O.C. Looks to Santa Barbara on OPTIMA

As Orange County embarks on a potentially risky $450-million effort to save tax money by revolutionizing health care for 250,000 indigent Medi-Cal recipients, a health official in Santa Barbara County makes a sobering observation.

“Orange County is going to need some damned good management and some damned good luck,” Charles C. Bailey said.

Bailey should know, because he is director of fiscal services for the Santa Barbara Health Initiative, the pioneering program that is Orange County’s role model. He has journeyed where Orange County is about to go as it overhauls what county officials complain is a cumbersome and inefficient state-funded system that cares for much of the county’s poor population.

When the county inaugurates its OPTIMA program in January, 1995, it will be the state’s largest county-based, managed-care program for Medi-Cal.

It will closely resemble Santa Barbara’s 10-year-old program, which has earned wide praise but also encountered enough problems and criticism to make Orange County take notice.

“It is the only way for a health care system to go,” said Bailey, who is convinced that the $80-million-a-year program is worth all the frustration and work.

But that opinion isn’t unanimous in Santa Barbara, where the Health Initiative serves only 40,000 people and spent much of its first five years mired in debt.

“When you cut to the financial bottom line, it is no better than the state program,” said James Ash, chief executive officer at Santa Barbara Cottage Hospital and a former member of the board of directors of the Health Initiative.

“This is not a magic solution up here, believe me,” he said.

What’s going right in Santa Barbara?

According to most health officials there, the program has improved the poor’s access to basic medicine, emphasizes local control rather than dealing with the state’s Medi-Cal bureaucracy and sharply reduces the costly overuse of emergency rooms.

What’s going wrong with the program?

Critics say Medi-Cal recipients have a hard time getting specialized medical care because there aren’t enough physicians in specialized areas like orthopedics and neurology willing to participate in the program. And there are not enough physicians in general practice in areas where most poor people live.

Yet the program’s accomplishments have impressed Orange County enough to borrow the blueprint.

“What has been learned is that (government-funded) managed care can work,” said Dr. Marianne Maxwell, project director of Orange County’s OPTIMA program. “It can work for the benefit of patients who get better care in terms of continuity and access and it can work better for providers.”

Here’s how Santa Barbara’s and Orange County’s health care plans work:

Both are set up as nonprofit authorities with the power to enter contracts with doctors, hospitals, pharmacies, community clinics and others to provide health care services to Medi-Cal patients.

All Medi-Cal beneficiaries at the time they qualify for assistance are assigned to primary care physicians, who are paid a flat monthly fee to attend to the patient’s medical needs.

As an incentive for reducing costs under the Santa Barbara program, the primary care physicians receive a bonus if they authorize fewer services such as diagnostic tests, X-rays, drugs and referrals to specialists.

Elsewhere in California, responsibility for contracting for Medi-Cal services is shouldered by the state, which directly reimburses providers who agreed to see Medi-Cal patients on a fee-for-service basis.

Under the traditional state system, many Medi-Cal patients have been unable to find physicians willing to treat them because of widespread dissatisfaction with Medi-Cal reimbursement, paperwork and bureaucracy.

As a last resort, many Medi-Cal patients have been forced to seek routine health care at hospital emergency rooms, at an exorbitant expense.

Most critics agree that what Santa Barbara has done best is to increase access to primary medical care. Many private family physicians and pediatricians would prefer to be paid a set monthly fee than deal with the state billing process.

Another touted advantage of the Santa Barbara system is local control, which enables a board of directors representing providers and consumers to make changes in reimbursement policies to meet local needs, such as adding drugs and treatments that the state doesn’t cover.

Physicians who have questions about claims say they can easily contact a decision-maker on the telephone, something that they contend was impossible when working with Sacramento.

Nonetheless, the county-based program has had little success in attracting specialist physicians, who have no greater financial incentive to treat Medi-Cal patients under the Health Initiative than under the old state program.

“I think there are a lot of problems with the system,” said Ash, who runs the largest of the county’s seven hospitals. “They deny claims and refuse claims as much as any other payer, if not more.”

But many care recipients say their lives are better because of the Health Initiative, which will mark its 10th anniversary next month.

Jerrie Domingos, who cares for handicapped children at her home in Buellton, said that before the county took charge, she had to search the Yellow Pages for a doctor who would see children on Medi-Cal.

“Now I take them to the same pediatrician I take my grandchildren to,” Domingos said.

Other fans of Santa Barbara’s system are Rolf and Patricia Schiefel of Carpenteria who, because of the Health Initiative’s more liberal home nursing allowance, are able to care for their 25-year-old, brain-damaged son at home rather than worry about his welfare in a nursing facility.

“If we lived in San Luis Obispo or Los Angeles, we wouldn’t have our son Andre home,” said Rolf Schiefel.

By linking patients with family physicians who provide them with continuity of care, Santa Barbara Medi-Cal officials say managed care has reduced the unnecessary use of hospital emergency rooms, and chances are less that neglected health problems will land patients in hospitals.

According to the Health Initiative’s records, Santa Barbara Medi-Cal beneficiaries use hospital emergency rooms only 43% as often as their counterparts in the state-administered Medi-Cal program and are hospitalized only 62% as much.

Moreover, managed health care in Santa Barbara County has saved the state a total of $12.8 million in Medi-Cal funding from 1983 through 1990, the last year for which figures are available, according to the State Department of Finance.

The hopes of Orange County health planners are buoyed by these positive reports in Santa Barbara County and by similar experience in San Mateo County, which established its own managed care Medi-Cal program in 1987.

Maxwell acknowledged that in 1986, Orange County had decided that establishing a county-based managed care system would be too risky in view of the financial difficulties then facing programs in Monterey and Santa Barbara.

