other types of businesses, medical groups require adequate resources to deliver ethical care. While HMOs aren’t directly accountable for delivering medical care, they’re responsible for assuring adequate payments to medical groups. Blaming doctors, HMOs shield themselves from the substandard financial arrangements, reimbursing physicians for services rendered. For too long, subscribers blamed HMOs for the wrong things, including failing to deliver costly benefits. With the California Department of Managed Care now in place, the state—not HMOs—must establish reasonable and fair reimbursement rates for contracted groups. Controlling patients, HMOs can’t be allowed to dictate how much physicians get reimbursed for delivering quality care.

       Forcing medical groups to make fiscal disclosures, the state inadvertently gave HMOs more leverage to hammer down reimbursement rates. Fighting this trend, the California Medical Association opposes public disclosure, giving HMOs an unfair advantage. Showing HMOs the books assures doctors less bargaining power. Threatening to sue the Department of Managed Care, the California Medical Association opposes public financial disclosures, especially about medical groups’ solvency. “We prefer that the regulator take appropriate action based on the degree of insolvency and specifics of each organization that doesn’t meet this standard,” said Dr. Jack Lewin, executive vice president and chief executive of the California Medical Assn. By squeezing doctors’ reimbursements, HMOs made practicing ethical medicine less tenable, forcing physicians across the state into bankruptcy. Like the insurance industry, HMOs must be forced to spend specific amounts of premium dollars on direct medical care. Raking in costly premiums from employers and placing doctors’ groups on fixed reimbursements, HMOs maximized profits at the expense of delivering quality care.

       Watching the state’s medical groups go broke, the DMC can’t stand idly by while HMOs rob Californians of quality care. It’s one thing to force medical groups to make public disclosures, it’s still another to permit groups to hemorrhage into insolvency. “How can you [doctors’ groups] negotiate when they [health plans] know exactly what your assets are, what your debts are,” said Sen. Jackie Speier (D-Hillsboro), “You are not negotiating from a position of equality.” Medical groups can’t work effectively with plans that low-ball rates because they’re don’t have the resources to guarantee quality care. Insisting that medical groups file financial solvency statements doesn’t begin to deal with the fundamental problem of regulating HMOs. Beyond medical group disclosures, the DMC must insist that health plans pay higher percentages of premium dollars to direct patient care. Without begrudging HMOs profits, they can’t continue to strangle physicians by setting unrealistically low reimbursement rates. “These medical groups are being treated in effect now as mini insurers and are being held to standards that they never have been held to in the past,” said Walter Zelman, president of the HMO trade group.

       Crossing his wires, Zelman shouldn’t forget that medical groups receive no direct premium dollars. Getting paid fixed amounts set by HMOs, medical groups don’t have the capital reserves to subsidize top quality care. Giving medical groups the wrong incentives, HMOs are rewarded for rationing care. Now facing an unknown fate, the patients’ Bill of Rights attempts to give health plan subscribers the right to sue their HMOs. But lowering the boom with litigation doesn’t correct a flawed system that financially penalizes medical groups for delivering medical benefits. As the system now stands, patients would errantly sue their HMOs when the contracted medical groups give substandard care. No Patients Bill of Rights can have any teeth without specifying the appropriate relationship between HMOs [health plans] and the contracted medical groups who perform services. Insisting that medical groups make public financial disclosure totally ignores the health plan’s responsibility of appropriately allocating plan dollars to pay for medical benefits.

       Pushing medical groups to extinction, HMOs must face the abysmal reality that they can no longer preserve unlimited profits at the expense of delivering quality care. While public disclosure of medical groups’ fiscal health has its place, the DMC can’t ignore unacceptably low reimbursement rates driving medical groups into bankruptcy. Taking control, the California DMC must regulate the percentage of health plan premiums that must be allocated to direct medical care. Regardless of Wall St.’s appetite, HMOs must take less profit and pay physicians what’s required to practice ethical medicine. With the Patients’ Bill of Rights heading to the Senate, today’s HMO model must re-examine the ratio between health plan premiums and reimbursements for medical services. With more than 25% of California medical groups facing insolvency, it’s clear that the present system needs urgent CPR. Without fixing the problem, the White House may be right, worrying that HMOs face an avalanche of unending lawsuits.

About the Author

John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He’s director of a Los Angeles think tank specializing in political consulting and strategic public relations. He’s the author of Dodging The Bullet and Operation Charisma.

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