The hot economy is not translating to better profits for medical groups
Study paints a gloomy picture in one state
You may have suspected it already, but now there is proof: Medical groups are failing at a record pace while health plans continue to rake in record profits. According to a study released in early September by the California Medical Association (CMA) in Sacramento, as many as 90% of physician organizations in that state are poised on the brink of bankruptcy or closure. This could affect more than 10 million patients. The study, titled The Coming Medical Group Failure Epidemic, was based on the CMA’s own research and produced with help from research conducted by the accounting firm PricewaterhouseCoopers. According to the report:
• At least 34 medical groups or independent practice associations (IPAs) will fail or close in 1999, up from 31 last year.
• Representatives from a major health plan told California state legislators at a closed meeting that nearly 80% of medical groups with which it contracts are in serious financial trouble.
• CMA receives notices of group failures weekly, and in July 1999 a CMA survey of California Bankruptcy Court records revealed 113 medical group bankruptcies and/or closures over the last three years.
The report states that California health plans have lower premiums — an average of $135 per member per month — than other areas of the country, where the average is nearly $175. Meanwhile, plans are experiencing continued robust profits. The report notes that WellPoint saw earnings rise 19% over the year. PacificCare had an increase of 41%, and Aetna’s earnings grew by 12%. Plans also continue to raise premiums. "But not enough of this increase is being dedicated to patient care," the report states. "Even with recent increases, it raises the question: How can HMOs in California receive lower than average national premiums but report higher than average earnings? They do this by shifting the burden to physician organizations, which in many cases pass the burden on to physicians themselves. These frontline providers must deliver more care to more people while receiving very low cap rates."
PricewaterhouseCoopers noted that capitation rates have fallen from $45 per member per month in the early part of the decade to $29 currently. That’s a decline of 35% when the consumer price index notes a 25.2% increase in cost of living.
Physicians often receive less than the cost of caring for patients, the report continues. For instance, pediatricians reported to the CMA that they received as little as $10 per child per month — not enough to cover the cost of legally required vaccines. California doctors also receive less for Medicaid care than the national average.
Rather than just paint a gloomy picture, the CMA report does have some recommendations. First, consolidation in the California medical market needs to end. Right now, 90% of the market is controlled by five health plans. Second, capitation rates should be actuarially based, rather than driven by what the market will bear. Third, the report says excessive administration costs should be limited.
More financial data needed
Physicians also should work to prohibit the assignment of pharmacy risk to medical groups, the report advises. Finally, health plans have to start sharing financial information with medical groups. "Health plans, as contracting partners with physicians’ groups, have not been accountable to the groups for the timely provision of basic, necessary financial information," says the report. Among the most necessary: financial and utilization information on risk pools, regular reports for coordination of benefits receivables, third-party recovery receivables, pharmacy rebates, retroactive additions and deletions in enrollment, and changes in benefits. "For groups to adequately assess their financial position, this crucial information from the health plans must be provided to the groups."
The entire report is available from the CMA on-line at www.cmanet.org.
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