25% of Doctor Groups Face Insolvency

Nearly a quarter of California’s beleaguered physicians’ groups are falling far short of the state’s financial solvency requirements, threatening their continued existence, the state’s chief HMO regulator said Tuesday.

Although the money problems of medical groups are well known, the state hasn’t previously reported the extent of those problems. “This demonstrates the grave instability in the for-profit HMO system that threatens to affect patients,” said Daniel Zingale, director of the California Department of Managed Health Care. “Those in the hole are deep in the hole.”

About 25% of groups had assets worth less than 70% of the amount they owed others, according to the agency, whose data are from the first quarter of this year. On a separate measure, 20% of groups had a negative net worth and barely any tangible assets, Zingale said.

This summer, the state reported that 56% of the 200-plus medical groups in the state failed at least one of the four measures of fiscal solvency in the first quarter. Groups were first required to report this information to the Department of Managed Health Care this year.

What wasn’t disclosed publicly Tuesday was how each medical group specifically fared on the four measures of financial solvency. That information is at the center of a heated controversy between regulators and doctors. Zingale said he would like to release that data Oct. 1, but the California Medical Assn. is threatening to sue.

The state’s physician lobby believes the specific information should be kept private because it will give health plans too much information on the exact position of doctor groups. If a group is successful and has a surplus, an HMO may refuse to provide any fee increases, said Dr. Jack Lewin, executive vice president and chief executive of the California Medical Assn.

In addition, Lewin said, regulators are in a much better position than the public to interpret the data and take appropriate steps to protect consumers. Technical financial data “would serve more to confuse than to help,” he added. Lewin’s group supports the release of basic information on whether each group passed or failed the fiscal tests.

“We prefer that the regulator take appropriate action based on the degree of insolvency and the specifics of each organization that doesn’t meet the standard,” Lewin said. “That’s a far more rational approach than assuming that publishing those figures will make a difference.”

Health plans maintain they already know the financial standing of groups with whom they share financial responsibility for patient care. Contracts routinely require medical groups to allow health maintenance organizations to examine their books. The public should know this information as well, HMOs say.

The state senator who wrote legislation to collect the doctors’ group data said she does not support their public distribution. Sen. Jackie Speier (D-Hillsborough) said she believes Zingale has gone beyond the Legislature’s intent.

“How can you [doctors groups] negotiate when they [health plans] know exactly what your assets are, what your debts are,” she said. “You are not negotiating from a position of equality.”

Zingale said he can’t understand opposition to public disclosure given the high-profile collapse of several medical groups in the state. If doctors see that their group is having problems, perhaps they will take more aggressive steps to shore up its financial health.

“I don’t think the problem is that doctors and patients have too much information about the for-profit HMO system,” Zingale said. “I think they have too little. Frankly, the situation for some of these entities is an alarming one.”

The state Office of Administrative Law must determine by next week if Zingale’s proposed regulations comply with Speier’s underlying legislation.

Zingale said he is considering whether the state should take punitive action against money-losing medical groups. For instance, the state could force HMOs to sever contracts or stop enrolling members in troubled doctor groups. But Zingale said he is not sure the state should play such an active role in the private marketplace.

On Tuesday, he presented his dilemma to the Financial Solvency Standards board, which advises his department. “I want to be very cautious about the next steps,” Zingale said. “I hesitate to say that the government has the answer to all these problems.”

Zingale said he is inclined to take action against groups that don’t provide their financial data to the state, as the law requires. He may publish their names in newspapers and prevent HMOs from enrolling patients in those groups. “I think they are putting patients at serious and unknown risk,” he said. The California Medical Assn. blamed the state’s health plans for underpaying doctors and driving them to the brink. But the California Assn. of Health Plans said insurers are paying groups more money, and many of them are improving.

“These medical groups are being treated in effect now as mini insurers and are being held to standards that they never have been held to in the past,” said Walter Zelman, president of the HMO trade group. “On the one hand, we’re seeing that, yes, there is a problem. On the other hand, we should always have expected that many of them, at least in the early stages of this, would be out of compliance.”