Health Plan of the Future?

An Unexpected Hybrid Emerges in California's Wide-Open Provider Competition

by Patricia McBroom

Winners and losers in the health care field are beginning to emerge out of the fierce competition going on among health providers in California.

California's health care revolution, which has advanced more quickly than in other states, is being watched closely for the appearance of new forms of medical organization.

Now for the first time, preliminary outlines of that new organization can be seen, according to public health experts here, publishing in the April 1 issue of the journal Health Affairs. The journal's spring issue covers an analysis of the California experience.

Contrary to expectations, the most structured organizations, such as the Kaiser Health Plan, that employ staff physicians and maintain their own hospitals are struggling to keep their share of the market, said James Robinson, associate professor of public health, in the issue's lead article.

Winners are turning out to be networks of doctors and hospitals that contract with an insurance company to provide medical care at a fixed cost per month for the consumer. Thousands of doctors and hundreds of medical groups are linked by contract to these overlapping networks. Both types of organizations are called health maintenance organizations or HMOs. Both offer all medical services for a fixed price per individual.

California consumers are choosing the networks, apparently because they offer more medical choices at a lower cost, said Robinson.

His research is based on hundreds of interviews over two years with medical groups, HMOs, purchasing alliances and others in the race to reshape the way medical care is delivered.

He said that over the past several years there has been a very large shift in the insured population from big, staffed HMOs to the kind based on contractual networks.

In 1980, 80 percent of HMO enrollees in California belonged to the Kaiser Health Plan. Today, Kaiser has less than 40 percent of the state's HMO enrollment, which has more than doubled since 1980. Other plans are growing much more rapidly than Kaiser, said Robinson.

About 12 million Californians--half of those who are privately insured--now get their medical care through an HMO and many of the rest soon will, said Robinson.

"I think these networks are able to achieve more efficiency with less bureaucracy," said Robinson. "It is absolutely contrary to what we all expected. We didn't think these contractual groups could compete with the fully integrated organizations."

The physician/hospital networks, however, tend to become more structured as they move to standardize medical practice and control costs.

In the same issue of Health Affairs, a Berkeley public health expert on preventive care outlines an unprecedented effort by a group of employers to get HMOs to perform more screening and prevention.

In 1995 the employers' group used its economic muscle to get California HMOs to put $7 million in premiums at risk of loss if they did not reach certain targets on service quality and prevention.

The group that caused the change is called the Pacific Business Group on Health which represents 30 large firms headquartered in California providing medical coverage for 2.5 million people. PGBH created a new entity called a "purchasing alliance" that has the power to purchase the services and evaluate performance of HMOs, as well as define standards for quality of care and determine how much money is at stake.

"This represents a radical shift in medical priorities toward preventing disease," said Helen H. Schauffler, associate professor of health policy.

"What purchasers care about now, in addition to controlling costs, is quality. What they value more and more is prevention," said Schauffler.

"The influence of what PGBH has done here is going to reach far beyond California," she said.


Copyright 1996, The Regents of the University of California.
Produced and maintained by the Office of Public Affairs at UC Berkeley.
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