Project to Shift Medi-Cal Care to HMOs Stirs Hopes, Fears

Times Staff Writer

An obscure state commission has embarked on an ambitious and controversial pilot program that will radically change the way health care is delivered to most of the 87,000 elderly and poor Medi-Cal recipients in the San Fernando and Santa Clarita valleys.

Starting Jan. 1, most people receiving Medi-Cal benefits will have to enroll in one of a handful of health maintenance organizations selected by the state. Most Medi-Cal recipients will no longer be able to visit their personal physicians, their neighborhood pharmacists or the hospitals of their choice.

State officials say they hope the Expanded Choice Program, which also will be conducted in San Diego, where there are 165,000 Medi-Cal recipients, will save California millions of dollars and instill some credibility in the massive Medi-Cal system, which taxpayers have criticized as wasteful.

Initially, the commission wants to trim the aggregate Medi-Cal costs in the Valley area and San Diego by 5% each.


$3.5 Billion for Health

During the past fiscal year, the state spent $3.5 billion to keep 2.6 million Medi-Cal recipients healthy. In the Valley area, the state spent $7.6 million, or $88 a month per beneficiary.

John Silberman, chairman of the seven-man California Medical Assistance Commission, which is responsible for the project, predicts that it will become “a model for the nation.” Gov. George Deukmejian has said that he would like the project to be copied statewide as soon as possible.

But many critics, while acknowledging that runaway health care costs need to be controlled, say the state is gambling with the health of poor people by trying to do too much, too soon with an unproven concept. They point to a health program conducted with similar goals in Monterey. That program recently was declared bankrupt.


Opponents suggest that the way the experiment is structured, HMOs will be inclined to skimp on patient care to protect profit margins and be motivated to push costly patients out of the program by dumping them into nursing homes.

Rare Illnesses

They also question what HMOs will do when they start receiving Valley area patients with rare illnesses the typical physician has studied only in textbooks. Now, most of these patients, the majority of them children, are being treated by specialists at such facilities as Orthopaedic Hospital, Childrens Hospital of Los Angeles and UCLA Medical Center. The state has not said what will happen to these patients.

Meanwhile, the Valley’s pharmacists association predicts the program will force some neighborhood druggists out of business, and some doctors predict that physicians with large Medi-Cal patient loads will leave the Valley.


One of the experimental program’s harshest critics is state Sen. Herschel Rosenthal (D-Los Angeles), who represents part of the eastern San Fernando Valley and sits on the Senate Health and Human Services Committee, which deals with Medi-Cal issues.

“We’re going to punish a lot of poor, sick people,” Rosenthal predicted. “They are going to be hurt by the kind of care they are going to be provided.”

HMO officials and the state dispute the charges.

Care at HMOs Praised


The accusation that HMOs skimp on service to fatten profits is “the oldest argument against HMOs. If that was true, they wouldn’t be growing,” said Dan Alan Boswell, president and chief executive officer of Serra Health Plan, which hopes to participate in the project.

HMO executives say participants probably will enjoy better health care than they do under the present arrangement in which Medi-Cal recipients choose their own doctor or hospital. Many doctors have stopped accepting Medi-Cal patients because of inadequate reimbursements. That, in turn, has forced some Medi-Cal beneficiaries to seek treatment at what HMO officials refer to as “Medi-Cal mills.”

“I would argue that the quality of care under Expanded Choice will be an improvement over what is offered to Medi-Cal patients today,” said Jeffery M. Folick, executive vice president of CareAmerica Health Plan, an HMO being organized by Health West, owners of several hospitals, including Northridge Hospital Medical Center.

Supporters of Expanded Choice say it is only fair for Medi-Cal patients to begin accepting partial responsibility for their care by enrolling in cost-effective HMOs, which the middle-class, in increasing numbers, has been enrolling in for years.


Emphasis on Preventive Care

The beauty of HMOs, say supporters of Expanded Choice, is their emphasis on preventive care, which keeps more people out of hospitals. The one-stop health care system of HMOs would also crack down on the tendency of some Medi-Cal recipients to shop for cures by hopping from doctor to doctor, undergoing incompatible treatments and accumulating drugs that either do not help, or harm, the patients.

