Local HMOs explore alternative paths to profits.

They accent new products, expand out of state

With managed care already well established in Southern California, L.A. County health maintenance organizations are exploring a number of new strategies to keep their bottom lines growing, even as their membership gains begin to taper off.

Most companies are employing one of two strategies, or a combination of both, to keep their revenues increasing.

In the first strategy, many HMOs are rolling out new products this year designed to attract Southern Californians not already on managed care plans. In the second approach, a number of L.A. County-based HMOs have aggressive plans to expand out of state, particularly to those parts of the country where managed care is not yet well established.

In the new-products arena, nearly all HMOs surveyed for this article said they plan to aggressively market their services this year to three customer types in California who have been relatively overlooked: the individual customer, the small-business customer and the senior customer. Up until now, large companies and their employees have been the primary targets for HMOs.

Cypress-based PacifiCare of California, the second-largest HMO serving L.A. County, began signing up new members for its individual coverage plan this month, according to Arnold Hebert, vice president of commercial sales and marketing at PacifiCare.

"We think the addition of an individual (enrollment) program will allow us to increase our membership significantly," he said.

In addition to its individual coverage policies, PacifiCare is also planning to market its small-group coverage more aggressively in 1996, according to Hebert.

"One of the ways we can grow substantially is to reach out to these segments of California that employ a significant number of people," he said.

Seeking seniors

Pasadena-based Kaiser Permanente - the largest HMO serving L.A. County - may also develop small business and individual member products in the near future, said Dee Shaw, director of major and national accounts for the sales and marketing division at Kaiser.

In addition to pursuing these relatively untapped grounds, both PacifiCare and Kaiser plan to begin aggressively marketing to the 65-and-older group in 1996.

To this end, Kaiser plans to soon introduce its new Senior Advantage product to employers and trust funds as a health care option for employees after they retire.

While HMOs hope to pick up new customers from demographic groups that may have been largely overlooked in the past, customer poaching from rival HMOs is also part of the game plan for many Southland HMOs in 1996, according to sources.

Several HMOs look to begin promoting plans this year designed to entice potential clients away from their rivals by offering more-flexible service packages.

Shaw said Kaiser - known to many for limiting members to use of Kaiser-owned facilities and Kaiser doctors - plans to begin actively promoting a point-of-service product (this year, which allows members to use both Kaiser and non-Kaiser facilities and doctors.

Likewise, PacifiCare plans to more actively market its point-of-service plan for small businesses, which also allows members to choose which facilities and doctors they wish to use on a visit-by-visit basis.

Expansion through acquisition

Woodland Hills-based Blue Cross of California - the sixth-largest HMO serving L.A. County - is preparing to introduce a new product this year that would also provide its members with more flexibility in their health coverage. The proposed plan would combine the best features of HMO care with features from more-flexible but also more-costly preferred provider organization care, said John Cygul, vice president of WellPoint Health Networks, which is the for-profit arm of Blue Cross.

While Southland HMOs continue to push for increased market share here in L.A. County, many are also looking out of state for more substantial growth opportunities.

In particular, Blue Cross has major out-of-state expansion plans for 1996 through its WellPoint affiliate.

"In 1996, analysts and investors expect aggressive activity for WellPoint out of state. A very important part of our business - one of our key strategic directives - is to expand out of state," said Cygul.

WellPoint made its first out-of-state expansion move last year, when it acquired Affiliated Health Care Inc. of Houston. AHI currently services 700,000 members, compared with a total of 2.8 million members serviced by WellPoint prior to the acquisition.

In the coming year, Blue Cross hopes to continue to grow out of state not only through outright acquisitions, but also by entering into joint ventures and cooperative arrangements with other health insurance providers, according to Cygul.

Downtown L.A.-based Maxicare California is already active in several states and is looking to further expand that out-of-state business in the coming year, said spokesman Ed Coghlan.

"We're active in seven states right now, including Indiana, the Carolinas and Louisiana - all of which have low HMO penetration compared with California. For example, Indiana has less than 8 percent (of its insured population) enrolled in HMOs," Coghlan pointed out.