North Coast Journal

HEALTH - April 1996

HMO update

by Lisa Ladd-Wilson

Just about everybody in the local medical community is still talking about it: the Jan. 22, 1996 issue of Time Magazine, with its cover story on HMOs and, more specifically, Health Net.

The article follows one California family through the system after discovering that the mother has breast cancer. It begins with the family's relief that their medical insurance company, the health maintenance organization (HMO) called Health Net, covers the treatment Mom will need. The experiences are pretty much downhill from there.

Is it a fair article? Yes, said Arcata physician Alan Glaseroff, and it - as well as a host of other HMO-bashing stories - comes at a propitious time for Humboldt County's health-care community. For over a year now, a coalition of employers, hospitals and health-care providers has been working on an HMO-type product of its own. This homegrown, community-based health plan will compete against the big HMOs to be the insurer of choice for area businesses.

Its anticipated launch date is next July. Its message: This is a health plan of our community, by our community, for our community. This isn't a big HMO.

A year ago the North Coast Journal's cover story was "The Health Care Revolution." It discussed the HMOs' arrival in Humboldt County and the medical community's efforts to prepare for it. A review of some of those efforts and what has happened in the year since:


In an effort to prevent such competition here, physicians in both Humboldt and Del Norte counties formed the Humboldt-Del Norte Independent Practice Association. This IPA, as it's called, will negotiate contracts with HMOs, contracts that will include every physician in the IPA.

The Humboldt-Del Norte IPA was incorporated over a year ago, and since then approximately 95 percent of physicians practicing in the bi-county area have come aboard, according to Patrick Okey, executive director of both the IPA and the Humboldt-Del Norte Foundation for Medical Care. The IPA just signed its first HMO contract - with CaliforniaCare, the HMO arm of Blue Cross.


In the intervening year, SCPCN has folded. However, Eureka Family Practice has signed up with another IPA called Redwood Empire Medical Group Inc., or REMGI, based in Santa Rosa. Although Eureka Family Practice's doctors also are members of the local IPA, some ill will lingers, as do fears that REMGI poses the same threat as did SCPCN.


That seems to have worsened in the last year, with many fingers pointing at St. Joseph Hospital as the instigator. St. Joseph is negotiating to purchase Arcata Family Medical Group, the largest general practice north of Eureka, and is taking over a clinic in Willow Creek.

Both areas traditionally have been served by Mad River Hospital in Arcata. St. Joseph also is negotiating to buy two Fortuna practices.


The June 30th Group has metamorphosed into "the Core Group" and now includes some of the area's largest employers, such as Pacific Lumber, the Humboldt Group of Fortuna and county schools. These are the people hammering out the home-grown HMO that, they hope, will be ready to offer employment-related group health insurance this summer.

"A lot of the community plan is still under development," said Patrick Okey, but some key decisions have been made.

The Core Group hired a professional consultant to guide it while the Humboldt Area Foundation also is lending a temporary hand in the organizational phase.

A limited partnership with an insurance company was needed, even if the plan ends up being self-insured. After receiving several proposals, the Core Group chose Wausau, which has a similar HMO-type plan in Visalia.

Arcata physician Glaseroff, medical director of the Humboldt-Del Norte IPA, said the community plan is actually "an HMO lookalike": It will include some of the features of a true HMO - a system of managed medical care driven by the primary-care physician, which usually includes general practitioners, pediatricians and obstetric/gynecologic physicians; and a capitated fee, in which the primary-care physician receives a monthly fee per patient, regardless of services performed.

(Locally it is the IPA that will receive the capitated fee, which can vary from $30-$50 per enrolled patient. Physicians will continue to be paid "fee for service." This puts the IPA at risk for losing money; but since the physicians are all stockholders in the IPA, considerable pressure can be put upon a doctor who continually racks up bills for lab, x-ray and other procedures.)

One of the big differences between the local HMO and any others is that all the money paid into the local entity will remain in this community: Typically, an HMO sends at least 20 percent of its income back to its home base. Also, its home-grown nature ostensibly means it will be tailored to fit the community's needs, rather than the community trying to fit itself to Health Net, OmniCare or CaliforniaCare's urban models.

"I think the thing that's somewhat unique about this (community plan) is not only the collaboration from the (medical) side but also working with the consumer element," said Gary McCormack, chief executive officer of General Hospital in Eureka. "The difference is keeping the money local and getting local input."

The Core Group had hoped its plan could offer coverage for workmen's compensation insurance by July, but that has been moved back. Long-term goals include offering a product for people on MediCal and Medicare, as well as private individuals not covered by other plans.

The Humboldt-Del Norte Independent Practice Association survived SCPCN's sideswipe into its territory and in the process outlived SCPCN itself. The arrival of REMGI, however, has rekindled some of the worries for local unity.

