County begins switching patients to managed care.

State calls for change in care for aid recipients

Within the next several weeks, an organization called the Local Initiative Health Authority for Los Angeles County is expected to begin one of the largest changeovers ever of patients from fee-for-service health care to managed care.

The patients being switched over, under a state-mandated plan, are to include an estimated 880,000 Los Angeles County recipients of Medi-Cal, Aid For Dependent Children and a variety of other government programs providing health care to the poor.

To accommodate the changeover, a new health maintenance organization with an estimated $800 million to $1 billion in annual revenues is to be created. The new HMO is to be owned by the authority, a quasi-public entity established by state law to operate managed care facilities for the poor.

It is part of California's statewide plan to switch health care for the poor from fee-for-service to managed care.

Creating new HMOs

As part of that plan, Los Angeles is one of 12 California counties that will each have two new HMOs created specifically to serve the poor. In each county, one of the new HMOs will be a quasi-public HMO and the other will be a private-sector, commercial HMO.

In Los Angeles, the quasi-public HMO is being set up by the Local Initiative Health Authority, a group designated by the state to oversee the conversion from fee-for-service to managed care for the poor residents of L.A. County.

The authority's 13-member board of governors issued a request for proposals from existing commercial health maintenance organizations to help it set up the new HMO. The board is currently negotiating with a partnership of four HMOs that responded to the request.

The partnership members are downtown Los Angeles-based Maxicare California, Rancho Cordova-based Foundation Health Corp., Signal Hill-based Universal Care and Modesto-based Tenet Health Care Corp./National Med Inc.

According to Carl Coan, secretary of the Local Initiative Health Authority and executive director of the Pediatric & Family Medical Center in downtown Los Angeles, the authority feels it can get its HMO up and running sooner and more efficiently with help from commercial organizations that already have experience operating HMOs.

The deadline to have the L.A.'s quasi-public HMO up and running is June 1996. (The contract to operate the commercial plan, which is estimated to have some 590,000 enrollees, is expected to be awarded to one of at least four private-sector bidders. For more details on the commercial plan, see the related story on page 2A).

Pay dispute

The Local Initiative Health Authority has not yet chosen a name for the new quasi-public HMO.

The new HMO's annual revenues will depend on how much the state agrees to pay for each enrollee, according to Coan, who said the question of exactly how much the state will pay is one of the main issues yet to be resolved.

Coan said the state is proposing to pay the L.A. quasi-public HMO $73 per month per enrollee, but the authority is arguing that a minimum of $80 to $84 is required to adequately fund the program.

"It's going to really be difficult to make this thing work with the rates the state is proposing," Coan said. He added that the funding problem would be exacerbated by the state's requirement that every enrollee have a physical exam within 90 days of joining.

"We want people to have physical exams. All good HMOs encourage their members to have physicals, but it's something that happens over time - not in 90 days. Making it mandatory will mean that everyone will start using the system immediately, which means that it will cost more to operate," Coan said.

According to Robert Gates, director of the Los Angeles County Department of Health Services and vice chairman of the Local Initiative Health Authority, the disagreements over the amount the state will pay has generated "a lot of disappointment."

"We haven't really done enough analysis yet to determine whether the rates the state has proposed are just very, very low or whether they're fatally low," Gates said. By "fatally low," Gates explained, he meant rates so low that they would discourage many clinics and hospitals from participating in the new HMO because they would lose too much money.

"We're all in this to improve care and to improve access to care," but if the rates are too low, those goals will be defeated, Gates said, because it would result in "either a lack of players or a substandard plan - and none of the members of the local initiative want to participate in a substandard plan."

Some of the other major challenges facing the new publicly sponsored HMO, Gates said, will be changing the longstanding administrative systems and the attitudes of health care providers accustomed to working on a fee-for-service basis.

"Many of the providers who are involved in the local initiative have been more accustomed to a fee-for-service kind of approach. I know that's true for our county hospitals. There's a need to transform our operations to be more consistent with managed care. That's going to be a challenge," Gates said. "We've already gone a long way in convincing our staff that the world is changing around us, and we need to be a part of that change."