Booming HMOs Seek Efficiency : Medicine: Huge growth has meant big profits. But increased competition is forcing companies to streamline operations and cut costs.

It was early morning the day after Labor Day, and already the customer service department at Health Net was on its version of red alert.

By 8 a.m., about 55 phone representatives were strapped into their headsets, taking calls from the giant health maintenance organization’s members, but that wasn’t enough. Electronic signboards that hang from the department’s ceiling flashed red lights and spat out ominous data: more than a dozen callers were on hold, the average wait approaching a patience-testing 91 seconds.

At 8:30 a.m., six of the department’s supervisors, and two employees from the correspondence department, were recruited to take calls, but the red lights persisted.

By 10 a.m. the crisis was over. Another 17 phone reps had started their shifts, and the signboard lights, which blink through the colors of a traffic signal according to call volume, finally flashed a soothing green.

But the red lights returned periodically throughout the day, and by sundown Health Net had fielded a whopping 4,181 calls. “You wonder how there can be so many calls,” said Marc Pannier, the 23-year-old assistant manager of the department, shaking his head. “You say to yourself, ‘When is it going to stop?’ ”

Probably not anytime soon. In California, HMOs have watched their enrollment grow by 34% over the past five years, and Health Net is among three Woodland Hills companies leading that surge. Since 1989, Health Net’s membership has swelled by 68% to more than 1.23 million, making it the second largest HMO in the state. In that same period, CareAmerica’s membership has doubled to 203,700. And CaliforniaCare, the HMO run by Blue Cross, says its enrollment also has more than doubled to about 700,000.

HMOs have wrested huge chunks of medical care away from traditional fee-for-service plans, which typically paid 80% of medical costs for patients who could go virtually anywhere for treatment. These plans were blamed for contributing to spiraling medical costs in the past decade. And while President Clinton’s health care reform has run into a roadblock, the marketplace has made changes of its own, in part because many large companies have decided to steer more of their employees into HMOs as a way to cut medical costs.

HMOs cut costs by using their growing memberships as leverage to negotiate discounts with hospitals and doctors. They also work to root out medical procedures deemed to be duplicative or unnecessary through the use of gatekeepers--doctors who control patient access to specialized treatment.

For most HMOs, profits have climbed along with enrollment. But now fierce competition has wiped out the annual, double-digit premium hikes HMOs could count on a few years ago. And with about 80 cents of each $1 collected in premiums being spent on medical care, HMOs must juggle huge growth and yet be more efficient with the 20 cents they keep to cover sales and administrative expenses.

“It’s how well you manage that 20% that will determine how well you’re going to do in the marketplace,” said John Edelston, chief executive of HealthPro Associates, an HMO consulting firm in Woodland Hills.

For CareAmerica, Health Net and Blue Cross, changing market pressures mean watching costs and striving for efficiency; moving to bigger buildings; handling more telephone calls, and signing up new doctors to handle swelling numbers of patients.

CareAmerica, launched in 1986, is the smallest of the three HMOs based in Woodland Hills. But growth has come so quickly--business is expanding at a 16% annual clip--that by last year the company was scattered into four separate buildings at its former Chatsworth headquarters. Until recently the company relied on a platoon of clerks to shuttle claims and enrollment forms between file cabinets in one building and processing departments in another.

Fed up with this inefficiency, the company in June moved its 550 employees into a Warner Center high-rise.

Care America, a subsidiary of Burbank-based UniHealth America, also has purchased a computer system that converts paper documents to digitally recorded computer images that can be retrieved at the touch of a button and viewed simultaneously by employees on different floors. The system was purchased two years ago for $1.2 million, but Jim Higgins, director of information systems at CareAmerica, said it saves about 32 full-time positions a year.

