California IPAs and others that accept insurance risk are facing tight financial solvency standards adopted by California's managed care agency in an effort to stop the string of medical group failures in the state.
But health plans and physicians alike question whether the emergency regulations are fair and whether they will actually prevent another disaster of the magnitude of KPC Medical Management's implosion.
California was one of nine states that passed laws last year requiring some sort of financial standards for medical groups and IPAs to guard against insolvency, according to the National Conference of State Legislatures. The nine joined Rhode Island, which was the first state to pass such a law in 1999. Two other
states are considering legislation this year, and Rhode Island is considering bills to amend its law.
When the California Department of Managed Health Care opened its doors in July, one of its first charges was to develop financial solvency standards for medical groups. Some within the healthcare industry--especially health plans--view this as vitally important. While the exact number of medical group closures is disputed, the woes of medical groups and IPAs in California have become legendary across the country. Though physicians in other states have faced financial problems, those in California are believed to have been the most severe.
The emergency regulations were issued in late March. The first groups must begin reporting data such as claims and available cash in mid-May; others will be phased in over the course of the year.
Permanent regulations are being hammered out; it isn't known when they will be issued.
DMHC Director Daniel Zingale has moved to quickly adopt the standards in an effort to avoid problems like the one that enveloped the state's healthcare system late last year.
KPC Medical Management filed for bankruptcy in November after a protracted fall. The closing left thousands of patients searching for new physicians and trying to retrieve test results. Physicians were locked out of their offices, unable to get the test results or forward patient records. To try to stave off the closure, health plans last year lent KPC about $42 million in an ultimately futile attempt to keep it afloat. The money was supposed to be used to pay specialists. However, those doctors say they haven't been paid, and California Medical Association officials estimate specialists are owed $40 million.
The emergency regulations require medical groups to submit audited financial reports to the DMHC on a regular basis. Until the regulations, medical groups were exempt from filing financial information with the state, a fact that raised Zingale's ire. The Legislature's intent is to catch potential problems earlier in the process. The regulations also require health plans to tell physicians how they determine capitation rates and what they are.
That's good news, says Ronald Bangasser, M.D., medical director for the 140-physician Beaver Medical Group in Redland, Calif. But whether the regulations will ultimately serve any good remains unknown, he says.
"Are they valuable? We'll see," Bangasser says. "(Maybe) we'll finally have an answer to what we all believe is true: The underfunding of the system has caused a lot of groups to go bankrupt. Whether it's the underfunding of HMOs or
underfunding of health plans for what employees expect, I'm not sure we're going to get an answer to that."
The emergency regulations will be difficult and expensive for smaller groups, Bangasser says. "I think that it will be fairly extraordinarily difficult to meet timelines."
Even for larger groups, ensuring they comply with reporting requirements will become imperative, he says. And it's difficult enough to keep practices afloat without having the additional expenses of accountants and certified audit reports, he says. "We're trying desperately to hang on and take care of patients."
The CMA and the California Association of Health Plans disagree on how many medical groups and IPAs have closed due to financial problems or filed for bankruptcy. CAHP data show that, since 1998, 19 medical groups have filed for bankruptcy while another 13 have closed for financial reasons. CMA data show that 41 medical groups have closed or filed for bankruptcy since 1998.
Health plan officials welcome financial regulations for medical groups, saying the information will help them determine whether groups are financially able to handle additional risk. CAHP spokesperson Bobby Pena, however, is concerned about whether the regulations will be implemented fairly and simultaneously.
Although providing more information on capitation is fine, health plan officials fear being in a position where they have to provide proprietary information to medical groups, he says.
"We don't think it's good for the competitive business environment to have to make public all . . . your rates," Pena says. "Health plans want to be able to compete and allow medical groups to compete. Providing specific contractual information takes away some of the competitive nature that helps keep costs down."
The goal is for the financial solvency standards to catch situations before they become "significant issues," Pena says.
"We can put corrective action plans into place," he says. "The process hopefully is going to help us . . . find warning signs before we get to that point."