Gains by Doctors, Hospitals Add to Escalating Costs.

AMONG the various factors responsible for driving up employers' cost of health care is that care providers are finally gaining ground in their long-fought battle for a bigger chunk of the health care dollar.

Providers of medical care have been some of the loudest fighters in the health care battle. Doctors are marching on the state Capitol warning of "rolling medical blackouts." Hospitals are threatening to close their doors to members of fight-fisted HMOs. And in a federal courtroom, health insurers stand accused of being racketeers who conspire to cheat doctors.

The result of all this insurrection?

Insurers are beginning to loosen up the purse strings, but are passing along those higher provider costs to policyholders. Meanwhile, providers continue to insist that the health care dollar -- and their share of it -- is still too small in California to keep them afloat and also provide for quality care.

"We can't discount health care in California far below what it costs elsewhere in the country, and still have what we call an excellent health care system," argues Jack Lewin, chief executive of the California Medical Association, the doctors' trade association. "We have time to try to resolve the problems in health care before it's a crisis, but it will be a crisis in the very near future."

Health insurers acknowledge that doctors have had a tough time adjusting to the new realities of managed care, but they dispute the notion of a crisis, saying that recent increases in health plan premiums are being partially passed through to providers.

"Everyone is doing a little better this year because the health plans raised premiums," said Walter Zelman, president and chief executive of the California Association of Health Plans, the insurer trade group.

But a "little better" is not enough for doctors who practice in a state where the insurance premiums by some estimates are 30 percent lower than the national average.

A report by the Kaiser Family Foundation last year found that, even though California physicians grab a higher percentage of the health care dollar than their colleagues nationwide (31 percent vs. 24 percent), their mean net annual income ($172,400) is lower than the national average ($199,600) -- and it dropped $20,000 between 1995 and 1997.

California hospitals, meanwhile, took in just 37 percent of the health care dollar in 1997, vs. 41 percent nationwide.

HMOs blamed

Doctors say this is largely the result of HMOs that pay low fixed or "capitated" rates per patient that do not even cover the cost of services. This has led to the failure of hundreds of physician groups. So they, and hospitals, are fighting back.

But the real fight has been taking place inside the Capitol, where doctors are fiercely pushing a bill, AB 1600, that would allow them to collectively negotiate managed care contracts and take any disputes to arbitration.

The CMA is also one of the lead plaintiffs in a federal court case that has been consolidated into a U.S. District Court in Florida. That case accuses eight managed care companies of violating the Racketeer Influenced and Corrupt Organizations Act, better known as the RICO statute.

More specifically, the suit accuses the companies of gypping individual doctors out of significant sums for unpaid claims. The CMA and other state medical associations involved are awaiting a judge's decision on whether the RICO action will proceed (it was struck once but re-filed) and whether it can be converted into a class action. If it were turned into a class action, insurers would face many millions of dollars in potential liability.

"A lot of people are skeptical about whether this class action will be successful. There is little precedent for it. But (even) if it appears it is going to be successful, it is monumental," said Larry Levitt, vice president and director of the Changing Healthcare Marketplace Project of the Kaiser Family Foundation. "It would bring the health plans to the table."

Higher reimbursements sought

Hospitals, meanwhile, have been getting bolder and bolder in their own demands for higher managed care reimbursements, contending that more than six out of every 10 California facilities are losing money on operations.

The hospitals, largely growing chains with accelerating market clout, have taken contract negotiations to the brink by threatening to drop managed care networks.

That approach worked for Sutter Health Corp. and Catholic Healthcare West. And just this month, a lone, prestigious hospital, Stanford University Medical Center, announced that as of next year it would no longer service HMO networks from which it receives only fixed, capitated payments. Insurers for the cash-strapped medical center include Health Net, WellPoint Health Networks, and Cigna.

Lori Alderete, a spokeswoman for Catholic Healthcare West, which has suffered $607 million in combined net losses over past two fiscal years, said that hospitals are taking such bold actions only out of desperation.

Experts say the prognosis for the state's medical providers is still unclear, and yet to be determined by the battles taking place in the courtroom, the Capitol halls and in the back rooms where tough contract deals are cut.

But whatever the outcome, experts warn, in the world of health care, whatever reimbursement increases providers may gain will come at the expense of others.