Private-sector firms vie for county health care pact.

Contract is seen as worth millions in revenue

The State of California is considering at least four private-sector bids, submitted last month, for an L.A. County Medi-Cal contract that is expected to be worth some $500 million in annual revenues, according to industry sources. The state is expected to name the winner of the coveted contract this fall. It is part of a statewide effort to provide better, more cost-effective health care to recipients of Medi-Cal, the state health care program for the poor.

The state government is hoping to move half of all Medi-Cal recipients in L.A. County into managed health care plans by the end of 1996, though its plans were dealt a setback earlier this month when the federal General Accounting Office released a critical study calling the proposed efforts inadequate. Nevertheless, the state government will continue with its plans, which will concurrently be enacted in L.A. County and 11 other counties across the state.

The state effort in Los Angeles County is aimed at encouraging local Medi-Cal recipients to join one of two managed health care plans: a government-sponsored "local initiative" administered by a local health authority working with L.A. County-based health care providers (see related story on page 3A), and a "mainstream" commercial plan.

Local HMOs and an HMO consortium are bidding against each other to win the coveted service-providing contract to become the "mainstream" provider. That contract is expected to generate some $500 million in annual revenues.

The list of bidders for the main-stream plan reads like a who's who of major HMOs in L.A. County. It includes: downtown-based Maxicare California; Cypress-based Pacificare of California; Rancho Cordova-based Foundation Health Corp.; and a six-member consortium comprised of CareAmerica Health Plans of Chatsworth, FHP Health Care of Fountain Valley, United Health Plan of L.A., Kaiser Permanente of Oakland, Calif., The Blue Shield HMO of San Francisco and Cigna HealthCare of California, whose parent is based in Hartford, Conn. The winning bid is scheduled to be announced this October.

Experience counts

Industry sources said they believe past Medi-Cal experience will be an important factor in the state's decision on the main-stream contract award. One bidder in particular - the six-member consortium, which is called California All Health - has the clear edge when it comes to experience, sources said.

Clyde Oden Jr., chairman of California All Health, said the consortium's member HMOs currently have as enrollees about 240,000 Medi-Cal recipients in L.A. County. By comparison, he estimated the mainstream contract would eventually cover 500,000 Medi-Cal recipients countywide.

Foundation Health, meanwhile, covers about 80,000 Medi-Cal recipients in L.A. County, and is the "third-largest Medi-Cal plan in the state," according to company spokesman Kurt Davis.

Maxicare is at a clear disadvantage in terms of Medi-Cal experience, with only 14,000 Medi-Cal recipients in L.A. County currently covered by its plans. Warren Foon, vice president and general manager of Maxicare, attributed the HMO's relatively low number of Medi-Cal enrollees to the fact that Maxicare only began to build its Medi-Cal program in the fourth quarter of 1994.

On the opposite extreme, United Health Plan - a member of the California All Health consortium - has been deeply involved in Medi-Cal work since 1973, when it established a pre-paid health care program for Medi-Cal recipients. At present, about 60 percent of United Health Plans' 100,000 members in L.A., Orange and San Bernardino counties are Medi-Cal recipients.

Question of profitability

Most bidders for the mainstream contract asserted that, if they win they state contract, they could run their L.A. County Medi-Cal operations at a profit in a relatively short time. At notable odds with the others, Oden of the California All Health consortium said that eventual profitability was a goal, though "breaking even would be a major victory" for many plans in the short term.

"We see this (bid by California All Health) as a public policy statement," said Oden, noting his belief that Medi-Cal recipients should have the same health care options as people on other plans. "Within our consortium, some of the companies see (the consortium's bid) as being socially responsible, while others see this as an emerging new market. But no one in our consortium looks at this in the short term only. This is an investment."

Foon of Maxicare said his company's low level of administrative expenses, which are less than 10 percent of total company revenues, would work to its advantage in setting up a profitable program if it wins the mainstream contract. To remedy Maxicare's sparse presence in geographic areas with high concentrations of Medi-Cal recipients, Maxicare recently enlisted the services of 5,700 doctors at 49 hospitals in "locations that match the needs of the Medi-Cal population," Foon said.