Cedars’ $100 Bonus Offer to Choose Certain Plans Illegal, Regulators Say : Health care: Payments were to encourage employees to enroll in specific HMOs. Rival medical group had condemned action.

State regulators on Thursday said Cedars-Sinai Medical Center must drop a plan to pay $100 “enrollment bonuses” to thousands of employees of the Los Angeles hospital who agree to enroll in certain medical plans.

Cedars’ bonus offer violates state laws that prohibit health plans from offering any “bonus or gratuity” as a way of attracting or keeping members, Anita J. Ostroff, senior counsel for the California Department of Corporations, said in a letter to officials at Maxicare Health Plans.

The bonuses were aimed at certain of Cedars 6,500 employees who are members of Maxicare, a Los Angeles-based health maintenance organization, or CaliforniaCare, an HMO operated by Blue Cross of California.

Cedars officials said the goal of the bonus plan was to cut medical costs by encouraging the employees to enroll in specific HMO programs and select primary-care physicians in two new medical groups managed by Cedars.

Cedars, which has undertaken a major reorganization in the past year, formed the new medical groups to enhance its ability to compete for HMO business.

The hospital appears to be trying to build a base for the new groups with its own employee group, according to some Cedars doctors.

The bonus plan angered a rival medical group that currently treats thousands of Cedars employees.

“The hospital is scrambling now to deliver patients to these new groups, and they’re doing it in an unethical manner,” said Dr. Seymour Levine, chairman of Health Source Management Group.

“We don’t want to be undercut by a powerful institution with lots of money to buy patients,” Levine said of his independent group.

Another Health Source official, Dr. Stewart Gleischman, said the paying of a $100 bonus “is kind of a Rick Dees approach to medicine,” referring to the popular Los Angeles radio personality.

Industry observers said Cedars’ plan illustrates the bare-knuckles competition in health care as doctors and hospitals battle for patients and market share in a rapidly consolidating industry.

While employers use various financial incentives to encourage workers to sign up for less costly medical plans, such as HMOs, several industry observers said they had never heard of anyone offering an enrollment bonus.

“I’ve been in this business for 34 years and it’s the first time I’ve heard this one,” said John O’Connell, a health care specialist at the Towers Perrin consulting firm in Century City.

Cedars “always complies with the applicable laws and regulations,” said Cedars spokesman Ron Wise, adding that “expert legal counsel advised us in advance that our actions were appropriate as an employer.”

Maxicare, which like all HMOs is regulated by the Department of Corporations, said it had no role in devising the bonus plan. Spokesman Ed Coughlan said Maxicare didn’t know about the bonus “until the day before it was to occur.” Industry observers said many employers offer various inducements to workers to get them to switch to less costly HMOs. One common method is to make it more costly for an employee to get medical coverage through a traditional fee-for-service insurance plan than through an HMO.

“It’s true that a $100 bill is a lot flashier way, particularly for the less savvy and less educated consumer,” said Jeanne Finberg, senior staff attorney for the Consumers Union in San Francisco. “It might lead to uninformed decisions that might effect employees’ choices or mislead them.”