State Not Expected to Drop Seven HMOs


In response to complaints from some health maintenance organizations, the California Public Employees Retirement System is expected to reject today a consultant’s recommendation that it drop seven of the 19 HMO plans it offers state employees.

The CalPERS health benefits committee is recommending that the system’s board not use the A. Foster Higgins & Co. study of HMO performance alone to make a decision on which plans to offer its 327,000 members.

The study recommended that CalPERS drop seven HMOs that rated low on numerous criteria, including financial stability, methods of choosing and contracting with physicians and other health-care providers, data reporting, service-area coverage, quality assurance, utilization management and efficiency of administration and providing member services.

But some of those that were rated low, including FHP International Corp. in Fountain Valley and Maxicare Health Plans Inc. in Los Angeles, complained that the report did not accurately reflect their operations and performance.


“The committee doesn’t want to discontinue a good health plan solely based on a report that may have been filled out by someone in the firm who didn’t know how to do it,” said Bob Walton, assistant executive officer for CalPERS.

So he said the health benefits committee unanimously voted to recommend that CalPERS use the Foster Higgins study only as an initial tool for evaluating the quality of the service offered by the HMOs.

On the basis of its analysis, Foster Higgins recommended that CalPERS drop Maxicare, FHP, Travelers Health Network of California Inc., Bay Pacific Health Plan, Lincoln National Health Plan, PCA Health Plans of California and Health Plan of the Redwoods.

The report triggered an outcry from the effected carriers, some of whom encouraged their CalPERS plan members to send letters or make phone calls to CalPERS staff and board members to protest the proposed action.

Jake Petrosino, chairman of the health benefits committee, said one HMO--which he would not identify--sent a letter to its members telling them to call him. The result was that his phone was “tied up all last week.”

He said the HMO, apparently out of desperation that it might lose the state contract, advised CalPERS members that their health care plan might be immediately terminated, causing some people with hospitalized family members to panic.

The board is expected to take the committee’s recommendation because a majority of its members attended the committee hearing Monday in Sacramento and voiced support for retaining all the HMOs, said committee chairman Petrosino.

Walton said the committee recommended that the CalPERS staff, with assistance from Foster Higgins, accept additional information from HMOs and conduct on-site reviews, especially of HMOs that scored low on the survey, to better evaluate the quality of care they are giving.


In addition, he said, the committee believed that “those firms that measured weak in any given area should have an opportunity to sit down with CalPERS staff and indicate what plans they have to improve the weaknesses.”

“Probably a year from now,” Walton added, “we would make a recommendation on what plans should be retained.” Moreover, the committee recommended that CalPERS consider adding three more HMOs--PacifiCare, Blue Shield and Omni Health Plan--in an effort to provide members greater choice in parts of the state that are now underserviced by CalPERS-affiliated HMOs.

Peter Boland, a health care consultant in Berkeley, said the state agency “ducked the critical issue. Even though the performance factors they looked at were not sophisticated, there appears to be more than enough documentation to make at least one cut.”

Petrosino disagreed. “We are absolutely not going to terminate any contracts on the basis of the consultant’s report,” he said. However, he said one or more of the contracts could be terminated during upcoming rate negotiations.


The state is not necessarily interested in reducing the number of HMOs it offers but only in ensuring that they meet certain quality standards, Petrosino said. He added that techniques for evaluating HMOs are in their infancy.

He said the Foster Higgins survey should be considered “an introductory and preliminary start at getting a handle on what is relevant in the industry and how to evaluate performance of various carriers,” Petrosino said. “We recognized that the information that was obtained was incomplete.”

Ed Coghlan, spokesman for Maxicare, said he objected to the HMO’s low score on offering an extensive network of health care providers. “We have 700 more physicians statewide and serve 300 more zip codes than the consultant’s report said,” he said.

David Engleberg, senior vice president of California for FHP, contends that FHP ranked lowest among Southern California HMOs in the survey because the questionnaire was filled out by someone in his organization who didn’t understand its importance.


“In the future, I think we will pay much more attention to the completeness with which we fill out the questionnaire,” he said.