Physician Network Quagmire
Managed care in California faces a crisis of financial mismanagement that, if left to its current course, could throw more than a million consumers into turmoil about their medical care.
The state’s decision last week to seize control of MedPartners, one of several “middleman” companies brokering care between HMOs and doctor groups, was the right one. The company was about to collapse, leaving its doctors unpaid and probably forcing its 1.3 million beneficiaries (most of them in Los Angeles and Orange counties) to change doctors overnight. The patients would still be insured, but the link between HMO and doctor would have snapped.
The decision to put MedPartners under Chapter 11 bankruptcy protection was the easy part of the solution. Now state regulators need to address the problem’s root: California’s failure to monitor and regulate “physician management networks” like MedPartners.
In 1996, the Department of Corporations allowed these networks to act as health care brokers, receiving yearly per-patient fees from big managed care companies and taking a cut for profit, then doling out the rest to individual doctors and clinics.
The failure to monitor these middlemen, however, has led to scores of abuses. In 1997, for instance, FPA Medical Management, then based in San Diego, bought four ailing health care networks that had lost $71 million the previous year, then bumped up its stock price by promising HMOs that its doctors would deliver health care at unrealistically low rates. A class-action suit brought by former FPA physicians charges that FPA’s founders issued rosy financial reports that caused their stock to soar, then sold off almost $10 million in shares just days before the alleged scam was revealed and the stock plummeted.
FPA Medical Management relocated to Miami last year.
Later this month, Gov. Gray Davis is expected to announce the creation of a new state agency to oversee managed care. He should use the occasion to outline concrete steps to correct what the state’s old regulator, the Department of Corporations, now admits was a gross lack of financial expertise that left it incapable of scrutinizing FPA’s misleading claims of success.
Davis should also urge legislators to clarify how physician networks are regulated. Even large health plans normally opposed to state meddling want state regulators to explain their responsibilities for overseeing health care brokers. Otherwise, these health plans could find themselves facing lawsuits from doctors left unpaid by brokers.
California also should establish a reserve fund to cushion health provider failures. Currently, the state requires automobile, homeowner and earthquake insurers to charge a small premium to consumers that goes to a trust fund that can be used to rescue insolvent insurers. It is reckless for the state not to have a similar safety net for health care.
If state officials, working with managed care executives, cannot promptly find an effective way to oversee the physician networks, then they should reverse the state’s decision to allow middlemen in managed care--a decision that, the present mess suggests, the state should not have made in the first place.
