Physician Groups Cutting Staff, Costs to Stay in Business

Orange County physician groups, squeezed by rising medical costs and low payments from medical insurance plans, are laying off staff, closing offices and resorting to other measures to stay in business.

Bristol Park Medical Group, one of the largest medical organizations in the county with 110 doctors, said Thursday it is laying off physicians and other medical personnel, and plans to close four offices by the end of this month.

Kaiser Permanente, beset with organization-wide losses, may postpone plans to expand its local network of doctors’ offices. Monarch Healthcare, the Mission Viejo-based network of independent practitioners, says pay for its doctors who treat patients on employers’ health plans has dropped by an average of 15% in the last year.

Industry executives say reimbursements from health plans have failed to keep pace with rising medical costs. Among other things, the groups often have trouble getting paid for services required by new legislation, advances in medicine and cutting-edge drugs.

Bart Asner, Monarch’s chief executive, notes, for example, that a law guaranteeing mothers a two-day hospital stay after a normal birth--three days after a caesarean section--has driven up the group’s costs by $400,000 this year.

Other local physician-group managers lament rising costs of drugs. “There’s new drugs coming out every day and the costs are exorbitant,” said Robert Fraschetti, chief executive of a local St. Joseph Health System organization that manages several local doctors’ groups, including Bristol Park.

Fraschetti noted that stepped-up advertising by drug companies has triggered demand for costly new cutting-edge medications by patients. Patients want the latest drugs to fight everything from ulcers to depression to high blood-pressure, he said.

The demand is pushing doctors’ outlays for drugs above budgeted levels, he said.

Indeed, increased costs have created headaches for physician groups throughout the nation. Earlier this year, Alabama-based MedPartners, the nation’s largest manager of physician groups, announced staff layoffs and cuts in physicians’ pay to try to pull itself out of the red. In July, FPA Medical Management Inc., a San Diego-based manager of medical practices, filed for bankruptcy after a cash crunch left it unable to pay doctors, employees and the interest on some of its bonds.

Experts say doctors in Southern California face more financial pressures because many receive a much higher chunk of business from managed health plans that pay flat fees. Managed-care contracts also drive up physicians’ administrative costs.

What’s more, analysts say, increases in health-insurance premiums paid by employers in Western states have trailed those of the nation. Monarch’s Asner noted, for instance, that premiums for a North Carolina group that Monarch manages are 40% higher than those of its Orange County group.

Earlier this week, Bristol Park officials said that eight of its doctors and six nurses or physician assistants were laid off or took early retirements. The group also plans to shutter medical offices in Huntington Beach, Irvine, Orange and Laguna Hills by the end of the month. Meanwhile, Kaiser Permanente’s financial difficulties nationwide may force the Oakland-based operator of the nation’s largest health maintenance organization to delay plans to open more medical offices in Orange County.

“If you haven’t got [the money], you can’t spend it,” said Dr. Kenneth Bell, Kaiser Permanente’s medical director in Orange County. He said the organization still plans to open medical offices in San Juan Capistrano and Yorba Linda next year. But it may postpone their openings by a few months.

The organization also may delay construction on another office building planned next year in Santa Ana.

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Healing Costs

Physician group costs tend to run higher in the West than elsewhere in the country. Percentage of costs compared to total revenue in 1997:

East: 58.99%

Midwest: 55.75%

South: 55.49%

West: 61.08%

Source: Medical Group Management Assn. survey of 1,194 medical groups