MemorialCare Health System’s bid to branch out from its hospital operations into a healthcare plan puts it in position to get more business from publicly subsidized programs as they shift to managed care.
The Fountain Valley-based company, which owns two hospitals in Orange County and three in Los Angeles, last week said it would buy certain assets of Signal Hill-based health plan Universal Care Inc. MemorialCare, which has about $1.6 billion in annual revenue, intends to form its own health maintenance organization called Seaside Health Plan.
Financial terms weren’t disclosed on the deal, which includes some of Universal Care’s staff and patient base. Universal Care had 17,654 members as of Sept. 30.
There is an ongoing shift to managed care from a fee-for-service model, in which publicly subsidized healthcare plans cover the costs of treating patients. Managed care puts an emphasis on preventive care and other ways to control costs, primarily through HMOs.
Separate Company
Universal Care will continue as a separate company offering behavioral health and other plans.
MemorialCare’s Seaside HMO will aim to serve patients who are on the Medi-Cal plan for lower-income and disabled Californians. It also will participate in a state demonstration project addressing the needs of children with certain diseases and chronic conditions covered by California Children’s Services.
MemorialCare decided to buy assets from Universal as a way to jump start its plans for an HMO.
“Running a health plan, however small or whatever population it works with, is wildly different than operating a hospital or a medical group,” Chief Executive Barry Arbuckle said. “It would be much better if we could acquire assets of a functioning, operating health plan—computer systems, the personnel—and allow us to basically bring in that expertise.”
MemorialCare’s recently applied for a Knox-Keene license from the state Department of Managed Health Care. The license would allow it operate and sponsor Seaside, and to participate in demonstration projects run by the state. The two companies had been talking for nearly a year before last week’s announcement, Arbuckle said.
The establishment of the HMO holds the potential to be “probably more relevant and impacting” in MemorialCare’s Long Beach hospitals compared with its two in OC. The company owns Orange Coast Medical Center in Fountain Valley and Saddleback Memorial Medical Center, which has campuses in Laguna Hills and San Clemente. It also owns Long Beach Memorial Medical Center, Community Hospital Long Beach and Miller Children’s Hospital, also in Long Beach.
Continuous Care
Seaside will allow MemorialCare to provide continuous care for its established Long Beach patient base without another health plan as a middleman if use of services drops expected with a shift by publicly subsidized plans to managed care, Arbuckle said.
Seaside has no plans to go beyond that segment, and won’t pursue business as an HMO for employers.
“I don’t see us competing in the commercial line with Aetna and Blue Cross and Blue Shield. They’ve got years of experience and they’re just big machines and I don’t see what we have competing with them,” Arbuckle said.
MemorialCare does expect Seaside to partner with commercial HMO companies in some instances, perhaps taking on some insurance risk from them.
Other opportunities include working with CalOptima, an Orange-based county organized health system that provides publicly funded health programs for low-income families, seniors and people with disabilities, according to Arbuckle.
Other HMOs
Some other California hospitals and medical groups have pursued the state’s approval to start HMOs.
Sacramento-based Sutter Health said it would file for one in September.
Irvine-based Monarch HealthCare and Sharp Health System in San Diego also have such licenses.
Arbuckle said it’s still “uncertain” whether having a health plan license would open other opportunities for MemorialCare. He said it wasn’t yet known if providers would be required to have such a license for participating in what’s known as “accountable care organizations” that serve employer clients.
Accountable care organizations offer financial incentives for doctors, hospitals and insurers to work together to reduce healthcare costs and maintain quality standards.
Recent Moves
Seaside is one of several moves that MemorialCare has made this year outside of its traditional hospital base.
It bought Nautilus Healthcare Management, a service provider to Newport Beach-based Greater Newport Physicians at the end of February. Greater Newport and its 400 doctors, in a related move, affiliated with the MemorialCare Medical Foundation, a medical management organization that works with doctors’ groups in Orange and Los Angeles counties.
Greater Newport Physicians has said its affiliation with MemorialCare was in line with industry trends.
“Health plans are increasingly moving to narrow networks, which only include providers demonstrating they can manage costs and offer excellent care,” said Diane Laird, Greater Newport’s chief executive. Affiliating with MemorialCare offers the doctors’ group “the ability to expand our network of hospitals and providers in Los Angeles and Orange counties,” Laird added.
