PITFALLS LIE AHEAD FOR HMOS : EXECUTIVES OUTLINE INDUSTRY CHALLENGES.

Byline: Deborah Adamson Daily News Staff Writer

Top executives of four managed-care companies on Wednesday painted a challenging road ahead for the health-care industry, marked by consolidations, stiffer competition and increased scrutiny from government.

In a graphic demonstration of those pressures, a group of activists dumped a bucket of beans on the president of Health Net, calling it symbolic of a ``bean-counter'' mentality that puts money ahead of patients' needs.

After the brief disruption, the four executives defended their business, saying the managed-care industry grew out of a need to control rising medical costs.

The cost of health benefits grew 433 percent from 1965 to 1994, compared with 100 percent for pensions and profit-sharing plans and 11 percent for wages, said Ronald Williams, president of Blue Cross of California Businesses, a division of WellPoint Health Networks Inc. in Woodland Hills.

``The fee-for-service system in this country was not, as you know, Camelot,'' added Dr. Arthur Southam, president of Health Net in Woodland Hills.

In the fee-for-service approach, patients can see any doctor they want, and the cost is split with the insurance company. But more medicine does not mean better medicine, said Leonard Kalm, president of Foundation Health, a Colorado-based health maintenance organization.

The key, Southam said, is to balance costs with quality of care.

The executives said HMOs have begun offering a broader range of services - such as variations of point-of-service plans, which allow access to specialists outside a network of providers - and accepting alternative care, such as acupuncture.

Such service variety is crucial in a competitive market, made tougher by the rise of physician/hospital organizations trying to wrest business away from major HMOs by dealing directly with employers.

``(Health care) purchasers will want to go straight to (health care) providers, believing they can cut out the expensive middleman,'' said Mark Hyde, president of Lifeguard Inc., a nonprofit HMO in San Jose.

Managed-care companies also will continue to consolidate to preserve profits as health care costs rise and premiums are held down by competition.

This month, Health Net's parent, Health Systems International, announced a merger with Foundation Health Corp. of Rancho Cordova, Calif.

Executives see increased regulation of managed care ahead, which Williams contends will lead to higher health-care costs.

HMOs are heavily bankrolling the campaigns against Propositions 214 and 216, which would tighten controls over managed care services.