Fullerton-based Beckman Coulter Inc. sells medical diagnostic equipment to St. Joseph Health System, but come next year a few hundred Beckman employees and their families won’t be welcome at St. Joseph’s hospitals and doctors’ groups.
That’s because the Beckman workers belong to PacifiCare of California, one of 12 health maintenance organization contracts that Orange-based St. Joseph plans to stop contracting with in coming months.
“I’m a little surprised that we did not get advance warning from St. Joseph,” said Claudia Ferguson, Beckman’s director of global benefits. “This makes things very challenging, to say the least.”
Beckman is just one of many OC employers wrestling with what St. Joseph’s decision means for them. Earlier this month, the 420,000-patient health system said it plans to stop contracting with Santa Ana-based PacifiCare Health Systems Inc., the county’s largest HMO. While cutting ties with some HMOs, St. Joseph signed new pacts with Aetna U.S. Healthcare, Blue Cross of California, Blue Shield of California, and Cigna HealthCare of California and continues negotiating with Health Net.
Beckman’s Ferguson said her office received “quite a few” calls from employees after St. Joseph’s decision became known. A spokesman for PacifiCare said his company plans to send out a mailing to Beckman and other members about the benefit change for their workers. The HMO also may hold meetings for employees at Beckman and other companies.
Ferguson said Beckman also has Blue Cross, one of the HMOs St. Joseph’s still plans to work with. About 600 of Beckman’s California employees belong to PacifiCare, she said. Like other employers, Beckman, which counts 2,000 people in OC, is going through an open-enrollment period for benefits, she said.
Companies not directly affected by St. Joseph’s decision are watching the situation. Aliso Viejo-based Fluor Corp., which is primarily self-insured, does not offer PacifiCare among its HMO options. But Joe Deacon, director of human resources, said the issues at the center of the St. Joseph-HMO dispute affect everyone.
“Stability is the name of the game,” Deacon said. “As a plan sponsor, you want to be able to put a program into place that will not come apart at the seams after a commitment from the employer and employees.”
St. Joseph and other medical groups contend HMOs aren’t paying enough per patient to cover treatment costs. While increased healthcare costs can take their toll on employers, Deacon said companies should play a part in making sure doctors and hospitals are paid “a fair fee” for their services. Rates “ought to be evaluated year after year in the marketplace,” he said.
“In order for the healthcare system to stay healthy, (providers) periodically need to receive increases,” Deacon said. “We need to keep a healthy system and not cut back on medically necessary services.”
Tyler Mason, a PacifiCare of California spokesman, said the HMO decided to go public about the contract situation with St. Joseph because many customers are conducting benefits enrollment for next year. “Employees need to know that St. Joseph is not available in 2001,” Mason said.
PacifiCare employers who have St. Joseph as their health system will be going into transition periods all the way through next fall, Mason said.
As for St. Joseph, system officials said the paring down of health plans will ensure network stability and viability. St. Joseph’s hospital in Orange and its two other facilities in OC,St. Jude Medical Center in Fullerton and Mission Hospital Regional Medical Center in Mission Viejo,were operationally profitable last year. But officials said the system is losing around $45 million annually on its HMO contracts.
“This new model mitigates the financial risks that have caused us and other providers to sustain huge losses,” said Joe Randolph, St. Joseph’s chief financial officer, in a statement. Randolph said the “partner health plans” the company plans to continue working with will share financial risk for new technologies and pharmaceuticals with St. Joseph.
“The managed care revolution has been hard on hospitals,” said Robert Langston, a principal in KPMG International’s Costa Mesa office. “Add the Balanced Budget Act to that, and hospitals have had a pretty difficult time.”
But paring is risky for providers because a sizable chunk of their revenue stream comes from managed healthcare plans, Langston said. Still, some hospitals are deciding “that it’s better not having a contract than losing money on every patient,” he said.
Other large OC hospitals are mixed in their approaches to the contract issue. UCI Medical Center in Orange is dropping out of HMO contracting, while Tenet Healthcare Corp. and Hoag Memorial Hospital Presbyterian are leaning toward staying in the HMO business.
UCI Medical Center fired the first shot in the payer-provider wars a year ago, when it terminated its contract with PacifiCare of California.
“We were closing our panels and divesting ourselves of capitated contracts,” said Susan Rayburn, UCI Medical Center’s vice president of external affairs. “St. Joe’s is taking the same action.”
Rayburn said her hospital is continuing to pare managed care contracts. UCI Medical Center’s deal with Blue Shield of California ends Nov. 1. Cigna HealthCare will go away at the end of the year. Officials still are evaluating its contract with Aetna/Prudential, she added.
“Getting out of the capitation method of reimbursement makes sense for us,” Rayburn said.
Hoag Memorial Hospital Presbyterian in Newport Beach is the “only real tertiary facility that accepts PacifiCare,” Rayburn said.
Hoag continues to have contracts with PacifiCare and other HMOs, said Pete Foulke, the Newport Beach facility’s executive vice president and chief financial officer. “Negotiations are going on. We don’t have anything pending on the brink of giving notice.”
So far, Hoag’s been able to work effectively with HMOs in terms of rates, Foulke said. To make it work, he said his hospital has had to “negotiate hard” while working with plans in terms of products.
The Hoag executive added he doesn’t believe the St. Joseph action will impact his hospital much. “We’re just far enough apart (geographically) that there’s not much overlap,” he said.
Santa Barbara-based Tenet, OC’s largest hospital operator, hasn’t canceled any of its HMO contracts on a system-wide basis, said Bill Leyhe, a company vice president who oversees negotiations. Tenet operates nine OC hospitals, including Fountain Valley Regional Hospital and Medical Center and Western Medical Center-Santa Ana.
Still, he said, “In the last few years, the negotiations between payers and providers have been very poor. Most of the providers feel that they’ve accepted contracts that are below what they would like to have.”
Risk acceptance is one of the more critical sticking points in the payer-provider relationship. In particular, capitated contracting, which involves giving hospitals and other providers set amounts of money per patient for treatment, is drawing heavy fire because it exposes providers to the financial risk of actual costs being higher.
Hospital and medical group anger is leading many HMOs, including PacifiCare, to shared-risk contracting. Under shared-risk contracting, plans pay higher fees if members’ healthcare costs go up. PacifiCare recently attributed that as one of the contributing factors in disappointing third-quarter results.
“Providers, in general, have been canceling capitated contracts, with the exception of MediCal,” Leyhe said. Leyhe attributed cancellations to a combination of “bad accounting and low reimbursement.”
Hoag still has capitated contracts, Foulke said, although he’s seen some trend toward shared-risk arrangements.
“I don’t think capitation will survive. There’s just not enough money,” UCI’s Rayburn said. n
