State Benefits Unit Urged to Drop FHP, 6 Other HMO Plans

After an extensive analysis of health maintenance organizations in California, a consultant to the state Public Employees Retirement System has recommended that the agency discard seven of the 19 HMO plans that it currently offers state employees.

The survey, conducted by the A. Foster Higgins & Co. employee benefits consulting firm, is considered significant because it is the first public ranking of major HMOs in California by criteria that could be used as a guideline by other employers, both public and private.

The criteria by which HMOs were measured in the survey included financial stability, methods of choosing and contracting with physicians and other health-care providers, data reporting, service-area coverage, quality assurance, utilization management and efficiency of administration and providing member services.

Among the winners in the Higgins survey are the Kaiser Permanente Medical Care Program, the nation’s largest HMO; Woodland Hills-based Health Net; Orange-based Health Plan of America, and Sacramento-based Foundation Health Plan.

The consultant recommended that CalPERS drop Maxicare Health Plans Inc., FHP International Inc., Travelers Health Network of California Inc., Bay Pacific Health Plan, Lincoln National Health Plan, PCA Health Plans of California and Health Plan of the Redwoods.

More than 20,000 California public employees would have to switch HMOs next July if the proposal to be considered next week by the CalPERS board is approved. But because of overlapping physician contracts, many will not have to switch doctors. CalPERS administers health benefits for 327,000 public employees, making it one of the state’s largest health-care contractors. About two-thirds of them use HMOs.

That CalPERS is considering reducing HMO choices follows a trend among other large employers in California to reduce employee options in hopes of cutting administrative expenses and gaining leverage in bargaining for lower premiums. In making a choice, they are looking for HMOs that have proven that they can best manage health-care costs.

Robin Weiner, the Higgins consultant who worked on the study, said CalPERS wanted to establish objective criteria for evaluating the HMOs to give the best choices to its members.

“While some of the (survey’s) criteria are the same that any employer should be looking at to be prudent, some are tailored to the PERS population,” she said.

Some HMOs with financial difficulties were recommended for contracts. But Los Angeles-based Maxicare’s past financial problems were not the reason it failed to meet the survey’s criteria, she said. Maxicare initially was considered on the expectation that it will emerge from bankruptcy reorganization by the end of the year, she said, but it fell short in providing as large a health provider network as its competitors in particular regions.

Ed Coughlan, corporate communications director for Maxicare, said the company will appeal to the CalPERS board. “We believe our history with the PERS account has been a solid one, he said, and we believe our provider network is one of our strengths.”

David Engleberg, senior vice president of California for FHP International Inc., a large Fountain Valley-based HMO which has been providing care to state employees for 20 years, said his organization is “not very happy” with the results, which ranked FHP as the lowest of the 10 HMOs surveyed in Southern California. It will also appeal to the CalPERS board.

“It seems to me this was more of a test in filling out forms than in what the quality of the plan is,” he said.

Ed Susank, a principal and consultant in the Los Angeles office of William M. Mercer Inc., another major employee benefits consultant, said other employers might have given different weights to various criteria and thus might have chosen different HMOs.

Susank said, however, that he expects that greater selectivity being shown by employers will speed consolidation in the industry that will result in fewer HMOs. And that outcome is something to be welcomed, he said.

“Why do we need so many contracting on an overlapping basis with many of the same doctors and hospitals?” he said.

Peter Boland, a health-care consultant in Berkeley, criticized the survey for “not going far enough” in making HMO cuts and in not paying enough attention to “performance measures” such as appropriateness of care. He said FHP currently has 2,400 state employees enrolled in its plan, who would have to switch to another health-care plan if the consultant’s recommendations are adopted.

Lawrence Kugelman, president of HPA, noted that earlier this year HPA was chosen among three HMOs to be retained by Pacific Bell, which discarded four others. As a result, he said, HPA’s Pacific Bell enrollment will nearly triple from about 6,000 to 17,500 employees and dependents next year.

HMOs UNDER FIRE The A. Foster Higgins benefits consulting firm evaluated several health maintenance organizations for the Public Employees Retirement System and recommended that the agency not contract next year with the following HMOs:

Maxicare Health Plans, Los Angeles

Lincoln National Health Plan,

Woodland Hills

FHP International, Fountain Valley

Bay Pacific Health Plan, San Bruno

Travelers Health Network of

California, Sacramento

PCA Health Plans of California, Sacramento

Health Plan of the Redwoods,

Santa Rosa