In early January, Medi-Cal recipients will get letters informing them that they have until March 31 to sign up with one of the participating HMOs. State officials anticipate that 35% of the beneficiaries will not choose a plan, so the state plans to assign them one.

Medi-Cal card carriers must begin going to the HMOs for care beginning April 1.


There will be a temporary reprieve for a minority of Medi-Cal patients receiving ongoing care from their private physicians. Just who will qualify for the reprieve has not been decided. In addition, about 15% of Medi-Cal patients will be excluded from the pilot project, including people undergoing kidney dialysis and nursing home residents.

The disruption of thousands of physician-patient relationships is the chief concern of the Los Angeles County Medical Assn., said Wade Piston, the association’s spokesman.

Concerns About Elderly

Physicians are concerned that the transition next spring will be confusing and frightening, particularly for the elderly, who might continue to show up at their previous doctors’ offices.


One of those physicians is Milton Beck, a family practitioner in Panorama City whose patient load is 13% Medi-Cal.

“I tell them they can’t come here after April 1 and they turn white,” Beck said. “They really are frightened to death.”

The only way most Medi-Cal patients would be able to continue going to their own physicians or pharmacies is if these health providers sign up to participate in an HMO. But those opportunities are limited, HMO executives say.

As with any prepaid health care arrangement, there is a risk involved for the health provider.


Fixed Monthly Rate

Each prepaid health plan will get a fixed monthly rate for each Medi-Cal patient it enrolls. Whether a patient requires hospitalization or never sets foot in an HMO office, the HMO will receive the same amount of money. The HMO must make a profit, but at the same time guarantee its clients quality care.

State officials said only HMOs that demonstrate that they can provide a wide range of services will be accepted into the pilot project. The state will sign contracts with the participating HMOs in October and November. What remains unknown is how many HMOs will participate. It could be as many as 12 or 13 or as few as two or three, said Jim Foley, the Medical Assistance Commission staff member who will be overseeing the Valley area project.

Among the groups that have expressed interest in signing up are United Health Plan, CareAmerica Health Plan, California Network of Health Providers, Serra Health Plan, PacifiCare and Paracelsus Healthcare Corp.


In California, two Medi-Cal HMO programs have been conducted in Santa Barbara and Monterey counties. With debts reaching $11 million, the Monterey HMO program recently was declared bankrupt, leaving some health care providers in the lurch. The county hospital lost $2.5 million and Planned Parenthood in Seaside, unable to absorb the losses, closed its doors, officials there said. Santa Barbara health officials said its program has been relatively successful after problems were ironed out during the first year.

‘Very Bad Timing’

Assemblyman Sam Farr (D-Carmel), who represents Monterey, said the state’s decision to plunge into the HMO business in the Valley area and San Diego “is very bad timing. If I were the providers in those counties I’d want a lot more questions answered about what happened in Monterey.”

Members of the Medical Assistance Commission counter that none of the other HMO programs, including the one in Monterey, is identical to its Expanded Choice Program. Silberman said the state has learned from the mistakes of the other programs.


But opponents are not reassured. One of the chief worries about Expanded Choice is what will happen if recipients receive poor treatment. What the experiment needs, patient advocates say, are safeguards, and they aren’t convinced that there are any.

The state, for instance, does not now have the computer capability to detect if patients are not getting the treatment and hospitalization they need, contends Peter Schilla, staff attorney for the Western Center on Law and Poverty. “It’s a mess in terms of mechanics,” he said.

‘Incentive to Warehouse’

Critics also charge that Expanded Choice could indirectly trigger more nursing home admissions.


“It’s a very, very serious problem. You have an incentive to warehouse,” said Marilyn Holle, a senior attorney at Protection and Advocacy Inc., a nonprofit organization mandated under federal law to protect the rights of the severely and chronically disabled.

This could happen, Holle and others said, because Medi-Cal nursing home patients will not participate in the Expanded Choice Program. Therefore, if an HMO sends one of its costly clients--such as someone receiving in-home care--to a nursing home, it no longer pays the bills.

That is not such a far-fetched scenario, said Folick of CareAmerica. “I would guess the industry would look for as many leaks as possible and the state would be looking to plug as many as possible.”

It is the responsibility of the state to make sure dumping does not happen, Folick said.


