St. Joseph System in southern California has decided to not renew contracts with twelve HMOs.  This will force 150,000 people to change physicians or health plans.

Ventura County’s largest medical group with 135,000 lives, 200 primary care physicians and 700 specialists has gone under according to a L.A. Times story. The primary physicians at Family Health are to take care of patients but the specialists have  resigned due to lack of payment since April 2000. There was no mention in the story what the hospitals with contracts with Family Health will do. Family Health has begun to liquidate their assets, but it will be 4-5 months before any distribution.  The patients have begun to use the Emergency Departments for their care.

On October 26, 2000 several hundred San Diego physicians and other medical personnel closed their offices and marched to protest a deteriorating health system. They believe the patient is receiving reduced or rationed medical care due to excessive paper work and decreasing reimbursement.  The California Medical Association stated that physicians in San Francisco, Long Beach and Los Angeles are considering like protests.

(Editorial Comment)  The revolution has begun.  Poor business models have been going bankrupt in a quickening pace.  In the Bay Area multiple IPAs have gone down.  The largest IPA in southern California has needed a $30 million bailout (loan?) by the HMOs to stay afloat.  How long will this money last?

This will put more pressure on the HMOs.  They will need to negotiate with the individual physicians or alternative IPAs.  This will cost the HMOs more money and lessen their bottom line. Higher premiums will result. It will not be much longer before people rise up with their employers to fight the battle.

  The HMOs are also dropping out of the system.  PacifiCare, the largest HMO in the country, has begun to see a loss on their Medicare HMO business and is beginning to pull out of California.  They have announced that they will not admit any more patients into their Medicare HMO. Hospital systems that have dropped low paying HMOs are CHW, Tenet, and Sutter.

It is my opinion that within five years the HMO experiment of rationing care (a term used by a United Sates Supreme Court Justice) will no longer be viable.  It will be replaced by the largest growing system in healthcare today, the PPO, the Medical Savings Account or a “defined contribution plan.”  This latter is what health care economic analyst Uwe Reinhardt believes is the future.  This is where the employer gives the employee a certain amount of money to buy his or her own health policy.  This gives choice back to the patient.

 I do not believe the United States people are ready nor trust enough for a completely government controlled single payor system ala H. Clinton.

HOW WOULD THIS NEWS AFFECT YOU, YOUR MEDICAL STAFF AND HOSPITAL? To my knowledge there has never been a hospital run California medical group or foundation that has been financially successful. A recent study by Ernst & Young has shown that 96% of hospitals nationwide have lost money on the physician practices they have acquired, to the tune of $111,000 per practice. Is it time to begin to unravel the ties that bind, and at what monetary and mental cost to the physicians? 

A survey just published by the Connecticut Attorney General showed 88% of physicians believed the medical care is worse under managed care than fee-for-service.  The survey was of 687 physicians and 26% were personally aware of instances where a patient died after an insurer refused to cover care a physician had thought medically necessary, 28% knew of instances of patient death after the insurer had altered the care the physician had recommended, and 29% knew of cases where patients died due to insurer delays.  Additional information is at

The October 30, 2000 Wall Street Journal in its front page story detailed the lack of payments for mammography and the closure or cut backs that this is creating.  The Journal reported that there is a line starting to form for women to obtain these important radiographs, occasionally up to six months.  Some places have reported being paid under their costs for mammography.  Medicare is paying outpatient clinics $46.11 for routine mammography and only $33.94 for the more intensive mammograms.  The radiologist fee is $21.70 and the liability is high, second only to bad baby cases.  The radiologist has to pass a special test to read mammograms.  In 1997 almost 4000 took the exam.  In 1999 only 1800 took it. The managed care organizations in the study were paying significantly lower amounts than the Medicare rates.

The Denver newspaper reported on October 29, 2000 a significant number of physicians opting out of practice with early retirement.  The paper reported that in 1996 26% of national physician recruitment was for specialists. It is now 76%.  Pueblo, Colorado has lost 50% of its Orthopedic Surgeons in the past year.  The only infectious disease specialist moved to South Dakota.  Anybody want to move to a town 130 miles from Denver with one mall and no theater?

Two Employer Groups Freeze HealthNet Enrollment

The LA Times reported that both the Pacific Business Group on Health and CALPERS have frozen enrollment in HealthNet.  This was done after HealthNet opted out of the accreditation process by the NCQA.  The two major employer groups state that they will look at the quality given to their employees until HealthNet is again NCQA accredited.  This will affect the choices since it is currently an “open enrollment” period. This will probably affect those practitioners and IPOs who rely heavily on HealthNet for their patients.  THIS IS A MAJOR REASON WHY NO HMO OR IPA SHOULD BE ALLOWED TO CONTROL YOUR PRACTICE.

October 27, 2000 East Bay Business Times Section on Health care

The first article in the above paper section dealt with the potential physician shortage especially in the Bay Area.  They state that a report by PricewaterhouseCoopers showed some physicians making between $60,000 to $75,000 per year and working several jobs or leaving medicine to go into consulting work.  About 800 physicians in the Alameda Contra Costa Medical Association retired this year compared to 556 in 1990.  About 40% of physicians over 50 years old plan to retire in the next three years. According to the article, this is going to result in a major shortage.  New physicians cannot move into the area with soaring real estate prices and low payments.  This has caused physicians to see 23% more patients today than five years ago to make the same amount of money, before inflation.

The next article was on medical businesses and their reliance on Medicare.  Under Clinton’s Balanced Budget Act of 1997 the home health industry is now on a prospective payments.  This means the businesses such as physical therapy are paid the same amount per patient, no matter how many times they see the patient.  The new Ambulatory Service Codes (ASC) are 451 codes for all outpatient services and the rate of payment per code, as with hospital DRG’s. The copayments are frozen even if costs increase. As the traditional payors look to Medicare one can expect to see this type payment creep into the non-Medicare reimbursement.

The third article discussed the decrease in medical school applicants.  The northern California UC campuses have seen a yearly decrease in applicants for the past five years.  Nationally there has been a decrease for the last three years.  The decrease for the last year was 6%.  The problem seems to be several fold.  The first is the brightest can go to work for a high tech industry for six-figures without working 80 hours a week as a resident and amass between $77,000 and $90,000 of debt.  Another possible reason for the decline is managed care that means lower reimbursement, dealing with bureaucracy and cost versus quality issues. The article goes on to state that the applicant quality has not decreased and that teaching hospitals will continue to have no trouble filling their slots.

The last article was about the new law that allows patients to ask for and receive independent medical review of treatment refused by the HMOs.  This goes into effect January 1, 2001. The HMO’s and the patients will have to abide by the decision of the independent reviewer (see article in November New Law Section)  

DISCLAIMER: Although this article is updated periodically, it reflects the author's point of view at the time of publication. Nothing in this article constitutes legal advice. Readers should consult with their own legal counsel before acting on any of the information presented.

If you wish to comment on this or any other issue please Email me at  I will insert your comments in the next newsletter.