California may be facing a health care crisis
Report cites failure of IPA, low physician pay
Many observers have viewed California’s managed-care-dominated health care system as a harbinger of what’s to come in managed care around the nation. But California’s health care is so underfunded that millions of residents may face interruptions and delays in medical care, according to a report by the California Medical Association (CMA).
The San Francisco-based organization’s prediction is based in part on a recent report by the accounting firm PriceWaterhouseCoopers of Walnut Grove, CA, and released during the CMA Foundation’s September summit on medical group insolvency.
The CMA report cites the recent collapse of FPA Medical Management and MedPartners Provider Network, which led to disruptions or delays in care for more than two million patients and left physicians with more than $100 million in unpaid bills for HMO patients.
Thirty-one medical groups or independent practice associations closed last year in California, and at least another 34 in the state will close or go bankrupt before the end of 1999, according to the PriceWaterhouseCoopers report.
On behalf of its physician members, the CMA has filed a lawsuit against the state’s major health plans, seeking to collect reimbursement from the plans’ intermediaries, or independent practice associations (IPAs), that have closed or gone bankrupt.
Dire consequences
At a press conference announcing the suit, California physicians detailed some of the dire consequences of the IPA failures.
For instance, an oncologist was forced into bankruptcy after months of buying his patients’ chemotherapy drugs out of his own pocket, according to Daniel Higgins, MD, a Los Angeles emergency room physician. Another physician had to sell his home and take out a line of credit to keep his office open, he added.
The CMA, which represents more than 34,000 California physicians, puts the blame for the health care financial crisis on low health care premiums and the high amount that health plans allocate to their own overhead.
For instance, PriceWaterhouseCoopers reports that the largest for-profit health plan in California allocates 25 cents out of every premium dollar for profit and overhead, while the largest not-for-profit plan allocates about 5 cents for that purpose. The average for all HMOs in California is 15.2 cents.
California premiums average $120 per HMO member per month compared to a national average of $127 per member per month, yet California HMOs report higher-than-average earnings.
The report charges that the HMOs keep their profits high by shifting the cost-containment burden to physician organizations and many times the physician themselves. It cites lower monthly capitation rates that HMOs pay to medical groups, IPAs, and other physician organizations.
For instance, PriceWaterhouseCoopers reports that California capitation rates have fallen from $45 per month for each HMO member in 1990-93 to $29 per month in 1997-99, a drop of 35%, while the cost of living has increased 25.2% according to the Consumer Price Index.
A 1998 survey by CMA shows that the state’s private pediatric capitation payments to physicians do not cover the cost of care and that pediatricians typically run an average annual deficit of $270.96 per HMO patient.
PriceWaterhouseCoopers reports that despite California’s high cost of living, primary care physicians there earn as little as $60,000 to $70,000 annually, compared to the national average of $134,000 for family practice, internal medicine, and pediatric physicians.
According to the report, 1.6 million Californians reported delays in care, and 40% said their health conditions got worse as a result. A third of physicians surveyed said HMO denials of service resulted in adverse health consequences for their patients.
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