A round in the continuing power struggle between providers and HMOs ended in a stalemate with the close of a yearlong debate on whether California regulators should allow providers to enter into full-risk contracting.
In full-risk, or "global capitation," contracts, medical groups and healthcare systems would assume financial responsibility for the services they provide to enrollees, as well as for services subcontracted to affiliated providers.
If authorized to do so, medical groups and healthcare systems could accept full risk not only for HMO enrollees but also for the enrollees in self-insured group plans. That, in effect, would make the providers a kind of HMO and allow them to bypass insurers.
But state Commissioner of Corporations Gary Mendoza told the California Association of HMOs annual meeting last month that he isn't ready to make any changes in the current rules.
"A number of people have suggested that (allowing provider full-risk arrangements) will allow us to take further advantage of market forces to promote the continuous improvement and*.*.*.*cost containment of healthcare," Mendoza said.
"We think the issue does deserve a full debate, and we are interested in working with any group that would like to have this issue brought to the attention of the Legislature," Mendoza told the HMO group.
In California, only HMOs can assume full risk for the scope of an enrollee's medical services through capitation. HMOs are licensed under the Knox-Keene Health Care Service Plan Act of 1975, which provides the regulatory framework under which HMOs operate in the state.
The state has prohibited full-risk contracting by providers since 1987.
In September 1993 Mendoza assembled a committee consisting of representatives of HMOs, physicians and hospitals to study the department's policy and advise whether to change it. Predictably, the committee was split on its recommendations.
Mendoza "has read the political cards very well. He has given (the topic) an excellent hearing and offered those interested in pursuing it the next logical step, which would be legislative action," said J. Michael Gallagher, president of the Integrated Health Care Association, a group consisting of providers and HMOs.
James Hillman, director of the Unified Medical Group Association, a trade group, told MODERN HEALTHCARE, "We certainly will be looking into" drawing up legislation allowing global capitation contracts.
Barbara Wachsman, western regional practice manager at Towers Perrin's integrated health systems consulting unit, said, "In this marketplace the providers that understand managed care are interested in taking as much risk as they can. This is the next step for groups that take risk for professional fees and manage that risk well," she said.
The UMGA had an insolvency program underwritten by Lloyds of London ready to roll out if the commissioner had decided to issue an order allowing provider full-risk contracting, Hillman said.
HMOs say this trend may harm the consumer. The California Association of HMOs "is opposed to any program to allow full-risk provider contracts because of the potential erosion of consumer protections," it said in a position paper.