Monterey’s program failed, and state officials blamed poor management, including the lack of a finance director and over-generous payment of hospitals and physicians based on unrealistic expectations of what savings managed care can achieve.

Santa Barbara attributes its own past financial problems, including a $5.3-million deficit it had accumulated by 1989, to a period of extraordinarily high medical claims coupled in the early years with inadequate state funding. The biggest losses were in long-term nursing care, the cost of which county officials say the state had grossly underestimated.

But Maxwell believes the state and federal government now show greater commitment to managed care, reflected by more generous funding, which has diminished the risk to new programs like Orange County’s.

Yet she admits the challenge will be great.

The Santa Barbara system has struggled to add enough private primary care physicians to keep up with a fast-growing Medi-Cal population, with the result that county clinics, the public health care providers of last resort, are bearing more of the burden.

One reason for the problem, say health care officials, is a disproportionate share of physicians who practice in the south part of the county, while the poor are concentrated in lower-cost housing to the north.

Another problem, health officials concede, is that while about 500 of the county’s 750 physicians participate in the program, many strictly limit the numbers of Medi-Cal patients they will take.

“We are getting busier and busier because the private physicians aren’t taking as many patients as they promised,” said Pat Daniels, nursing care coordinator for the county clinic in the north county city of Santa Maria.

A shortage of primary care physicians in Lompoc means that the emergency room of the local hospital receives the overflow of patients from the nearby county clinic.

Santa Barbara managed care officials also admit they have had mixed success educating Medi-Cal patients to make appointments with doctors rather than turn to emergency rooms at their convenience. By their account, 68% of Medi-Cal emergency room visits in the county are unnecessary.

“By state law, we are required to see patients regardless of necessity or of payment,” said Dr. Angel L. Iscovich, director of a medical group that staffs the emergency rooms of three Santa Barbara County hospitals.

He advised that Orange County might help reduce excessive emergency room treatment by establishing walk-in clinics after regular doctors’ hours for Medi-Cal patients.

Managers of the Santa Barbara system stress that with increased funding they could do a lot more--especially to attract specialists such as orthopedic surgeons and neurologists who today are paid no more for taking Medi-Cal patients than they were under the state system.

“There is no profit in Medi-Cal for providers, with the exception of some of our primary care physicians who take a lot of patients and manage the costs well,” said David Lamkin, the Santa Barbara Health Initiative’s executive director.

A dermatologist in Santa Maria who contracts with the county Medi-Cal program said he has treated patients coming from as far as 80 miles away because so many other dermatologists won’t accept Medi-Cal payment.

To bridge the shortage of physician specialists, the Health Initiative is negotiating contracts to prepay a few specialists who will take all Medi-Cal patients referred to them without having to bother with claim forms. Dr. David Bearman, the Health Initiative’s medical director, said now that the Santa Barbara program has $2.8 million in funding reserves, it is considering raising the rates it pays to some specialists.

Primary care physicians in Santa Barbara County already have a monetary incentive to practice frugal medicine on Medi-Cal patients. They are guaranteed about 25% more than their normal monthly fee if they spend no more than what is allotted on their patients’ care, and half of any additional savings they achieve.

Otherwise, they receive a flat monthly fee per patient that barely covers their overhead and is less than what the state Medi-Cal pays.

Those who run the program contend that built-in checks, including a grievance procedure for patients, local peer review of physicians and an annual state medical audit, prevent providers from withholding necessary treatment or referrals.

But Dr. Julio G. Diaz, a family practitioner in Goleta, stressed that vigilance is necessary because “the danger in any HMO system is a built-in incentive to do less, to provide less care for more profits.”

No one is happier with the system than the Pediatric Medical Group in Santa Maria, which contracts to provide care to 3,700 children on Medi-Cal, making it Santa Barbara’s largest Medi-Cal physician practice.

Dr. Roger Ikola said the bonuses the practice earns for controlling medical costs makes its Medi-Cal reimbursement equivalent to the payment it receives from privately insured patients.

Practicing managed health care isn’t always easy, Ikola said. “Talking people out of seeing specialists is by far the most unpleasant part. It can be confrontational. A parent may want a child to see a dermatologist for a skin rash or an orthopedic surgeon for a sprained ankle.”

“It doesn’t mean we are denying them care,” he said. “We feel real good about what we are doing. We see a lot of poor people.”

Mixed Reviews

Orange County may be about to learn that health care reform is far easier said than done. A pioneering program in Santa Barbara County serves as an object lesson.

POSITIVE ASPECTS

* More access to primary care physician: Reduces unnecessary use of expensive hospital emergency rooms.

* Primary care physicians are case managers: Improves continuity of patients’ care, keeping them healthy. Refer to specialists only when necessary.

* Flexibility: Can fund some drugs and treatments not allowed by the state and make exceptions in individual cases.

* Participation: Local health care providers and consumers sit on advisory committees and board of directors.

* Increased communication: Allows patients and physicians to get answers to questions and grievances.

* Adaptability: Patients may change primary physicians at will.

* Savings: Results in more judicious use of medicine and fewer self-referrals to specialists.

NEGATIVE ASPECTS

* Fewer doctors: Funding limits mean fewer specialists, resulting in long waits for appointments and need for more services by county clinics.

* Utilization: Possible under-prescription of services because of monetary incentives given to primary care physicians to save money.

* Keeping pace: Ability to add primary care physicians outmatched by growth of the Medi-Cal population.

* Geography: Inability to move physicians, who are concentrated in the southern part of Santa Barbara County; Medi-Cal population is mostly in the north.

Sources: The Santa Barbara Health Initiative and local physicians and hospital administrators

Researched by LESLIE BERKMAN / Los Angeles Times