Managed Care, Ill Feelings : Monarch HealthCare independent physicians group in South Orange County has grown fast and drawn praise from doctors and patients. But it’s a sore subject with some in the medical community.

For years, surgeons Jerald Waldman and Thomas Shaver worked side by side as directors of Mission Hospital Regional Medical Center’s doctors’ association. But the relationship soured and they haven’t spoken in more than a year.

They blame the falling out on Monarch HealthCare, one of the fastest-growing medical enterprises in Southern California.

Two years ago, you see, Waldman championed his association’s decision to join with two other local doctors groups to form Monarch. Monarch, he figured, would give hundreds of South County doctors a chance to bargain collectively with health insurers, with the hope for professional survival against the rising pressures of managed care.

But Shaver, noting the dissension and lawsuits spawned by Monarch, now considers it the “most disruptive” force to hit South County’s medical world in his 25 years in practice.

Surely, Monarch, based in Mission Viejo, is no ordinary medical outfit.

Started last year, it’s run by half a dozen doctors, most of whom split their time between practicing medicine and learning to lead a rampantly growing business enterprise. Monarch has quickly established itself as an influential--if controversial--managed-care company that already has lined up HMO contracts to serve 70,000 South County residents through its network of hundreds of doctors.

A week ago, it moved to expand northward by quietly agreeing to merge with an even larger doctors’ organization--Orange-based St. Joseph Medical Corp.--which would create one of the largest organizations of independent doctors in the state.

But Monarch’s early successes have triggered an uproar among South County physicians. Its business tactics have split them into warring camps of general practitioners and specialists--and even prompted lawsuits.

General practitioners tend to side with Monarch. Already, they are benefiting from higher revenues on contracts Monarch has negotiated with insurers. Dr. John Carruth, a Mission Viejo pediatrician happily noting a 20% rate increase in his reimbursments, declared: “Monarch is working in my interest.”

But certain specialists feel the opposite. As is common in managed care, in contrast to traditional fee-for-service medicine, Monarch’s contracts effectively limit income for specialists by paying them a flat prepaid rate for each HMO member.

In addition, Monarch keeps a tight rein on patient access to specialists. And some specialists blame Monarch for refusing to sign contracts at rates they consider fair--and only doing business with those who will work cheaply.

“Monarch . . . froze us out,” said Louis Potvin, a Mission Viejo obstetrician who said he has lost nearly 50% of his practice revenues to managed care in the last three years.

Some specialists have even filed a lawsuit against Monarch, claiming the company hasn’t bargained with them in good faith.

Such controversies are increasingly common around the state, as rising numbers of patients desert doctors practicing traditional fee-for-service medicine for those on managed-care plans.

Charles Madden, chief executive of St. Joseph Medical Corp., said the specialists’ legal beef against Monarch won’t affect St. Joseph’s plans to merge with Monarch. He said such disagreements are common when doctors want the business from managed care but won’t accept its terms.

“You can’t have it both ways,” he said.

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The rise of Monarch and similar organizations across the country reflect how “physicians are looking at every possible way to continue to practice medicine,” said Richard Hansen, a Palo Alto consultant at Medical Group Management Assn., a national organization of practice managers.

Many, of course, are selling their private practices to become employees of big medical groups that contract with HMOs.

But increasing numbers are turning to loose associations, such as Monarch, which enable them to both keep their practices and see HMO patients.

Monarch, owned by more than a hundred South County physicians, expects to handle $50 million in contract revenues this year, up 25% from last year. It takes a 10% to 12% cut for services that include claims processing and review of patient cases and use of medical services. And despite some early communication problems with patients, local health-care sources say patients now seem generally satisfied with Monarch.

PacifiCare, for instance, reports that the number of its members choosing Monarch is growing at an annual clip of 25% to 30%--two or three times the rate for typical providers. “When I see that kind of growth rate, I know they [Monarch] are meeting the satisfaction of their members,” said Chris Wing, a PacifiCare vice president. At last count, he adds, about 24,000 PacifiCare members had signed up for Monarch.

Monarch clearly found a ready marketplace in the area stretching south from the El Toro Y, where the San Diego and Santa Ana freeways converge, to Camp Pendleton Marine Corps Base. Here, as in other urban and suburban pockets around the state, rising insurance premiums, patient co-pays and drug costs have hastened the rush of employers and patients to managed care.

Consumers ranging from young families in Rancho Santa Margarita to the senior citizens on Medicare in Leisure World have switched from traditional fee-for-service medicine to HMO plans.

Sole practitioners watched in dismay as large medical groups with HMO contracts, such as Irvine-based Bristol Park, with clinics in Mission Viejo, San Clemente, and San Juan Capistrano, snapped up patients.

Monarch arose in reaction, as a way to let general practitioners and their patients stick together in the era of managed care.

It began in 1993, when six doctors--two each from doctors’ associations at Mission Hospital, Saddleback Memorial Center and South Coast Hospital, decided to quit competing and form a new company. The six now serve as Monarch’s board of directors, often logging 60-hour workweeks, with five continuing to practice medicine.

The part-timers include: Drs. Jay Cohen, Monarch’s chairman and a family practitioner; Bart Asner, its president, a pediatrician; Marvin Gordon, its chief financial officer, a gastroenterologist; Dennis Shuman, its medical director and internist; and Steven Rudy, senior vice president for strategic planning and a urologist. Only Dr. James Selevan, an internist, works full-time as Monarch’s chief officer in charge of data collection and analysis of patient-physician encounters.

