SOUTHERN CALIFORNIA ENTERPRISE : Association Causes a Rift Among Doctors : Medicine: Some saw joining Monarch HealthCare as a way to survive in the managed-care era. But many question its tactics.

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, it seems, 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 Orange County doctors a chance to bargain collectively with health insurers, helping them survive amid the rising tide of managed care.

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

Such quarrels among medical practitioners are becoming increasingly common across California as independent physicians flock to join associations such as Monarch.

With rising insurance premiums and drug costs hastening the rush of employers and patients to managed care, sole practitioners of traditional fee-for-service medicine must scramble to survive. Organizations such as Monarch, which enable them to both keep their independent practices and see patients who belong to managed-care plans, can be an attractive alternative to becoming an employee of a big medical groups.

Monarch, started last year in Mission Viejo, is run by six doctors, most of whom split their time between practicing medicine and leading a fast-growing business enterprise. Monarch has quickly established itself as an influential--if controversial--managed-care company. It has already lined up health maintenance organization contracts to serve 70,000 south Orange County residents through its network of hundreds of doctors.

In September, 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 business tactics have split south Orange County’s medical community into warring camps of general practitioners and specialists.

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

But some specialists have the opposite sentiment. They denounce Monarch for refusing to sign contracts at rates they consider fair, and they accuse it of 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 half his business to managed care in the last three years.

Monarch, owned by more than 100 South County physicians, expects to handle $50 million in contract revenue this year, up 25% from last year. It takes a 10% to 12% cut for services that include claims processing, review of patient cases and use of medical services. And despite some early problems, local health care sources say, patients now seem generally satisfied with Monarch.

For instance, PacifiCare, the HMO, reports that the number of its members choosing Monarch is growing at an annual rate 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.

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

In 1993, six doctors--two each from doctors’ associations at Mission Hospital, Saddleback Memorial Center and South Coast Hospital--decided to quit competing and form a company. The six are now Monarch’s board of directors, often logging 60-hour workweeks, and five continue to practice medicine.

The part-timers include Jay Cohen, Monarch’s chairman and a family practitioner; President Bart Asner, a pediatrician, and three other physician-officers. James Selevan, an internist, works full-time as Monarch’s chief information officer.

The six--most of whom refused to be interviewed because of litigation against Monarch--are despised by certain doctors for cutting deals with some physicians while shutting others out.

Industry experts say that limiting the number of specialists under contract should enable Monarch to send more business to fewer specialists, who will, in turn, accept deeper discounts because of the increased volume of patients.

Monarch, instead of dealing with about 40 obstetricians and gynecologists originally involved with the association, cut a contract, effective Aug. 1, with just 10 of them. That group, in turn, will subcontract with others.

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

Not surprisingly, Monarch is battling infuriated doctors in court.

In one recent 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 performed.

The plaintiffs charge that Cohen--Monarch’s chairman and formerly Mission Quality’s president--and two other directors conspired to drain Mission Quality Care of revenue by shifting its contracts with HMOs and insurers to Monarch.

A lawyer representing Monarch and its directors said the company denies the charges.