Care Disruption Feared

The commissioners insist that these concerns will be addressed and answered before the program starts. At a recent public hearing on the plan in Burbank, John Burton, a commissioner and flamboyant former congressman from San Francisco, promised those in attendance: “We are not in business to screw recipients. . . . We are in the business to make it work.”

Executives at Orthopaedic and Childrens hospitals also are worried about Expanded Choice because they do not want treatment of their patients to be interrupted. Unless the Expanded Choice guidelines are changed, the two regional hospitals, along with other speciality hospitals, would not be free to treat Valley area Medi-Cal patients unless they subcontract with participating HMOs.

If Orthopaedic had to stop accepting Valley area children, their “care would suffer” because other hospitals are not equipped to meet the special needs of these children, said Robert Sloane, Orthopaedic Hospital’s chief executive officer.


Childrens Hospital’s Rich McCarthy, director of planning and public affairs, who estimates that Childrens treats up to 750 Valley Medi-Cal children a year, agreed. “We really feel kids don’t belong anyplace but here.”

Less Money From HMOs

Both McCarthy and Sloane said subcontracting is not the answer because they would receive even less money from HMOs than they do now from Medi-Cal, a sum they call inadequate.

State officials said they are trying to find a solution to the problem that specialty and university hospitals pose.


Another hospital that is facing its own set of problems is Olive View Medical Center, scheduled to move into its new facility in Sylmar next spring. The county’s Department of Health Services is forming its own HMO for Olive View to allow it to continue to treat Valley area Medi-Cal patients. Douglas Bagley, Olive View’s administrator, endorsed the plan, with some reservations.

Bagley said the timing of Expanded Choice is bad because Olive View is scheduled to move into its new facility at the same time the program begins. The transition will be time-consuming enough without having a new program to administer, he said.

Saddled by Reputation

Bagley said he is also concerned about whether Olive View will be able to attract enough Medi-Cal recipients into its HMO to keep it in the black. The county expects the private HMOs to mount aggressive marketing campaigns to attract customers.


In hustling to get recipients, Olive View will have to shake off the reputation that county hospitals are for the poor and desperate, Bagley said.

Independent pharmacists also have lined up against the plan. They say they don’t want the rapport they have with longtime customers disrupted. They say they also fear the pilot project will drive some neighborhood pharmacies out of business because HMOs provide their own pharmaceutical services. If there is expansion of these services, the pharmacists say, they are concerned that HMOs will subcontract with drugstore chains rather than independents.

Economically, times are tough enough for independent drugstores, said Ira Freeman, a Sun Valley druggist and president of the Pharmacist Professional Society of the San Fernando Valley. In recent years, he said, eight out of 10 community pharmacies have gone out of business.

To Put Panel in Spotlight


Whether the program is a success or failure, it should put the little-known Medical Assistance Commission in the spotlight. The state Legislature created the commission in 1982 as part of the Medi-Cal Reform Act, passed when the state was in a fiscal crisis.

The panel’s mission was to negotiate fixed Medi-Cal contracts with hospitals throughout California in an effort to trim costs. It also was given the freedom to set up experimental programs to cut Medi-Cal bills generated outside hospitals.

The Valley area and San Diego projects are the first ones the commission has undertaken. The delay was caused by the commission’s need to get a waiver for the experiment from the federal Health Care Financing Administration, which mandates that Medi-Cal patients should have the physician of their choice.

Just what those who depend on Medi-Cal think of the program will not be known for some time. In preparation for the Burbank public hearing, the state mailed letters to the 13,000 health care providers in the Valley area, but recipients will not be notified until January.



Medi-Cal recipients living in the following ZIP codes in the San Fernando and Santa Clarita valleys will participate in the new Medi-Cal experiment called Expanded Choice.

West Valley: 91303, 91304, 91306, 91307, 91311, 91324, 91325, 91326, 91355

(West Valley 91304 and 91307 only inside the Los Angeles County line)


Northeast Valley: 91040, 91042, 91046, 91311, 91340, 91342, 91343, 91344, 91345, 91352

Van Nuys: 91316, 91401, 91402, 91403, 91405, 91406, 91411, 91423, 91436

Burbank: 91501, 91502, 91504, 91505, 91506

North Hollywood: 91601, 91602, 91604, 91605, 91606, 91607


Santa Clarita Valley: 91310, 91321, 91350, 91351, 91355