The six--most of whom refused to be interviewed because of litigation against Monarch--elicit feelings ranging from admiration to anger among their medical colleagues.

Some fellow physicians marvel at how Monarch’s directors are meeting the challenges of a business enterprise that’s quite apart from the practice of medicine. Others recoil at what they see as their former colleagues’ coldbloodedness in cutting deals with certain doctors, while shutting others out.

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For a start-up company, Monarch has touched off plenty of turmoil in South County’s close-knit medical community. Among other things, critics claim the company has been overzealous in attempts to rein in spending on specialists’ services.

Consider what happened when a group of about 40 obstetricians and gynecologists tried negotiating contract terms with Monarch.

Henry Leavitt, a consultant to the specialists, said Monarch originally didn’t pay close enough attention to South County’s demographics in coming up with reimbursement rates for gynecological services. He noted, for instance, that there is a higher percentage of female members in the patients Monarch serves than in the general population, thereby raising the level of services required by these specialists.

As the upshot, Leavitt said, Monarch settled with the specialists by paying them an additional $250,000 for services last year. Monarch’s Selevan said the company last year was in the process of learning how to set rates fairly--and made the adjustment based on the level of specialist services patients used.

In another controversial step, Monarch has limited its number of contracted specialists.

Like many other managed care companies, Monarch controls patient access to specialists, reducing the need for specialists’ services. Said Selevan: “We do not have sufficient business to keep 18 ophthalmologists or 24 orthopedic surgeons or 12 cardiologists busy.”

Industry experts say that limiting specialists should enable Monarch to give more business to a smaller number of specialists who will then accept deeper discounts because of the increased volume.

Accordingly, sources say, Monarch signed a contract, effective Aug. 1, with a group of 10 obstetricians, to handle patients at Saddleback, South Coast and Mission. The Saddleback group, in turn, will subcontract some of its services to other obstetricians, sources say.

Sources say other specialists are lining up to cut their own deals with Monarch. The Saddleback contract unleashed a “feeding frenzy,” said one local physician who asked not to be identified. “It’s doctors stabbing each other in the back, stumbling over each other offering discounts in return for exclusivity.”

On top of all that, Monarch is battling infuriated doctors in court.

In one suit, filed in Superior Court in Santa Ana, doctors affiliated with Mission Hospital’s association, Mission Quality Care Inc., allege that Monarch reneged on an obligation to pay hundreds of thousands of dollars due them for medical services they performed for Mission Quality.

The plaintiffs charge that Cohen--Monarch’s chairman and formerly Mission Quality’s president--and directors Gordon and Shuman and others conspired to loot Mission Quality Care by shifting its contracts with HMOs and insurers to Monarch. Plaintiffs claim that they were duped into joining Monarch with promises that their bad debts would be paid. They seek $1 million in punitive damages.

A lawyer representing Monarch and its directors said the company denies the charges. He said Monarch is completely separate from Mission Quality.

What’s more, one of the plaintiffs--a group of anesthesiologists, Mission Anesthesia Medical Associates Inc.--has filed a related lawsuit in the same court, charging Monarch refused to negotiate in good faith to contract with Mission Anesthesia, a charge Monarch also denies.

Still, Monarch patients evidently see little, if anything, of the ruckus going on behind doctors’ doors in South County. And early indications suggest patients seem to be fairly satisfied with the care they’re getting.

Terry Hargadon, a vice-president at Saddleback hospital, said, “I get mostly good reports from patients on their experience with Monarch.”

Indeed, a benefits manager for one major local employer, who asked not to be identified, said that Monarch patients complained for a few months last year about delayed referrals to specialists and other communication problems but says the problems have apparently cleared up.

Besides, she said, Monarch controls so many physicians in South County that patients have few alternatives.

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Where the Money Goes

A typical individual’s $100 health insurance premium, distributed among the insured’s HMO, member hospitals and Monarch HealthCare physicians, would breakdown this way:

$22

HMO Charges: Administrative; costs such as drug benefits and out-of-area care

$39

Member Hospital Charges: Fund pool that member hospitals draw for patient services

$39

Monarch HealthCare Charges:

$21.45 to specialists

$9.75 to primary care physicians

$3.90 to administrative costs

$3.90 to outside referrals

Note: $100 average used for simplification; individuals’ montly premiums average about $100.

Source: Monarch HealthCare; American Medical Assn.; Researched by BARBARA MARSH / Los Angeles Times

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Joining Forces

More physicians are opting to join an independent physician association (IPA) to survive in today’s competitive health-care industry. Percent in IPAs, by specialty:

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Specialty 1990 ’94 General/family practice 18% 26% General internal medicine 19 36 Internal medicine sub-specialties 24 39 General surgery 21 31 Surgical sub-specialties 22 39 Pediatrics 28 31 Obstetrics/gynecology 25 41 Radiology 16 37 Psychiatry 10 15 Anesthesiology 15 32 Pathology 13 28 Emergency medicine 6 12 Other specialties 12 31 All physicians 19% 32%

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Physicians in IPAs, by Practice Size

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Physicians in practice 1990 ’94 One 21% 32% Two-Four 25 37 Five-Nine 23 41 10-24 19 32 More than 24 12 28 All physicians 19 32

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Source: Monarch Health Care; American Medical Assn.; Researched by BARBARA MARSH/Los Angeles Times