PacifiCare Is Cut by UCI Medical Center Over Fees

Bucking the low-paying managed-care system, UC Irvine Medical Center said Wednesday it will drop PacifiCare Health Systems Inc. medical plans because the fees are so low the hospital is losing more than $1 million a year.

The termination, which came after six months of negotiations, will affect about 4,000 patients, who now must seek other medical plans that the hospital accepts or other doctors still accepting PacifiCare members.

UCI Medical Center said it lost nearly $1.1 million treating 3,249 patients during the fiscal year that ended June 30. It lost more than $1.4 million treating 3,789 patients in the first nine months of this fiscal year, said Susan Rayburn, a hospital spokeswoman.

“Our problem was getting worse rather than better,” Rayburn said. “We attract the sickest patients and those in need of very expensive care.”

PacifiCare spokeswoman Cheryl Brady said the medical provider is “disheartened” by UCI’s decision to terminate the seven-year relationship. She said PacifiCare had offered to increase its payments 10%.

Health care companies, particularly those that use the capitation system, have struggled to reinvent themselves in the wake of consumer and physician anger over payments.

Under capitation, doctors are organized into groups and paid a set monthly fee to provide nearly all services, including hospitalization, laboratory work and pharmaceuticals. But with that fixed monthly amount, doctors and hospitals would see their own incomes swing wildly depending on treatments and prescriptions ordered for patients.

PacifiCare had the strictest controls on payments in the industry, but it has pulled back somewhat from its reliance on capitation and is offering to pay for more hospitalization and drug costs. But UCI Medical apparently wanted more.

“The rates UCI was demanding were inconsistent in the Orange County marketplace,” Brady said, without disclosing the amount. “UCI made it clear that they were unwilling to negotiate off those rates. Other medical groups and hospitals in Orange County are successful under comparable rates.”

UCI Medical Center, however, appears to have been unfazed by the company’s shift, as well as its stature as the operator of Secure Horizons, the nation’s largest health-maintenance organization for senior citizens.

Trying to improve its own bottom line, UCI Medical Center has dropped three other money-losing HMO contracts in the past eight months. Those contracts included one with HealthNet, one of the largest health care companies in the state.

The hospital plans to woo patients by becoming a center for medical referrals in Orange County. Patients seeking the expertise of UCI’s 350 faculty and clinical staff physicians would have to be referred by their own doctors and could end up paying out of their own pockets for part or all of the bill.

“What we will do is bill other medical groups on a fee-per-service basis,” Rayburn said.

Of the patients affected by UCI’s decision, about 1,400 are hospital and school employees, 330 are Secure Horizons members and the rest are mainly residents in the general area that are covered under PacifiCare plans.

PacifiCare operates HMOs and other managed-care plans for 3.7 million members in nine states and Guam.