The second time proved the charm for transferring control of California's healthcare purchasing pool for small employers from government to private operation.
The state agency that runs the Health Insurance Plan of California recently chose Provider Choice, a Sacramento, Calif.-based start-up company, to take over the plan.
HIPC, which covers businesses with two to 50 employees, began operations in 1993 as a public organization. The legislation creating it required that it be taken over by the private sector within three years.
The Managed Risk Medical Insurance Board chose Provider Choice's bid over one other proposal from San Francisco-based Health Futures. Provider Choice outscored Health Futures on a 700-point evaluation, according to board officials.
It will take over HIPC July 1, 1998, after a nine-month transition that began last month.
That any bids were received this time around could be construed as a victory for the managed risk insurance board, which specializes in providing health coverage for high-risk groups. Not a single party expressed interest in HIPC last year when the board solicited management bids for the first time.
HIPC Deputy Director Peter Anderson said the pool's debt may explain last year's dearth of bids. At that point, its liabilities stood at $3 million-the unpaid portion of a $5 million loan from the insurance board to get HIPC's operations off the ground. The outstanding debt since has been whittled down to $2.8 million, a sum Anderson said may appear a reasonable threshold to many firms.
Provider Choice, incorporated last spring specifically to bid on the takeover, apparently saw the plan as a diamond in the rough.
HIPC has more than 6,800 participating firms and 126,000 enrollees in 21 HMOs and seven dental plans, making it among the largest purchasing pools for small employers in the country, even though it has captured only about 2% of the state's small risk market. It manages more than $150 million in annual premiums and has annual revenues of about $6 million, mostly from administrative fees.
"Provider Choice submitted a proposal that will assure that employees of small businesses will continue to receive a choice of quality health plans at affordable prices," said Cliff Allenby, chairman of the insurance board.
A committee of four board staff members and three industry consultants evaluated the sealed bids. Close attention was paid to the financial viability of the bidders, their approach to managing HIPC, and the understanding they displayed of the small-employers market.
Working capital was a key requirement, Anderson said. Aside from covering the debt, Provider Choice also had ample reserves to cover nine months of marketing expenses, a sum of about $2.4 million.
John Ramey, former president and chief executive officer of California Advantage, the HMO operated by the California Medical Association, was appointed to the same positions at Provider Choice.
Because it is such a new venture, few details about the company are available. According to Win Richey, the Sacramento attorney who represents Provider Choice, it will be staffed by "a group of individuals with prior experience in the insurance industry and in dealing with small-employer opportunities in California."
During the nine-month transition period, the insurance board will continue to run the pool while Provider Choice hires the rest of its administrative staff, selects contracting health and dental plans, prints promotional and informational materials, and creates a viable enrollment system, Anderson said.
After the transition, Provider Choice will be allowed to run HIPC as it sees fit, Anderson said. It will be required, however, to follow certain regulations, such as maintaining not-for-profit status, enforcing operating standards for the health plans and establishing a grievance procedure for enrollees.
Richey said in late August the firm would "maintain more of a steady-as she-goes concept" and that major changes would not occur.