Uncertainties Face HMO Plan for Medi-Cal : Health: Critics say conversion could increase costs and take key income away from clinics that also care for low-income people who do not qualify for state aid. Wilson officials insist the proposal will work.

With the Wilson Administration poised to advance toward its goal of putting 2.5 million low-income Californians into managed care health plans, significant questions remain about whether the effort will work.

Although advocates say the proposal will provide the same mainstream health care to the poor that many other Californians enjoy, critics fear that it may backfire and cause millions of low-income Californians to fall through the cracks. Another fear is that the plan may threaten the existence of the community clinics and other local providers that have served the poor for so long.

There are also concerns that the state’s “strategic plan” may be more expensive than the present fee-for-service system.

Voicing some of the concerns, state Legislative Analyst Elizabeth G. Hill recently urged the Legislature to rescind the broad authority it gave the state Department of Health Services to expand managed care “because we believe these efforts . . . are likely to result in additional costs to the Medi-Cal program, rather than achieve savings.”

State Department of Health Services officials continue to insist that their managed care plan will greatly improve health care to a large number of Medi-Cal recipients. Specifically they cite those enrolled in Aid to Families with Dependent Children (AFDC), most of them impoverished mothers and children who traditionally have been shunned by the mainstream health care system.

Sandra Pierce, a Medi-Cal contract specialist and one of the architects of the plan, said the immediate goal was not to cut costs. “The bottom line is this program has always been about getting access for a population of very vulnerable people, pregnant women, children,” she said.

The questions are being raised against the backdrop of a campaign by a coalition of eight large HMOs to win one of the biggest prizes offered by the state: the exclusive right to be the private sector provider of health care to about 40% of the AFDC recipients enrolled in Medi-Cal in Los Angeles County.

The initial contract is expected to be worth roughly $450 million, but there is a much bigger prize on the horizon. Overall, federal, state and local governments pump about $15 billion in taxpayer dollars into Medi-Cal each year, and far bigger contracts are in the offing if state health planners get their way and convert more of the Medi-Cal program to managed care.

Under managed care, health care providers agree to furnish all the care necessary to Medi-Cal members at a fixed rate. This benefits the clients because they would have all the privileges of other HMO members. It benefits the state because the rates would be capped, while the HMOs take the risk of providing more expensive care should the members develop a serious illness. The HMOs benefit by enrolling a large number of relatively healthy people, and getting reimbursed for each one of them, regardless of whether treatment is provided.

Under the current fee-for-service system, Medi-Cal members can pick a doctor or hospital of their choice, and the state gets billed for each service provided. One problem has been that many doctors or hospitals refuse to accept Medi-Cal patients, contending that the state’s rates are too low and they do not want to deal with the paperwork and red tape.

The coalition of HMOs, which includes giants in managed care such as Kaiser Permanente Southern California and Cigna Healthplan and has adopted the name LA Health Advantage, is bidding against at least two groups. Even though the contracts will not be awarded until fall, the coalition is seeking local health clinics to sign up as subcontractors to help handle the 440,000 Medi-Cal beneficiaries it is hoping to represent. “If we could put a sign out, it would say: ‘Safety net providers, please apply,’ ” said Joy Howell, spokeswoman for the coalition.

The coalition is putting together a community advisory board that it said will represent the racial and ethnic diversity of Los Angeles County. The first three names released included a black, a Latino and a Korean American.

The two other large HMOs bidding for the county contract are PacifiCare of California and Health Net. While keeping their plans as secret as possible for strategic reasons, both organizations are also trying to develop business relationships with physicians and clinics in low-income areas.

All of that has left traditional providers of health care to the poor, such as the Los Angeles County Department of Health Services and community clinics, wondering what will be left for them when the dust settles.

One of the biggest unanswered questions is what will happen to the 2.7 million residents of the county who do not have insurance, about 32% of the under-65 population. These are people who work and earn enough to disqualify them from Medi-Cal, but do not have private or group health insurance through their employers.

The state has left this large block of medically indigent Californians out of its managed care plan, and is assuming no responsibility for their care, contending that it is a federal issue.

Thus, health care for the medically indigent will still be the legal responsibility of the county, and the community clinics and urban hospitals willing to treat them. For years, the safety net providers have counted on the steady flow of Medi-Cal dollars to help defray the costs of treating these people, but a substantial amount of that flow could be diverted to commercial HMOs.

Fern Seizer, on the board of the Venice Family Clinic and one of 40 members of a community-oriented coalition, the Managed Care Planning Council, predicts that there will not be enough money left to go around.

“It will be a disaster for the public health system--the county (health department) and clinics like ours,” she said.

Some traditional providers also fear that they will be left out of the new system, despite claims that the commercial HMOs are interested in developing business relationships with them.

Castulo de la Rocha, president of AltaMed Health Services, which has a heavily Latino patient load, said: “I am really concerned, and the same concern has been expressed by private physicians and community clinics, about the lack of contracting opportunities made available by the HMOs. The large HMOs look at large medical groups (for subcontracting), and not necessarily at the small organizations or medical groups that you would find in the inner cities,” he said.

Without naming the company, Rocha said a large HMO had recently turned down AltaMed for a contract because “No. 1, we were told essentially that as an organization we did not have enough experience working in the HMO market, and, No. 2, we were too small.”

Another question hovering over the state’s plan is how long the corporate chiefs who run the commercial HMOs will remain interested in serving the Medi-Cal population. It is widely acknowledged, even by the HMOs, that language differences, variations in cultural beliefs and the common thread of poverty can present special problems in providing health care to this group.

Now, the carrot at the end of the stick is the state’s promise to properly fund its Medi-Cal HMO contracts. But the state also has a track record of squeezing the Medi-Cal program when it runs into budget problems.

An industry newsletter, Managed Competition, recently noted that California froze its HMO Medi-Cal rates for welfare recipients in the Aid to Families With Dependent Children program at $95.80 per member per month, less than half the amount paid by Massachusetts and well below the $110 to $130 it said most states pay.

One HMO executive, asking not to be identified, said the political vagaries of rate-setting by the state are very much a concern.

But other executives said they expect to make the program work.

PacifiCare of California does not have any Medi-Cal clients, but for years has done a big business with Medicare under the name Secure Horizons. Carol Rhoads, who is developing PacifiCare’s contract bid, said: “We think we can get a reasonable return on this business. It is not a lucrative business, but it is a large market and we think we can make it work.”