HIGH COST OF BEING A DOCTOR; MORE MDS GOING BANKRUPT.

Byline: Cecilia Chan Staff Writer

After six years of providing care, the Ventu Medical Group has filed for bankruptcy, closing its doors to more than 1,000 patients.

Doctors involved said a steady erosion of funding from health maintenance organizations - namely a drop in the monthly amount HMOs pay to care for each patient - chiseled away at the group's financial base and left it in the red.

``Well, what happened was the income was not sufficient to pay for services,'' said Westlake Village Dr. Gary Berry, the president of the corporation who is now retired. ``It was not mismanagement.''

Statewide problem

What happened with the Ventu Medical Group, say those in the health care industry, is fast becoming the norm for physician groups throughout California and poses a threat to patient care.

As many as 90 percent of the 300 physician organizations in the state are on the verge of bankruptcy or closure, and at least 34 medical groups are expected to fail before the end of this year, according to the California Medical Association, which represents 34,000 California-based doctors. A 1999 CMA survey showed 113 medical groups in California filed for bankruptcy or closed over the last three years.

And if physician groups collapse, more than 10 million Californians could see an interruption or delay in their health care, the CMA predicted in a September special report.

``We are setting up California for a substandard health care system,'' said Dr. Jack Lewin, CMA chief executive officer. ``But in the meantime the public doesn't know this is happening. The reason is, doctors have continued to provide patients with what they think is necessary care, even if they go bankrupt in the process.''

Although other states are experiencing somewhat of the same problem, it's nowhere like it is California, which has more HMO members than other states, officials said. An estimated 19 million Californians are enrolled in managed care.

``There are new, wonderful technologies, new drugs, new miracles,'' Lewin said. ``Should California be denied those while New Yorkers and Boston residents and Florida residents get all these treatments? That is where we are heading.''

Not enough money

A spokesman for for the California Association of HMOs said he agreed with the CMA's premise but maintained that the problem is broader - there's not enough money in the system.

``The entire system is facing a financial crisis,'' said Cory Black, spokesman for the California Association of HMOs, which includes 38 of the 42 full-service HMOs licensed in California.

``It would be one thing if health plans were making hundreds of millions of dollars and not paying doctor groups enough, but really there is not enough money in the system. No one is making the outrageous profits they did 10 years ago.''

Doctor groups contract with HMOs to provide medical services for patients enrolled in a plan. The groups take a percentage of a set monthly amount for each HMO member, called a capitation, and pay the rest to their doctor members for treating the patients.

But doctor groups have seen the monthly rate fall from a high of $45 a month for each HMO member in 1990-93 to a low of $29 per member per month for 1997-99, according to a PriceWaterhouseCoopers report in September.

Lewin said the capitation rate has fallen by one-third in the 1990s while the cost of living has increased 23 percent, and the cost of medical procedures and treatments have gone sky high.

``So physicians have less and less money to take care of their patients,'' he said. ``And they are going bankrupt rather than not taking care of patients.''

A closer look

Ventu Medical Group had contracts with Blue Shield of California, Care America - which merged with Blue Shield two years ago - and Maxicare to provide care for $30 per patient per month.

Court papers showed Ventu Medical Group's net loss for the 12 months ending July 31 was $212,656.

By the time Berry and Dr. Howard Golstine, former vice president of the corporation, filed for bankruptcy in August, they claimed $30,800 in assets, money due from Blue Shield, and $251,616 owed to creditors.

The group had 230 primary care doctors and contracted specialists as members, and served 1,275 patients at the time of the bankruptcy filing, said Encino attorney Jeffrey Hagen, who represents Ventu.

Blue Shield spokesman Clark Miller said the 867 members of its health plan who received care from Ventu Medical Group are keeping their their own doctors despite the bankruptcy because the physicians were signed up with other health plans that the company offered.

Cost of managed care

However, industry analysts say it's not just low reimbursement rates that are to blame.

High administrative costs and profits of health plans, and health insurance premiums that are lower in California than in other states, have all played a role, according to PriceWaterhouseCoopers.

Lewin said, ``California, the birthplace of managed care, has been focused on cost containment, and employers want to keep health costs down.

``We have been overzealous in our cost containment, such that health insurance costs are 40 percent lower in California than in other parts of the U.S. with comparable cost of living, and 40 percent below is just too low to do the job that we need to do.''

Lewin said the capitation payments set the budget for doctors, and once that is spent, that's it for the fiscal year.

``The HMOs are mostly for-profit, investor-owned corporations which, through consolidations and mergers, have become huge corporate structures with much more power than the physician,'' he said.

``They have been looking out for themselves,'' Lewin said. ``And frankly, HMOs are not going bankrupt. Doctors are.''

The CMA in August sued eight HMOs operating in the state - Aetna U.S. Healthcare, Blue Cross of California, Blue Shield of California, HealthNet, MaxiCare Health Plans, Inc., PacificCare of California, Prudential Healthcare and United Health Care of California - alleging they owed more than $60 million to doctors who cared for the plans' patients.

Profits or premiums?

The spokesman for the California Association of HMOs disputes the CMA's contention that the largest health plans continue to generate a healthy profit that is taking away finances from the doctor groups.

Black said more than 60 percent of the plans operating in California in 1998 made less than a 2 percent profit.

``What is happening is employers hire managed care groups to control costs, and they put a lot of pressure on managed care to keep costs down,'' Black said. ``That pressure is passed on to physician groups who pass it on to individual doctors, all the way down the system.''

Black said the solution lies in increasing health care premiums, which are on the rise across the state. Last year there was a 6 percent to 9 percent increase in health premiums, and that is expected to repeat again this year.

``That's more money that is passed along to physician groups and doctors and down the line,'' Black said.

Gov. Gray Davis last month signed more than a dozen health care-related bills, including one that will create a Department of Managed Care to act as the watchdog of HMO providers, and a bill addressing medical group solvency standards.

However, the governor Friday vetoed a CMA-sponsored bill that would have earmarked approximately $500 million annually to health care from the tobacco settlement.

Lewin said while HMOs do a good job in collecting premiums from employers, advertising and marketing, and determining eligibility, there is room for improvement in the industry.

He said the solutions lie in assuring that the per patient rate is adequate to provide for quality care, and in having HMOs, not physician groups, cover the costs of prescription drugs.

And he said doctors need to increase their negotiation clout so they can strike a fair contract.

``I think HMOs need to work with doctors more fairly to develop partnerships and trust among doctors,'' Lewin said.

``The CMA thinks the best solution is for HMOs and doctors to start working out the problems on behalf of patients,'' Lewin said. ``When one-third of the doctor groups in the state have gone bankrupt in the past three years we have to call it a crisis. It's a problem that needs to be addressed.''

FOLLOW THE MONEY

Sample distribution of health care premium, according to a PriceWaterhouseCoopers report.

From a $120 health plan premium: $36 goes to the independent practice association, which keeps $6 for administration and passes $30 along to the medical groups. After employee and overhead expenses, $13 is available to pay physicians.

CAPTION(S):

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Box: Follow the money (see text)