Whittaker Plans HMO for Southland Market
With stethoscopes at the ready, Whittaker Health Services is scheduled to announce today that it is forming a major new health maintenance organization to serve Southern California--already one of the most competitive HMO markets in the United States.
Whittaker Health Services has signed letters of intent with 23 hospitals in Los Angeles and Orange counties and with about 2,000 private-practice physicians associated with those hospitals, said Ronald W. Johnston, president of Whittaker Health Services, a subsidiary of Whittaker Corp. Los Angeles-based Whittaker Corp. is a $1.4-billion conglomerate with interests in health care, technical products, metals and specialty chemicals.
The HMO will be called Whittaker Health Services of Southern California, and its health-care services will be marketed as Whittaker Health Plan, Johnston said. Whittaker Health Services expects the health maintenance organization to be licensed to operate in October, and Whittaker would begin advertising to potential corporate clients and treat patients “very soon thereafter,” Johnston said.
The Southern California HMO represents an initial investment of $6 million to $10 million for Whittaker and is part of an ambitious plan to make the year-old Whittaker Health Services a national HMO company, said Dr. Joseph L. Marcarelli, chairman and chief executive of Whittaker Health Services. Whittaker Health Services has 18 HMOs either operating or in formation.
“We think we have a product that is as good as or better than any other,” Marcarelli said. “We don’t underestimate the magnitude of the task, but we think we’ll be successful.”
Whittaker is creating its Southern California HMO by affiliating with an existing organization called Preferred Health Network, which was formed three years ago and represents 20% of the hospital beds and 12% of the private physicians in Los Angeles and Orange counties, said Leslie Smith, chairman of Preferred Health Network and president of San Pedro Peninsula Hospital.
“We developed this network to be accessible to people who live on one side of the county, or in another county, and work somewhere else,” Smith said.
Preferred Health Network has operated as a preferred provider organization, or PPO, in which doctors and hospitals agree to provide participating businesses and insurance plans with health-care services at a discounted rate. Members have the option of visiting the “preferred provider” or choosing another doctor or hospital.
Preferred Health Network will continue to exist as a preferred provider organization for certain contracts, Smith said.
Whittaker Health Services of Southern California will operate as an individual practice association, or IPA, in which the HMO contracts with various doctors and hospitals to provide care. Members pay a fixed monthly fee.
Rapid Growth Since ‘70s
Other forms of HMOs are staff model HMOs, in which the HMO’s own staff provides care at a hospital owned by the HMO, and group model HMOs, in which the HMO contracts with a group practice to provide health services.
Health maintenance organizations--which have been in existence for decades but were, before 1970, more commonly known as prepaid health plans--have grown rapidly since the early 1970s, when federal “implementation grants” first became available for starting HMOs. Those grants have since been phased out, but HMOs continue to grow at a healthy pace both in the numbers of organizations and enrollment.
A total of 16.74 million people belonged to 337 HMOs nationwide as of December, 1984, compared to 2.9 million members in 26 plans in mid-1970, according to InterStudy, a Minneapolis-based nonprofit organization that monitors the HMO industry.
Southern California is probably the third most competitive market for health maintenance organizations in the United States, preceded by Minneapolis and the San Francisco Bay Area, said Marcarelli, who was chairman and chief executive of Cigna Healthplan before joining Whittaker.
An estimated 20% to 25% of the residents of Los Angeles and Orange counties belong to health maintenance organizations. In comparison, 40% of Minneapolis residents and 5% of the total U.S. population belong to HMOs, said Tom Mayer, special assistant for medical affairs at FHP Inc., a Fountain Valley-based health maintenance organization.
“Los Angeles is not a mature market although the Southern California area is considered a maturing market,” said Mayer, a physician who, with his wife, Gloria, has written a patient’s guide to HMOs.
“Nobody knows what the ceiling is in HMO enrollment,” Mayer said. “It certainly isn’t 100%, but it might be 80%.”
Marcarelli said Whittaker Health Services, among other things, will promote its program’s affordability and accessibility. The HMO also will emphasize preventive medicine, he said.
Future competitors of Whittaker Health Services of Southern California don’t appear to be worried about the appearance of another player on the scene.
‘Very Informed Consumers’
“If 20% of the metropolitan Los Angeles population are in HMOs, that leaves 80%. So there are still a lot more people out there who could serve as the HMO market,” said Allan Mann, director of public affairs for Kaiser Permanente Medical Care Program of Southern California.
“It’s not as if HMOs are fighting over thinner and thinner slices of that 20%,” Mann said. “More and more fee-for-service (medical insurance) patients are switching to HMOs.”
“Orange and Los Angeles counties are very sophisticated areas with very informed consumers looking for the highest-quality health care at the most reasonable price,” said Stuart Byer, FHP’s public affairs director.
“There’s always room in the market for a good health-care provider,” Byer said. Whittaker’s HMO “is certainly not a better mousetrap, just a different color mouse.”
Whittaker Health Services of Southern California represents Whittaker Corp.’s increasing emphasis on health care. Whittaker also plans to grow by focusing on technology and specialty chemicals.
Whittaker Health Services intends to operate 50 HMOs by 1990, developed through start-ups and acquisitions, Marcarelli said. By 1990, Whittaker Health Services intends to have 1 million members and revenue of $1 billion, he said.
In four to five years, Whittaker Health Services should make up 30% to 40% of Whittaker Corp.’s overall sales, Johnston said.
Whittaker is investing $100 million in the development of its HMOs during the next five years, but the total investment will be “considerably more” because each HMO will reinvest its earnings into operations, Marcarelli said.
The hospitals that have signed letters of intent to join Whittaker Health Services of Southern California are: Daniel Freeman Memorial hospitals in Inglewood and Marina del Rey; Holy Cross Hospital, Mission Hills; Huntington Memorial Hospital, Pasadena; Long Beach Community Hospital; Memorial Medical Center of Long Beach; Pomona Valley Community Hospital; Presbyterian Intercommunity Hospital, Whittier; Queen of the Valley Hospital, West Covina; San Pedro Peninsula Hospital; St. Francis Medical Center, Lynwood; St. John’s Hospital and Health Center, Santa Monica; South Bay Hospital, Redondo Beach; St. Joseph Medical Center, Burbank; The Hospital of the Good Samaritan, Los Angeles; Valley Presbyterian Hospital, Van Nuys; St. Luke Hospital, Pasadena; Hoag Memorial Hospital Presbyterian, Newport Beach; Saddleback Community Hospital, Laguna Hills; St. Joseph Hospital of Orange; St. Jude hospitals in Fullerton and Yorba Linda, and South Coast Medical Center, South Laguna.
MAJOR HEALTH MAINTENANCE ORGANIZATIONS IN SOUTHERN CALIFORNIA
Number of local members Name as of December, 1984 Kaiser Permanente Medical Care Program of Southern California (Los Angeles) 1.77 million Cigna Healthplan/California (Glendale) 373,621 Health Net (Van Nuys) 308,049 Maxicare (Hawthorne) 206,984 FHP Inc. (Fountain Valley) 101,859 Pacificare (Cypress) 95,245 General Medical Centers Health Plan (Anaheim) *84,591 Greater San Diego Health Plan (San Diego) **72,875 United Health Plan/Watts Health Foundation (Los Angeles) 57,300 Protective Health Providers (San Diego) 26,011
*--as of November, 1984 **--as of June, 1984, according to the federal Office of Health Maintenance Organizations Source: InterStudy
