Kaiser Loan Keeps Start-Up Planning for OPTIMA Afloat

The organization that is revamping Orange County’s Medi-Cal system, which was imperiled financially by the county’s bankruptcy, has accepted a $3-million loan from Kaiser Permanente of Southern California that should ease its fiscal woes. Officials announced the loan to the emerging OPTIMA program Monday with obvious relief, saying that if Kaiser had not stepped in, they might have been forced to interrupt much-heralded plans to bring 300,000 Medi-Cal recipients into managed-care networks.

“We would have had to look at a different timetable,” said OPTIMA Chief Executive Officer Mary Dewane, who has been pushing to have the new system up and running by Aug. 1.

Timing is crucial to the program because any delay could be costly. Most state funding for OPTIMA begins flowing only when the organization is serving patients. The bulk of start-up costs--estimated at $300,000 to $600,000 a month--must be covered by other sources.

OPTIMA, a nonprofit organization operating only in Orange County, is intended to provide the poor with greater access to health care at reduced cost to the public.

OPTIMA has more than $2 million of its start-up funding tied up in the county’s bankruptcy and it is uncertain when it will gain access to that money. Since early December the organization has operated under a hiring freeze, even as it prepared to accept bids from dozens of health-care providers throughout the county that are seeking Medi-Cal contracts.

If the loan is approved by the Board of Supervisors, as expected, the hiring freeze will end and OPTIMA will proceed essentially on schedule, officials said.

OPTIMA officials and a Kaiser representative acknowledged Monday that Kaiser is one of the applicants seeking a Medi-Cal contract with OPTIMA but insisted the loan would have no impact on the bidding process.

“We really are doing this because we believe in it,” said Dr. Kenneth E. Bell, Kaiser’s medical director in Orange County.

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Bell said Kaiser, with about 200,000 members in Orange County, now serves about 3,200 Medi-Cal patients. Under OPTIMA, the organization’s Medi-Cal membership would not exceed 10,000, he said.

OPTIMA board Chairman John R. Cochran III said the arrangement had been reviewed by attorneys for OPTIMA, who determined no conflict of interest existed. In any case, Cochran said, the OPTIMA system is set up to be “inclusive, not exclusive,” meaning that any organization that meets OPTIMA’s objective criteria will be eligible to participate.

Cochran said OPTIMA had explored other options, including bank loans, but got the best deal from Kaiser, which best understood the organization’s needs. The loan is to be repaid over 24 months beginning in April, 1996, at an interest rate of 8.5%.

Dewane said the interest rate is comparable to the prime rate but the arrangement does not involve loan fees normally charged by banks.

In spite of the Kaiser loan, the OPTIMA board of directors made some minor adjustments to the organization’s timetable Monday when prospective applicants complained that they could not possibly complete their applications by the Feb. 15 deadline without rate information from the state.

The state has not released the fixed rates it proposes to pay for each OPTIMA patient, and these are not expected to be finalized until late February or early March.

Hospital and physician representatives said that puts them in a bind and pleaded with the OPTIMA board to extend the application deadline by 30 days.

“In most business decisions, you need to look at volume and you need to look at price,” Tom Jones, chief executive officer of Children’s Hospital of Orange County, said. “Both of those are big blanks right now.”

Paul Viviano, regional president of St. Joseph Health System, said the integrity of the entire system is threatened because OPTIMA is allowing physicians to join only three networks, yet it is not giving them the information they need to decide which to join. It is possible, for example, for a physician to join networks that choose not to apply because of unsatisfactory payment levels.

But OPTIMA board members extended the deadline only two weeks, to March 1, citing concerns over start-up costs. The board agreed, however, to let applicants submit answers to rate-related questions after rates are set.