As medical groups grow stronger financially and begin developing their own integrated delivery systems, health plans in California and elsewhere are asking state regulators to beef up financial safeguards designed to head off problems with undercapitalized groups.
As the trend toward integration accelerates, hospitals and medical groups that are willing to work together in risk-sharing arrangements stand to benefit as more payers shift from fee-for-service to capitation.
The Clinton administration's healthcare reform plan and some of the other proposals under consideration on Capitol Hill would match large groups of consumers with providers organized into medical networks. But because the new networks would operate on limited budgets, solvency has become a major issue with HMOs, which are tightly regulated to assure the public of their financial strength.
Under the Clinton plan, the so-called accountable health plans would be required to provide a minimum of only $1.5 million in capital to begin operating. Some observers are calling for tougher requirements.
Standards sought. The HMO industry's largest trade group, the Group Health Association of America, Washington, recently formulated a set of national standards that would guide the development and operation of such health plans around the country.
The trade group called for the abolition of state-imposed anti-managed-care laws, including so-called "any willing provider laws." GHAA also presented broad outlines on what quality, marketing and administrative standards should be required, including formulas for determining appropriate financial solvency and capitalization levels.
HMOs say they don't want a repeat of the mid-1980s, when two out of three health plans were awash in red ink and many had to close their doors, leaving millions in unpaid medical bills.
Physician groups say the real issue is who should reap the financial benefits-physicians or HMOs-when providers are able to deliver care with efficiency and high quality in or out of the hospital.
HMOs usually share a portion of the capitated premium with physicians but pay hospitals directly from a separate fund. In an integrated system, physicians have the opportunity to gain control of capitation for inpatient and outpatient services.
"We're all trying to get stronger by merging into large groups," said Gary L. Groves, M.D., president, chief executive officer and chairman of Pacific Physicians Services, Redlands, Calif. Pacific Physicians manages an integrated network of 200 physicians delivering care to more than 200,000 HMO enrollees in Arizona, California and Nevada.
Dr. Groves said he is negotiating for the purchase of an unidentified acute-care hospital in Southern California. If the deal is completed, perhaps within the next 30 days, Pacific Physicians will be in a position to accept capitation for inpatient care as well as physician services, Dr. Groves said.
"The current system wedges hospitals and physicians apart," he said. As a result, patients may be sent off campus to urgent-care centers, which are duplicative, or be admitted to hospitals inappropriately, he said. Hospitals and physicians in a risk-sharing partnership "is certainly a smarter model because we would be working together," Dr. Groves said.
Integration "opens up whole new avenues of opportunity (for physicians)," said James Hillman, executive director of the Unified Medical Group Association, Seal Beach, Calif. UMGA members that own hospitals, such as Mullikin Medical Centers, Long Beach, Calif., and Friendly Hills Health Network, La Habra, Calif., have been successful in managing care under so-called global capitation, he said.
Risky business. HMOs, however, are worried that they'll get a black eye if medical groups prove unable to handle the financial risk of global capitation. In the past, some groups have gone out of business-leaving health plans to scramble for providers-or tapped HMOs' financial reserves to continue operating.
"Getting into risk situations is a whole different ball game from fee-for-service," said an HMO executive who asked not to be identified. HMOs want tighter financial safeguards for fully capitated medical groups "because a lot of them don't know how to do this."
If medical groups fail, many consumers are likely to lose access to their providers and blame the HMOs, he said.
A new Medicaid program being introduced in California may test how well some medical groups are able to handle capitation.
A lot of money will be at stake. In Southern California, for example, the average capitation payment under Medi-Cal is about $85 per member per month. In the next several months, some 300,000 Medi-Cal beneficiaries living in Sacramento will be enrolled into medical groups and HMOs. By 1996, as many as 4 million indigents are expected to be enrolled in managed care in 13 state regions, including 450,000 eligible residents in Los Angeles.
The program will establish a precedent for managed physician groups to bypass HMOs and contract directly with the state for large volumes of patients, said Thomas E. Hodapp, an analyst with Robertson, Stephens & Co., San Francisco.
The department of corporations, which regulates HMOs in California, traditionally has permitted providers to accept capitation payments from licensed healthcare service plans in return for medical services.
In return, the state has required HMOs to monitor the solvency of their contracting medical groups.
Until now, the state has balked at allowing providers to assume full financial risk for the delivery of care without a license.
Under full capitation, however, integrated medical groups would operate much like HMOs. If so, the HMO executive said, they should be regulated like HMOs. After all, "a health plan is only as good as its delivery system," he said.