Doctors Aim at HMOs

A group of 1,100 Southern California doctors sees a business opportunity in widespread discontent among consumers and physicians over managed care.

Irvine-based Physicians Care of California, which has been steadily adding clients locally over the last four years, has started an ambitious expansion effort, offering its health insurance plan to small employers across the state to compete against health maintenance organizations and other insurance middlemen.

“We’re trying to return medical care to the physicians and the patients,” said Dr. Gerald Wilks, a company founder and orthopedic surgeon. Sounding a familiar lament, Wilks says physicians are angry about losing control of health-care dollars and profits that are ending up in the coffers of huge managed care companies.

But insurance industry experts say PCOC (pronounced PEACOCK) faces huge obstacles in a market overrun with competition.

Ed Keaney, a managed-care analyst at San Francisco-based Volpe Brown Whelan, notes that PCOC is up against such industry giants as Kaiser Permanente and Wellpoint Health Networks in the small-employer market. “It’s pretty hard to start up an insurance company from scratch in a mature market like California,” he said, comparing the doctors’ ambitions to somebody with a design for a new car who wants to compete with General Motors Corp.

Despite skepticism, PCOC insists it can be successful by growing slowly.

The group started small four years ago, when Wilks and other doctors at Hoag Memorial Hospital Presbyterian negotiated directly with the Newport Beach hospital to provide care to its employees. It now insures about 7,000 people.

PCOC says it saved the hospital more than $1 million a year in health costs. A Hoag official wouldn’t confirm the savings but acknowledged that the amount was substantial.

Pointing to such successes, PCOC is moving to market its own health insurance throughout the state, selling the plan directly to small companies as well as through brokers. Putting out the word through local medical associations, the organization says, it has lined up 35,000 doctors who are willing to add PCOC patients to their caseloads.

The organization figures it can price its health plan lower than larger competitors by holding down overhead costs. Its “preferred provider” plan--much like competing plans--charges patients $20 per regular office visit with any of the 35,000 doctors in its statewide network. Patients pay discounted rates on procedures. Doctors agree to contracted rates for their services in exchange for the patient business.

Health care experts note, however, that doctors often have trouble managing the costs of care because they generally are inclined to favor more care over holding down costs.

The California Medical Assn., the profession’s powerful trade group, launched a statewide plan three years ago, but it racked up millions in losses. Last month, the plan, California Advantage, filed for bankruptcy protection.

Jack Lewin, the medical association’s chief executive, says that PCOC has taken a smarter approach by starting small instead of following the medical association’s strategy of mounting a multimillion-dollar statewide program at the outset.

PCOC officials say the group is profitable but needs to expand beyond the 7,000 customers to achieve financial stability. By the end of this year, it hopes to insure 20,000 employees and expand its staff from a dozen to about 20.

PCOC says it manages the quality and cost of care through a panel of practicing physicians. The panel encourages doctors to change their habits if necessary by approaching them in a collegial way, say officials.

The group aims to capitalize on what it sees as widespread frustration among doctors over having their requests for procedures reviewed at managed care companies by individuals who lack medical training. The company also promises to pay health care claims more quickly than big managed care companies.

Thus far, PCOC has scored both successes and disappointments.

Recently, in a deal PCOC officials describe as the “peacock that ate the chicken,” the group sold a plan to Foster Farms, the 2000-employee poultry operation in Turlock.

Yet, it recently lost a contract it had lined up last year for employees of Brea Community Hospital. A hospital spokesman noted that the group provided good care, but the contract was canceled as part of a recent consolidation. He wouldn’t elaborate.

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Managed Care’s Share

Health maintenance and point-of-service plans dominate the Southern California medical insurance market, according to a 1997 survey. Health plan enrollment as a percent of total population:

Los Angeles

* Health maintenance organization/point of service: 69.2%

* Preferred provider: 15.1%

* Other: 15.7%

*

Orange County

* Health maintenance organization/point of service: 61.5%

* Preferred provider: 24.9%

* Other: 13.6%

*

Riverside/San Bernardino

* Health maintenance organization/point of service: 70.6%

* Preferred provider: 11.5%

* Other: 17.9%

*

San Diego

* Health maintenance organization/point of service: 68.0%

* Preferred provider: 13.2%

* Other: 18.8%

*

California

* Health maintenance organization/point of service: 65.0%

* Preferred provider: 17.0%

* Other: 18.0%

Note: “Other” category includes fee for service indemnity plans, CHAMPUS (military personnel), Medicare and those not covered by insurance.

Source: National Research Corp.