Doctors' group forms for-profit health plan.

The California Medical Association's new for-profit health plan, expected to compete with other commercial carriers, will officially begin operations July 1.

Yet despite encouragement among its physician investors that California Advantage will prove an antidote to health maintenance organizations that curb time spent with patients and closely scrutinize the authorization of procedures, skeptics say it will have little chance of competing against larger, savvier health plans.

"I personally think it's a waste of time and money, the mason being California is a very mature market," said Steve Valentine, senior vice president of Camden Group, a Torrance-based industry consultant. "There are many established health plans that are well capitalized. So, unless the doctors team up with someone who has deep pockets, or can stomach giving bigger discounts for services than what they already give to other health plans, they won't stand a chance."

By some industry estimates, California Advantage may need upward of $40 million in order to compete in the market.

California Advantage officials have confirmed they are in talks with larger organizations for financial support, but have declined to name the parties. One name that has surfaced in published reports is Burbank-based hospital and health plan operator UniHealth. A UniHealth spokeswoman said last week it had not had any discussions with California Advantage.

'Too little, too late'

Like Valentine, Wanda Jones, president of the New Century Healthcare Institute, a San Francisco-based consulting firm, is another skeptic of California Advantage's viability, calling its effort "kind of too little, too late."

"The whole managed care revolution that got fired up in the 1980s is now well formed," she added. "Now, the physician groups seem to naively believe they can be more generous toward doctors and patients while lifting the restrictions placed on procedures and admissions, and those ... things are normally in opposition."

Admittedly, some local physicians who have invested $1,000 each to join the network are taking a wait-and-see approach about California Advantage's future. But they are also excited at the prospect of being able to practice medicine their way.

"I think that California Advantage is actually starting a little bit late, and it will take a while for it to build (enrollment) numbers that are really relevant for any one physician practice, and I don't think it will be the answer to everything we don't like about health care," said Aliza Lifshitz, a West L.A.-based physician who specializes in internal medicine. "But it will be an area where we will have some control."

Lifshitz noted that some health plans have restricted her visits to as little as six minutes per patient. "I am an old-fashioned doctor (who) likes to spend time with people, and I believe you simply cannot give quality care in six minutes."

There is also mason for optimism in the executive suite at San Francisco-based California Advantage, which will initially launch a preferred provider network, a type of health plan that allows enrollees to see physicians either inside or outside its network. It is expected to launch an HMO product - which restricts enrollees to a defined physician network - sometime in 1997, according to John Gray, California Advantage's CEO.

California Advantage's primary focus will be on the small group market, which consists of firms with 100 employees or less. It has an application pending to enter the Health Insurance Plan of California, a government-administered pool of insurers that provides coverage to small businesses.

Meanwhile, more than 6,800 physician/investors to date have signed into the network, 60 percent of whom practice in Southern California, Gray said. That represents slightly more than 20 percent of the CMA's membership of 32,000, and more than double the 3,000 physician investors required to finance the plan's start-up. Meanwhile, another 500 applications are pending, Gray said.

As for a competitive hook, he claimed California Advantage will be able to undercut competitors by up to 20 percent on premiums, primarily by keeping administrative costs down.

Initially, California Advantage will use 13 percent of its premium dollars for administration, but it is expected to cut that down to 5 percent within three years, Gray said. That figure is one-half to a third of the percentages spent by many established health plans. If that prediction comes true, it could make California Advantage competitive in the long run, said Ronald Spoltore, senior vice president of Healthcare Financial Advisors, a Rancho Mirage-based consulting firm.

"They're focusing it on the right side of it," Spoltore said. But he added it would require a lot of work to reach that goal.