Medicare HMO adopting austerity plan to stay alive. (Health Care).

AFTER laying off 13 percent of its workforce last month, SCAN Health Plan of Long Beach is renegotiating contracts with many of its hospitals as part of a state-ordered "corrective action plan" aimed at keeping it afloat.

The nonprofit, one of four Medicare HMOs nationwide that provide in-home benefits to frail seniors to keep them out of nursing homes, is undertaking the plan after its reserves fell below acceptable levels last fall.

That plan also included instituting monthly premiums this year of $30 to $40 for members in Orange, Riverside and San Bernardino counties, although not in Los Angeles. It has about 54,000 members.

"We are cutting frills, and we are looking at what else we can do more efficiently," said Susan Cameron, the company's acting chief executive.

SCAN, which began operations 18 years ago, traces its financial problems to national and local forces. Nationally, the federal government has only raised reimbursements to Medicare HMOs 2 percent annually for several years, despite double-digit percentage increases in medical costs. That has resulted in large insurers abandoning the market.

Locally, a shift to contracts with medical providers that requires it to pay per diem rates to hospitals when a patient is hospitalized - thereby swallowing the risk - left the company with unexpectedly higher costs. (In the past, hospitals accepted fixed, or capitated, monthly payments to cover SCAN members.)

Cameron said the company is doing all it can to insulate patients from any cutbacks, and Steve Fischer, a spokesman for the state Department of Managed Health Care agreed.

Amid the turmoil, Sam Ervin, the company's founding chief executive, retired as of Jan. 1.