One of the medical establishment's most prominent rockets out of managed care's controlled atmosphere has crashed and burned.
The California Medical Association's much-touted, physician-owned managed-care plan-started by 7,600 doctors two years ago with investments of about $1,000 each-will file for federal bankruptcy protection early this week, officials said last week.
The filing represents another drubbing of physicians, whose trade groups contend providers must enter the business of commercial insurance to control their destinies in a future dictated by managed care.
The CMA's effort, called California Advantage, isn't alone in its troubles. In Michigan, for example, California's UniHealth integrated delivery system is trying to rid itself of an 85% stake in a physician-directed managed-care plan, CareAmerica Michigan (May 11, p. 6). The plan, which began operations last summer, had drawn just 23 enrollees by the end of 1997.
Like CareAmerica, doctor-owned California Advantage had trouble with enrollment. Since it began operations in July 1996, the Oakland-based plan attracted just 7,000 enrollees statewide-a pittance compared with managed-care giants such as Kaiser Permanente, Foundation Health Systems and PacifiCare. Meanwhile, it piled up an aggregate deficit of $10.8 million.
On May 29, all but a handful of the plan's 30 employees were laid off. That included the plan's chief executive officer, Kenneth Reuter, and other senior officials.
Last year California Advantage lost $3.7 million on premium revenues of $10 million. After medical expenses, its operating revenues were $1.7 million, Reuter said.
Because California Advantage will convert its Chapter 11 bankruptcy filing ultimately into a Chapter 7 filing, or liquidation, there is no chance it will rise from the ashes, said CMA President Robert Reid, M.D.
Legion Insurance Co., its Philadelphia-based underwriter, is assuming operation of California Advantage and will handle its shuttering. Many of its employees will be hired by Legion as part of that process, Reuter said.
California Advantage offered PPO and point-of-service options.
Officials acknowledge that California Advantage was undercapitalized from the start and was never able to raise the funds needed to operate in the competitive California market. Enrollment dipped precipitously last summer, when the plan pulled out of the state-run Health Insurance Plan of California purchasing pool, because of substantial losses on the product.
At one point last July, it had only 3,000 enrollees statewide. Feverish efforts to raise more capital and attract more enrollees haven't been successful enough.
"We've been struggling without money for a long time," Reuter said. "The financing just wasn't able to happen."
About one in five of the CMA's 35,000 physician members invested in the plan since its start-up. In addition, California Advantage obtained $3 million in loans over the past 18 months.
A last-gasp attempt to form a partnership with The Doctors Co., a Napa, Calif.-based medical malpractice insurance company that also is physician-owned, failed because the would-be white knight got cold feet.
The ill-fated California Advantage plan was part of a wave of medical association-sponsored HMOs and PPOs created in the past few years in an attempt by doctors to wrest back control of the healthcare delivery system from huge managed-care plans and hospital chains.
But Reid said the CMA and other medical associations underestimated the difficulties of running their own managed-care plans. Among other difficulties, those plans have tended to attract sicker patients who cost far more to treat under capitated arrangements, he said.
Reid said he holds out some hope, however, that Medicare provider-sponsored organizations may offer some relief to physicians. In any case, "we will continue to try to transform the managed-care environment into something we all can live with," he said.