Painful Change Afflicts State’s Health System

The Wilson Administration’s plan to revamp California’s health care system for the poor, modeled after private managed-care systems, is off to a shaky start, subject to delays, political infighting and gloomy budget forecasts that show initial savings to be based on wishful thinking.

The push to managed care has created huge political problems for the Administration, raised important questions about the future of the health care delivery system for the poor in California and touched off an industry war. It pits traditional “safety net” providers, including county health departments, against relative newcomers in the field, the for-profit health maintenance organizations (HMOs) and other prepaid health plans.

The political fighting has led state Health Services Director Dr. Molly Joel Coye to impose a moratorium on further expansion of the program, and has sent Coye and her staff back to the drawing board and forced her to begin a new series of negotiations with county health administrators.

“There are a lot of big-interest stakes here. There are mega-millions of dollars (involved),” Coye, who is also architect of the program, said during an interview. “As soon as you upset the apple cart in any direction, the kind of political screaming you get is very likely to happen. In the face of that it’s probably fairly predictable that we would get to a point where we would be moved to call a halt.”

The stakes are biggest for the patients. About 70% of Medi-Cal patients are welfare recipients, with the rest qualifying under various public assistance plans. The new system represents a dramatically different way of obtaining health services.

Most Medi-Cal patients, who pose special problems because they are poor and often do not speak English, now obtain benefits under the traditional fee-for-service system. This allows them to choose their own doctors, hospitals and level of care, so long as they can find physicians and others who will accept the state’s relatively low reimbursement rates.

Under the new system, the state would contract with HMOs, county health organizations, clinic chains and others, and pay them a set monthly fee for each patient.

For many patients, the difference can be crucial.

Proponents say managed care broadens access to health care for Medi-Cal patients, who have been plagued in recent years by growing numbers of doctors and hospitals who will not treat them because of low reimbursement rates. It also sets up a regular pattern of treatment that will allow the state to track an individual’s quality of care.

Critics, however, argue that prepaid health care programs squeeze their profits by reducing services. There have also been complaints that the prepaid plans pick their clients with an eye toward those who are healthiest, seeking to cut off clients once they get sick. In the history of prepaid health plans, there have been numerous bankruptcies and instances of firms going out of business, leaving their clients scrambling for care.

As serious as patient care issues are, the Wilson Administration has had its hands full with a multitude of other problems.

The Administration, pressed by budget conscious lawmakers, had forecast that it would have 1 million Medi-Cal beneficiaries enrolled in managed care plans by the end of the current budget year on June 30, at a saving of $76 million. It hopes to have half the state’s 5 million Medi-Cal recipients enrolled in these plans by the summer of 1995.

Coye still hopes to reach those enrollment projections, but she is saying that she expects “no substantive short-term savings” from the managed care program.

The savings were expected as the result of the bundling of Medi-Cal patients into packaged plans at lower group rates, and the belief that there would be fewer hospitalizations and better management of health care costs.

Coye said the Administration’s projected savings would have been possible only by “causing chaos in the system,” given the accelerated timetable the Administration was put on last year by Gov. Pete Wilson and the Legislature as an outgrowth of budget deliberations. “We were pushed and pushed and pushed to project savings from this that we had reasonable doubts about whether we could achieve. I accept responsibility for the fact that we didn’t achieve them, but I think it’s much better that we didn’t plow ahead and get them,” she said.

State payments to managed care programs operated by counties, HMOs and other prepaid health plans, meanwhile, are rising rapidly, and should reach more than $1 billion in the new budget year, about 7% of the $14-billion Medi-Cal budget, according to Wilson Administration budget forecasts.

Coye and other state officials still expect big savings from managed care in the long term. Those savings would stem from prevention programs, safeguards against duplication of services and tests and fewer expensive hospitalizations. They also hope that competition among prepaid heath plans will lead to lower overall state costs.

To cope with the political problems, Coye outlined a new proposal last week, one favoring counties and other traditional safety net providers of health care to the poor, but it would take months to get off the ground.

The problems that have developed in California are said to be a preview of the problems President Clinton will face as he puts together a national health policy, one component of which is expected to be managed care or, in the words of policy-makers in Washington, “managed competition.”

The infighting has been so intense and the potential changes in the medical delivery system so far-reaching that many medical industry experts say the Administration’s initiative is on a par with the creation of the federal Medicaid program, and its California spinoff, Medi-Cal, in the mid-1960s, and the downsizing of the state’s mental health system that began in the Ronald Reagan era.

The state’s previous approach to managed care, which began in the mid-1980s but took off in 1990 and reached a boiling point last fall, was based on competitive contracting by the state, within a strict set of rules and guidelines passed down by the state.