Dr. Leo Leer of Eureka Family Practice is quick to note that he and his colleagues support the local IPA. He thinks it was good business sense to sign with REMGI, too.

"It seems clear to us that one of the things driving health care reform in this country is the people purchasing health care. Those people want lower cost and higher quality," Leer said. "One of the things we feel helps to achieve those goals is competition in the marketplace."

Health care is changing so rapidly, he said, that "there is less opportunity for a learning curve. And we feel REMGI is well-versed in the more rural marketplace."

Concerns about REMGI stem mostly from worries about its management parent, the large UniHealth of Burbank, and what its motives are for coming into Humboldt County. But there is a more local entity, too, which is sparking concern - St. Joseph Hospital, which many say is being "aggressive" at a particularly sensitive time in the community.

"I'd rather use the term 'being very responsive,'" said St. Joseph's Chief Executive Officer, Paul Chodkowski, "and I said that to the medical society and it was pretty well received. All we've done is respond to the doctors who have approached us."

Chodkowski had gone to a pre-Christmas meeting of the Humboldt-Del Norte Medical Society because of the uproar created by the news that St. Joseph was negotiating to buy Arcata Family Medical Group. Both he and that group's Dr. Bruce Kessler found themselves on the defensive.

"I assured them that in no way does (this buyout) sever or threaten the (Arcata) physicians' membership in the IPA or our support in development of the IPA. I want to be very clear on that," Chodkowski said as he sat in his basement office of the Eureka hospital. He said his organization also supports the community health plan, and he noted that he is a member of the Core Group.

Kessler is blunt in discussing Arcata Family's financial struggles and why his practice took this step. At a group retreat last year, he said, he and his colleagues discussed the future and "decided we wouldn't survive for long. We decided we needed another association for clout and stability," something with a more proven track record than the young IPA.

(Other practices have been merging to gain a better foothold, too: Health Care Medical Associates Inc., for one, united the practices of Drs. Marcelle Mahan, George Zibilich and Depak Stokes.

Several physicians interviewed for this article said a number of area primary-care practices are in danger of failing. Kessler blames paperwork: His office had to hire an additional person just to handle Health Net documentation.)

Out of a half-dozen offers, Arcata Family picked St. Joseph Hospital, one of nine hospitals owned by the Sisters of St. Joseph of Orange (Redwood Memorial in Fortuna is another).

Arcata Family has been the biggest primary-care practice north of Eureka for 20 years, and the biggest source of referrals to Arcata's Mad River Hospital and surrounding specialists. Mad River was one of the entities offering to buy the practice, with a reported bid of approximately $600,000. But Kessler said St. Joseph's offer best matched its goals in its long-term commitment to the area, support of primary-care doctors and philosophic approach.

"I think Mad River feels most threatened by this (buyout)," said Chodkowski. "Particularly a couple of specialists who are based at Mad River feel very threatened by it."

"There was a perception on the part of some people that St. Joseph was trying to do something that might be harmful to either the IPA or the community-based plan," said Elizabeth Lee, speaking on behalf of Mad River Hospital, which she administrated for 10 years. "St. Joseph denies that 100 percent and in writing, and I have no reason to believe (otherwise)."

Still, Mad River Hospital has been running advertisements in local media outlets touting its community support.

Even if the negotiations are successful and St. Joseph does buy Kessler's group, the hospital legally cannot require those physicians to refer patients to St. Joseph's services. Kessler said his group will continue to do business with Mad River Hospital. He also said the Catholic hospital hasn't made any stipulations about what contraceptive services its physicians could offer.

However, everyone in the medical community is aware of how important primary-care physicians are in an HMO world: Nothing happens without them ordering it. Any entity that controls a large number of primary-care doctors has an advantage, and the news that St. Joseph also is negotiating with a physician in Willow Creek as well as two ob/gyn practices in Fortuna (those of Drs. James Anderson and Ed Kemper) is adding fuel to speculation about St. Joseph's motives.

But the coalition of employers that has sprung from the Core Group represents nearly 30,000 workers: That is considerable muscle, and the employers are flexing it, said Glaseroff and others. These employers want an integrated, inclusive health-care system, and they support the IPA and the community HMO. If St. Joseph or any other entity has higher aspirations, Glaseroff said, these employers have the clout to rein them in.

That clout didn't exist a year ago. Neither did the Core Group, a functioning IPA or a community HMO ready to be launched in three months. A year ago Arcata Family Medical Group wasn't shopping for a buyer, and Health Care Medical Associates Inc. didn't exist.

"What's happening around us is pretty dramatic," said Chodkowski.

Check in again next year.

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