The system stores about 700,000 images of claims and enrollment forms, and 1,000 more are added each day. Gone are the 32 file cabinets that once held all company documents. In their place is a device that looks and functions a bit like a jukebox, storing images on a set of LP-sized disks. The system isn’t without flaws. One computer processor said his computer can’t flip through the pages of a digitized form as quickly as he could flip through a paper one. But the new technology replaced an arrangement in which clerks often took an entire day to retrieve a document from storage.

“We can now spread people geographically throughout the building,” Higgins said. “They don’t have to be near the paper. It’s just a couple of keystrokes away.”

Shirley Smith, manager of Health Net’s customer relations department since 1986, acknowledges that her job’s hectic pace has her thinking more and more about early retirement.

Eight years ago, her staff consisted of just 13 employees, and the entire company occupied one floor of its Oxnard Street high-rise. Today, Smith’s department has 109 employees and a floor to itself, and the rest of Health Net’s staff is spread among 16 floors.

Smith has 87 phone reps, each of whom spends seven hours a day on the phone, fielding an average 65 calls from members or potential customers. Hunkered down in their cubicles, the phone reps flip through binders to find answers to callers’ questions. The average call now takes about four minutes to handle, Smith said, twice as long as in 1986. “It used to be, ‘Do I have a co-pay?’ ” Smith said. “Today they call to ask us to explain infertility services.”

Smith’s department fields about 4,000 calls per day in the spring and summer, and 6,000 calls per day in winter, when most companies allow their employees to change health plans.

To keep pace with a 68% surge in enrollment over the past five years, Smith has added about eight phone reps to her staff each year. This year, Smith is planning to hire 30 new phone reps because Health Net recently merged with QualMed, an HMO based in Colorado, adding about 150,000 new members in California. Both HMOs are now subsidiaries of a newly created parent company, Health Systems International.

Smith’s department has also spent $3 million on high-tech equipment. In 1989, the company purchased a system that routes and monitors telephone traffic, displaying the data on electronic signboards that register volume by flashing through the colors of a stoplight: green for light traffic, yellow for moderate, and red for heavy.

Two years ago, the company also purchased a voice-response system that allows callers to select prerecorded answers to commonly asked questions. The system handles about 34% of the department’s calls, Smith said, and saves about 35 full-time phone rep positions a year.

Such technologies have been a big help, Smith said, but can only do so much in the face of a seemingly endless line of new members. “There is a saying that there is always a light at the end of the tunnel,” she said. “I learned a long time ago that that light is a train, and we need to keep ahead.”

Ferial Bahremand might be the most frazzled employee at CaliforniaCare--the HMO run by Blue Cross of California. Bahremand is in charge of recruiting doctors, a task that might be relatively simple if the HMO’s enrollment weren’t rising by an average 25% each year, as Blue Cross says it has since 1992.

To absorb the influx, Bahremand has quadrupled the size of CaliforniaCare’s doctor network in the past five years, adding 11,524 specialists and 4,352 primary care physicians--the gatekeepers who manage patient treatment and are the backbone of HMOs. But for Bahremand, who these days begins conversations by saying, “I have to go to a meeting in five minutes,” the work has just begun.

Just last month Blue Cross won a contract with the Los Angeles Unified School District. As a result, Blue Cross expects to take on 70,000 new members in January, many of whom are likely to select their HMO.

The LAUSD contract wasn’t announced until last month, but Bahremand began preparing for it in June, when she was advised that a big contract was in the works. Since then, her staff has spent about 70% of its time identifying regions where the doctor network might need to be expanded, weighing applications from doctor groups, and drawing up new contracts.

Generally, HMOs strike deals with individual practice associations, or IPAs, and medical groups. IPAs are affiliations of private practice doctors. In contrast, doctors who are members of medical groups usually do not have private practices, but are employees of the group. The size of IPAs or groups can range from fewer than a dozen doctors to more than 100.

“So far, we have added six IPAs” because of the LAUSD contract, Bahremand said. “When the dust settles we’ll probably have 10 or 12 new IPAs.”

And then, given the burgeoning business of HMOs, she’ll undoubtedly move on to the next deal.