HMO Failure Sparks Run for Coverage by Employers

Times Staff Writer

Employers affiliated with the failed General Med health maintenance organization in Orange began scrambling Wednesday to arrange other forms of health insurance for 55,000 Southern Californians whose coverage will expire at the end of the month.

Meanwhile, affected employers and industry observers said the closing of the 15-clinic HMO has further undermined confidence in General Med’s parent company, financially troubled Maxicare Health Plans of Los Angeles.

Maxicare, which is restructuring its operations to satisfy lenders, announced Tuesday that it would close its General Med operations March 31. In the past 3 months, the number of General Med clinics has been halved from 30 to 15.

The remaining clinics will be closed by the end of the month, and General Med’s 500 workers will lose their jobs.


In Orange County, the HMO serves about 12,000 members through medical clinics in Anaheim, Santa Ana, Brea and Mission Viejo and a surgical center in Anaheim. General Med has nearly 190 county employees, including 75 at its corporate headquarters in Orange.

(General Med is operated by a Maxicare subsidiary called Family Health Services. It is not related to FHP, a health maintenance organization based in Fountain Valley.)

The HMO has contracts with more than 375 employer groups in Orange, Los Angeles, San Bernardino, Riverside and San Diego counties. The roster includes several major employers, including Alpha Beta, Lockheed, Fluor, Parker-Hannifin, Beckman Instruments, Los Angeles County government and two cities, Anaheim and Placentia.

The United Food & Confectionery Workers local in the county has about 3,200 General Med members.


Employers stressed that their General Med enrollees will not be left without medical coverage.

Several affected companies said they would let General Med participants choose among other medical insurance plans already offered as part of their benefit programs. They said they also plan to add other HMOs to their insurance menus to replace General Med.

Although it is owned by Maxicare, General Med is a separate HMO. The company said the General Med closing will have no effect on the 285,000 Southern California residents who are members of Maxicare.

Many General Med members will be inconvenienced by having to change doctors after they join another insurance plan. Maxicare said it will be responsible for reimbursing any ongoing hospitalization at the time the General Med coverage ends.

The closing could pose a bigger problem for indigent patients. General Med has a contract to provide medical care for about 11,000 Medi-Cal recipients. When the plan ends, they will have to find another HMO with a Medi-Cal contract or consult one of a dwindling number of private doctors who will accept Medi-Cal reimbursement.

Although the company’s plans were announced the day before, some patients who showed up at General Med clinics Wednesday were not aware of the imminent closing.

“When I came in today, they told me that I could have my records but didn’t say anything else,” said Kari Gonzalez, 24, of Placentia. “I am very concerned. I’ve got two sick kids here. One has a kidney problem, and the other one has pneumonia. They are going to need help when this place shuts down.”

With children Matthew, 3, and Kadi, 4, in tow, Gonzalez was visiting the General Med clinic in Anaheim.


She said she is not sure whether her husband’s company offers other health plans. “I hope they do,” she said. “Obviously, we really don’t have any choice.”

For others, the only notice was a hastily scrawled note taped to the clinic’s front entrance.

“I read something about it in the paper today, but until I saw that sign on the door, I didn’t know that it meant this place as well,” said Gregory Lloyd, 24, of El Monte, who was in the clinic to have an injured knee examined.

Despite Maxicare’s assurances that General Med’s obligations will be honored, some employers said that in recent months, physicians and hospitals that have not been paid by the financially strapped HMO have been trying to bill patients directly.

By state law, a provider of services under contract with a HMO has no legal right to bill a patient for contracted services. The law is enforced by the state Department of Corporations.

“The members are not responsible for those bills and should send them to us,” said Tobi Nyberg, Maxicare’s vice president of corporate communications.

She said the company will be sending letters to its enrollees telling them that the company will deal with reimbursement problems.

Claudia Ferguson, manager of benefit programs and human resource systems at Beckman Instruments in Fullerton, said the company had been having so many service problems with General Med that last week it announced a special “open enrollment” so General Med participants could switch to other plans.


Since about October, she said, Beckman employees who subscribed to General Med had been upset by the closing of General Med clinics, as the HMO tried to cut its overhead through consolidations.

Also, she said, independent physicians and pharmacies began dropping out of General Med and would no longer accept General Med patients.

“Employees had to keep changing from one doctor to another,” she said.

Ferguson said physicians who had not been paid by General Med were billing Beckman employees, who complained to her.

Marilyn Breeland, supervisor of medical claims processing at the Aerojet General’s ordnance division in Tustin, said she knows that “by right” none of that facility’s 100 General Med enrollees should pay doctors or hospitals for services already prepaid by their premiums.

As a practical matter, however, the company is telling employees that they might be better off paying the bills. “We are advising that if their credit is being threatened, to pay for it themselves,” she said.

Chris Chase, Anaheim’s city benefits manager, was bristling about what he considered inadequate notice given of the General Med closing.

“I think that they should have given us more than 3 weeks to figure out what we are going to do with the people in the plan,” he said.

Chase said the city does not offer Maxicare as an option, “and we do not intend to offer it, either.”

Maxicare said the reason for the short notice was that the company had been trying to find a buyer for the General Med system and had decided to close the operation only as a last resort, when it became financially imperative.

Lee Grover, who heads the Orange office of Mercer Meidenger Hansen, a medical benefits consulting firm, said that “a lot of people would be skeptical” about transfering from General Med to Maxicare because of their common ownership and similar financial problems.

“I can tell you that none of our clients at this point is going to start offering Maxicare as an option,” he said.

Other HMOs, however, stand to pick up business. Terry Hartshorn, president and chief executive officer at PacifiCare, an HMO based in Cypress, said his marketing department reported that “the phones had been ringing off the hook” Wednesday with calls from companies wanting to add PacifiCare as a new medical benefit option.

Hartshorn said his company has been acquiring business lost by General Med for the past 2 to 3 months.

“We kept hearing that service levels had dropped and claims weren’t getting paid,” he said.

Richard Carpe, a partner in charge of health care consulting for the Costa Mesa office of Laventhol & Horwath, an accounting firm, said Maxicare’s inability to find a buyer for General Med tells him that the coverage is priced too low.

Carpe said he expects that when employers switch their workers to other plans, they “will have substantially increased premium costs.”

At General Med’s headquarters in Orange, workers said they were besieged with calls from concerned participants and member companies.

“We have a commitment to the members, and the thrust of our work today is getting them enrolled (in an HMO) elsewhere,” said Gloria Calderon, senior director of clinical management for the firm.

Times staff writer Jeff Mitchell contributed to this report.


Number of Location Employees Headquarters 701 S. Parker St., Orange 75 Clinic 408 S. Beach Blvd., Anaheim 22 Clinic 149 W. Lambert Road, Brea 18 Surgical Center 300 W. Cerritos Ave., Anaheim 58 Clinic 26932 Oso Parkway, Mission Viejo 2 Clinic 2905 W. Edinger Ave., Santa Ana 12

Other locations outside Orange County: Rancho Cucamonga, Baldwin Park, La Puente, South El Monte, Diamond Bar, Santa Fe Springs, El Monte, Northtown, Ontario, Riverside, Culver City and Archibald.