Doctors are the key to the entrenched position of health maintenance organizations in Orange County, a new study from the Center for Studying Health System Change shows.
“Although preferred provider organizations and new product designs have gained some traction in recent years, the HMO model remains popular among Orange County employers and consumers because of cost advantages and a wide choice of providers,” the study said.
The center is a nonprofit funded by the Robert Wood Johnson Foundation. It looks at the healthcare landscape in Orange County and 11 other markets around the United States.
It visited Orange County in June 2010 and interviewed more than 45 area healthcare professionals, including representatives of major hospital systems, doctors’ groups, insurers, employers, benefits consultants, community health centers, state and local health agencies and others.
The study found that doctors’ groups working with HMOs—including large, multi-specialties and independent practice associations—“provide the practice infrastructure to support care coordination and have fared well under capitated, or fixed per-member, per-month payments.”
Other findings from the report:
• Hospitals are “impinging on each other’s territories” in the wealthier southern and coastal parts of the county to attract well-insured patients.
• Kaiser Permanente, which the report called an “integrated delivery system and closed-panel HMO, has attained a higher profile in the market by building a new hospital (in Irvine) and becoming less reliant on contracts with other providers for enrollees’ care.”
• Safety-net providers and other healthcare institutions are increasing their focus on obtaining federal dollars to expand capacity and programs. That includes developing what the authors called a managed system of care to help transition uninsured residents into MediCal or subsidized insurance coverage under national health reform.
The center called Orange County’s hospital landscape “relatively unconsolidated” and said that three nonprofit systems—Orange-based St. Joseph Health System; Hoag Memorial Hospital Presbyterian, which has hospitals in in Newport Beach and Irvine; and Fountain Valley-based MemorialCare Health System—hold about half of the total market share in the sector.
“Location and reputation allow the three major hospital systems to attract higher-income and better-insured patients,” the study said.
The three also benefit financially “from being so-called must-have providers, meaning health plans must include them in their networks to offer insurance products attractive to employers and consumers.”
According to the report, major hospitals can maintain high margins on privately insured patients because of their negotiating clout with health plans.
As for HMOs, the center noted that tightly managed ones held a large proportion of the county’s commercial health plan market. It mentioned that Kaiser’s enrollment has grown to about 20% of privately insured OC residents, while traditional network HMOs lost some ground to Kaiser and some PPOs.
Valeant Play for Allergan Rival
Valeant Pharmaceuticals International, a Canadian drug maker that has roots in Orange County and a small presence in Aliso Viejo, recently made a play to buy a rival of Irvine-based Botox maker Allergan Inc., according to the Wall Street Journal.
Valeant approached Medicis Pharmaceutical Corp. of Scottsdale, Ariz., about a possible deal, according to the report, which was based on unnamed sources.
Valeant’s approach to Medicis came at a time when authorities are investigating what they’ve described as the unusual death of the girlfriend of Medicis founder and Chief Executive Jonah Shacknai in July.
Valeant, Medicis and Shacknai all declined to comment.
Shares of Medicis have lagged competitors since the woman’s death at Shacknai’s house in Coronado, a resort city located near San Diego, in July.
The decline left the drug maker “vulnerable to a takeover approach,” according to the story.
Medicis makes Dysport, a botulinum toxin that competes with Allergan’s Botox. It also makes dermatology drugs, including acne medication Solodyn.
Dermatology has been a major priority of Valeant’s in recent years. The company has also been actively looking at possible deals since it failed in a bid for Frazer, Pa.-based Cephalon Inc. in a $5.7 billion hostile takeover attempt.
Israel-based Teva Pharmaceutical Industries Ltd., which has an operation in Irvine, bought Cephalon for $6.2 billion in May.
Valeant, which got its start in the early 1960s as Costa Mesa-based ICN Pharmaceuticals Inc., was sold last year to Canadian drug maker Biovail Corp. for $3 billion. The combined company then took the Valeant name and moved to Canada.
Avanir Sues
Aliso Viejo-based Avanir Pharmaceuticals Inc. sued a pair of generic drug makers over patents protecting its Neudexta medication.
Avanir filed lawsuits against Woodcliff Lake, N.J.-based Par Pharmaceutical Companies Inc. and Actavis Inc., a Morristown, N.J., unit of Actavis Group HF in Iceland.
Avanir said it intends to “vigorously enforce its patent rights.”
Par and Actavis have applied to the Food and Drug Administration to sell generic versions of Neudexta, which treats a nervous system disorder called pseudobulbar affect, before Avanir’s patent for the drug expired.
Pseudobulbar affect causes involuntary emotional outbursts such as laughing or crying and is associated with brain disease or injury.
Avanir began selling Neudexta, which was previously known as Zenvia, in February.
A Par spokeswoman didn’t return a call seeking comment.
An Actavis spokesman sent a statement to Bloomberg saying that his company doesn’t comment on pending litigation.
