October’s been an eventful month for Santa Ana-based PacifiCare Health Systems Inc.
Last week was no exception, with the departure of the beleaguered health maintenance organization’s president and chief executive, Robert O’Leary, after only three months on the job. And the sparring over PacifiCare’s falling out with St. Joseph Health System, Orange County’s largest healthcare provider network, raged on.
O’Leary said in a release that he resigned because PacifiCare Health Systems’ priorities have “changed substantially” from what they were perceived to be earlier this year.
“Unfortunately, that change in perception has brought with it my realization that my skills and background are not a good fit to address the company’s immediate priorities,” O’Leary said. PacifiCare Health Systems needs a leader with a managed care background, he said.
Chief Financial Officer Howard Phanstiel, who does have HMO experience, is O’Leary’s interim replacement. Phanstiel, a former executive at Costa Mesa-based ARV Assisted Living Inc. and Thousand Oaks-based WellPoint Health Networks Inc., comes at a time when PacifiCare’s stock price has tumbled from around 72 in mid-June to around 10 late last week.
PacifiCare also is wrestling with the ongoing conversion of its fixed-payment hospital contracts to those that share extra costs with healthcare providers.
Some have suggested that PacifiCare is having problems because it has too many fixed-payment, or capitated provider contracts, and is heavily entwined in Medicare HMOs. Medicare HMO operators, including PacifiCare, have aggressively lobbied Congress to restore payments cut as a result of the Balanced Budget Act of 1997.
Meanwhile, don’t look for the icy business relationship between PacifiCare and St. Joseph to thaw anytime soon. Orange County’s largest HMO is not among five health plans contracting with St. Joseph in 2001. And executives from the two companies said they have no plans of to revive their 14-year partnership.
“We are exiting the relationship. We are done,” said Chris Wing, PacifiCare of California’s president and chief executive.
PacifiCare of California is not willing to give St. Joseph a contract with rate increases it feels are out of line with other providers in Orange County, Wing said.
“This is not a negotiating ploy. It’s over,” said Robert Fraschetti, chief executive of St. Joseph Heritage Healthcare, the system’s medical group business unit. St. Joseph simply asked for a contract where “all parties share in the risk,” said Fraschetti, who also runs one St. Joseph’s St. Jude Medical Center in Fullerton.
“We negotiated every week from the beginning of August, once a week until that infamous Thursday,” said Darrin Montalvo, St. Joseph’s executive vice president who oversees contracting. Montalvo’s “infamous Thursday” reference was to an Oct. 12 meeting that marked the end of negotiations between the parties.
Since then, St. Joseph has been sensitive to how the situation has played out in the public eye. In particular, officials have taken exception to reports indicating that they asked PacifiCare of California for a rate increase of around 31% during contract negotiations.
“This is about sharing in the risk,” not rate increases, Montalvo said.
PacifiCare also has been trying to get its side across. In a letter to insurance brokers, Wing wrote:
“We know how important St. Joseph’s is to your clients and their employees. We also know your clients value the ability to anticipate their health care costs and St. Joseph’s has challenged our ability to do this by demanding significant increases outside the normal contract cycles.”
Wing went on to write, “Ultimately, PacifiCare cannot allow consumers and employers to be held captive to a provider who is using their market share in Orange County to drive up health care costs.”
Officials from both parties said they are moving on.
St. Joseph is working on making an orderly transition to its new “partner health plan” relationships with Aetna U.S. Healthcare, Blue Cross of California, Blue Shield of California, Cigna HealthCare of California and Health Net, Fraschetti said.
“We don’t want to cut anybody off. Our absolute priority is not to disrupt the physician and patient relationship,” he said, adding that his system has attempted to respond to employers’ concerns over the HMO contract cancellations.
PacifiCare has other options, Wing said. The HMO has contracts with “marquee” hospitals, he said, such as Hoag Memorial Hospital Presbyterian, Children’s Hospital of Orange County, Irvine Regional Hospital and Medical Center and Western Medical Center-Santa Ana. n
