The predictions were dire: More than 80% of California physician groups teetered on the brink of insolvency, patients would be left without enough physicians to care for them, and physicians would have to spend millions of dollars of their own savings to keep the doors open.
About 18 months ago, the California Medical Association released a study that predicted most if not all of that scenario would occur-and occur soon.
And while there have been some high-profile disasters and near disasters, including the ongoing KPC Medical Management crisis and a Simi Valley medical group that closed in October, the dire predictions have not materialized. But the climate remains as tense as ever.
The California Public Employees' Retirement System, one of the nation's largest purchasers of healthcare, has seen its health plan costs jump 40% in the past couple years. CalPERS may only have 11/2 months of claims payments left. The industry standard is about three months worth of reserves on hand.
And in late November, KPC was expected to file for bankruptcy, just after the state's health plans bailed out the ailing medical group with $30 million.
All of this happens as medical groups and health plans remain as entrenched, if not more, as they were in the fall of 1999 when CMA released its study conducted by PricewaterhouseCoopers.
Physicians say they are underpaid, that there isn't enough money being pumped into their portion of the healthcare system and that capitation rates don't begin to cover their overhead. Health plan officials counter that the rates are adequate and that the failure of medical groups is linked more to poor management than poor reimbursement.
As with most issues, the truth stands somewhere in the middle, leaving the real problem unaddressed, says one healthcare economist.
"There's enough money," says Paul Torrens, co-director of UCLA's Center for Health Services Management and professor of health services at the UCLA School of Public Health. "The doctor groups that are folding are some of the looser affiliations . . . (those) that survive are fairly big, fairly well organized and well managed."
"To say there's not enough money is probably not the real problem," Torrens continues. "The real problem is that they don't have good control over their own members. They get into financial troubles and those groups disappear, as far as the medical groups are concerned. It's not just the money."
But the problem is bigger than poor management or poor reimbursement, he says.
The problem with, and the solution to, California's healthcare crisis lies in difficult questions that need answers.
"I think we're really at a point where people have to fundamentally ask some difficult questions," Torrens says. "Like how much medical care we want and how much we're willing to pay for it, how much we're willing to reign in our (expectations) about what we want and have it be accessible.
"It may not be possible to meet everyone's competing expectations: Patients want everything, doctors want to be well reimbursed, and employers don't want to pay much for it. It's like an immovable object meeting an irresistible force. Something's got to give."
The question, he says, is whether employers and the public are willing to pay more to maintain the level of care they want. When health plans fold, it is likely because they're not getting enough to pay for all the services people want, he says.
"It's not a simple answer," he says. "I'd say people want a simple answer. They want to be able to blame it on one thing. One of the things that's most common is prescription drug prices. If only we could just control that, we would be OK.
"It's a lot more complex than that . . . It's the fact that the public, people like you and me, want all the new technologies and want them to be available when we want them and the degree and volume we want them."
Torrens says it's possible that the state will wake up one morning and realize California's healthcare system has collapsed.
"One of the things that I worry about is there does not seem to be any common meeting ground where all of the diverse interests can come together and talk about issues that affect us," Torrens says. "It's in our mutual interest to find some mutual way in which this system on which we all depend and take part in can be fixed."
But it's not going to be an easy fix, he says. "I'm very concerned about looking for simple kinds of answers."
California's healthcare problems could easily be repeated in other states, especially if they rely heavily on managed care, he says. But "we don't hear these kinds of problems in other parts of the country. It's always refreshing for me to go somewhere else and hear them talking about their system" and realize they're not fighting with each other, he says.
Other states with a heavy managed care presence, such as Minnesota, are different for several reasons, Torrens says: The health plans are locally owned and operated, and the healthcare community in the entire state is more tightly knit.
As a result, they all feel they are in the same boat together, he says. "I think that's what we lack here in California, a realization that all of us are in the same boat together, the plans and providers and patients and people paying the bills. Right now we're all divided . . . in camps."
"It isn't like you can do something in Southern California and nobody in Northern California will hear about it . . . It's a much tighter network of people who realize that they can't beat up on other people."
The two sides can't even agree on whether adequate funds are pumped into the healthcare system.
"There's not enough money," says Jack Lewin, M.D., CEO of the California Medical Association. "There could be enough if what we had received in terms of health insurance was what the national averages are. The only way we'll get to that goal is to go to the public together. We can't do that while engaged in the cold war."
Lewin says it's inevitable that the costs will be shifted to patients, but the first step must be "to see one of the large HMOs step forward and agree that actuarially sound capitation and reimbursements are necessary."
Since 1996, 126 medical groups and IPAs have closed, gone bankrupt or been purchased because they were insolvent, according to CMA data. CMA officials say that the current underfunding of healthcare gives health plans no incentive to pay sound capitation rates.
When the plans and physicians can agree on capitation rates and dispute resolution, then they can go to the public and describe what's needed for the healthcare system to survive, he says. "We would be on a path toward what managed care was originally promised."
There is tension, says Walter Zelman, CEO of the California Association of Health Plans, but it stems from the conflict of high demand for services and pressure to keep the costs down. And, he says, it's the health plans that are "in the pressure cooker."
Perhaps if people become frustrated enough with the high costs, they'll be more tolerant of some ways to keep costs down, Zelman says.
"Something has to yield, either the money flowing into the system has to improve, or we somehow or other have to get our demand under control," he says. "I don't think the industry itself can do much more to get the costs down, which isn't to say that the costs couldn't come down in a different environment. It's hard to see costs coming down with demand what it is. You can try to improve efficiency somewhere."
Falling outCalifornia medical groups in trouble
- 126 medical groups and IPAs have gone bankrupt, been sold because of insolvency or closed since 1996.
- This year, 4 have gone bankrupt, 6 have closed and 3 have merged because of insolvency.
- There are 7 medical groups or IPAs on the California Medical Association's "watch list," a list the organization keeps of groups it knows are having financial problems.
Managed care money
Source: California Association of Health Plans (gathered from HCFA's Office of the Actuary)
Note: the data refer to commercial and government funding of health plans