Essentially, the state put up for grabs a large share of the $14 billion in state and federal money that is spread among the physicians, hospitals, clinics, laboratories and pharmacies that form the network of Medi-Cal providers.

Commercial HMOs and prepaid health plans found the program so attractive that it touched off what one health industry official called a “feeding frenzy” to sign up Medi-Cal recipients.

One of the leaders in the industry, Molina Medical Centers of Long Beach, which operates clinics in Northern and Southern California, grew from about 12,000 members to 50,000 in three years.

That kind of explosive expansion by a number of firms, fostered by aggressive marketing campaigns and door-to-door sales agents who canvassed low-income neighborhoods, caught the traditional safety net providers by surprise.

They feared they would lose hundreds of millions of dollars, if not billions, to the aggressive prepaid health plans. This in turn would jeopardize not only Medi-Cal-based programs, but other health programs--such as treatment of indigent patients and trauma and burn centers--that are supported in part by state payments.

Alarm bells began going off last fall, when the state Department of Health Services signed big contracts with prepaid health plans, giving them the go-ahead to sign up tens of thousands of Medi-Cal recipients in Santa Clara and Yolo counties.

“We were completely blindsided by the state,” said Donna Landeros, Yolo County administrator, who complained that Coye’s department signed a major contract with Molina Medical Centers without warning them.

For Landeros and other county health officials, the shift to managed care threatens to upend the well-established relationships among safety net providers and create a new set of rules.

She wonders, for example, whether Molina will have “staying power” in her county. She asks: What happens if, after a few years, the state squeezes budgets and Molina gets out of the business and, in the meantime, all the old players have been pushed out of the delivery system for the poor?

“The state always starts these programs with both guns blazing, then little by little they start cutting back,” she said.

Dr. C. David Molina, president of Molina Medical Centers, chafes at such criticism.

“No one wanted Medi-Cal patients until nine or 10 months ago. All of a sudden, everyone wants them. We began in 1983, when no one else was interested. We are here to stay,” said Molina, whose firm operates 22 clinics statewide, most of them in Los Angeles, Orange, San Bernardino and Riverside counties.

Molina has been criticized for using aggressive tactics in signing up Medi-Cal recipients, but the firm has its supporters among its patients. The Molina clinic in Long Beach is managed by a Cambodian administrator, Ngoun H. Chhin, and operates with a bilingual staff that can translate in four languages: English, Spanish, French and Cambodian.

One day recently, the elder Molina’s daughter, Dr. Martha Molina, a general practitioner, was on duty, treating walk-in patients that included an elderly Cambodian woman, several Latino children there for inoculations, and June Martin, a diabetic who is supporting a teen-age daughter with payments from the federal Aid to Families With Dependent Children program.

Martin said she began coming to the medical center two years ago, after she visited County-USC Medical Center near downtown Los Angeles, spent all day in a waiting room, then was told to come back the next day.

“Here I don’t have to have an appointment. The wait is usually about 15 minutes,” said Martin, who receives insulin and blood-pressure medication. Anther Molina family member, Dr. Mario Molina, an endocrinologist, has been seeing Martin from the start and can recite her medical history from memory.

Many veteran health care workers recall scandals that plagued California’s first efforts into public managed care programs during the early 1970s. The earlier scandals involved fast-buck artists who skimmed money off in the form of high salaries and profits and bankruptcies that left thousands of enrollees without care.

“What’s to prevent a replay of that scenario?” the Service Employees International Union asked in a critical assessment of the Administration’s moves.

Such questions caused the Administration to back away and rethink its program. The result was the new plan, unveiled by Coye last week in Sacramento, which will allow county health departments and other safety net providers to protect their interests by being a full partner in creating the program’s future. The Administration and health care providers will spend the next few months getting the bugs out.

Some health care providers remain skeptical, fearing that the state will not match its enthusiasm for managed care with a commitment of dollars.

Maryann O’Sullivan, of Health Access, a nonprofit advocacy group, said the new plan puts county and traditional providers “between a rock and a hard place. If they opt to be part of the new program, they’re at risk for (large operating deficits). If they don’t participate, they lose the Medi-Cal dollars they depend on to keep their health care programs operating.”

The Cost of Benefits

The push to managed care is in part a result of exploding growth in Medi-Cal costs. State payments to doctors, hospitals, clinics, pharmacies and others have been soaring, along with patient caseloads. Here are figures for benefits paid since 1985-86. Costs for 1992 through 1994 are estimates. In billions of dollars 1993-94: $14.35 1992-93: 13.03 1991-92: 11.21 1990-91: 8.27 1989-90: 6.71 1988-89: 5.90 1987-88: 5.36 1986-87: 5.12 1985-86: 4.62 Source: California Department of Finance