Children’s Hospital of Orange County and Rady Children’s Hospital in San Diego are contemplating pursuing a state license that could make them eligible to more closely manage healthcare delivery for nearly 500,000 children in the region.
“We are now discussing a restricted Knox-Keene license,” Denise Almazan, a spokeswoman for the 279-bed pediatric hospital in Orange, said last week.
A restricted Knox-Keene license allows an entity to manage care for enrollees of other fully licensed healthcare service plans. Restricted Knox-Keene license holders “may not solicit, market or enroll subscribers, nor determine benefit designs,” according to the California Department of Managed Health Care.
Such duties are performed by the fully licensed plans.
CHOC and Rady Children’s have worked together in various ways since 2013. The pediatric hospitals’ first collaborative act was under a joint management services organization for patients who receive their healthcare through Orange-based health system CalOptima’s Medi-Cal program.
CHOC Health Alliance and Rady Children’s Health Network serve 456,000 children in the region under the umbrella of the joint service organization, according to Almazan.
New York-based rating agency Fitch Ratings Inc., in a report on the 479-bed Rady Children’s bond and debt ratings, mentioned the potential for the two hospitals to work together on managed care efforts.
“It is pursuing a restricted Knox-Keene license to enter into more fully integrated risk-based contracting, which will be done in partnership with Children’s Hospital of Orange County,” Fitch said.
Risk-based contract payments are predicated on estimates of expected costs to treat a particular condition or patient population. Healthcare providers such as CHOC and Rady Children’s have typically been more likely to assume performance risk, which involves managing the use of medical services by a certain population.
The state’s managed healthcare department’s licensing division had not received a license application from CHOC or Rady Children’s as of last week, said spokesman Rodger Butler.
Origins
A late-2013 letter from CHOC Chief Executive Kimberly Cripe and Dr. Jacob Wolsztejn, chairman of the CHOC Physician Network, to healthcare providers explained the hospital’s decision to work with Rady Children’s on the management services organization, which replaced Aetna Medicaid Administrators:
“The transition to a new model of management presents an opportunity for CHOC Health Alliance to reassess and adapt to the increasing demand for cost-effective, quality oriented integrated delivery systems,” Cripe and Wolsztejn wrote.
They mentioned that Rady Children’s management services organization was overseeing care and costs for children who had commercial health insurance through their parents, as well as managed Medi-Cal children in the San Diego area.
“In addition to Rady Children’s considerable managed care experience and expertise, their exclusive focus on pediatric healthcare, and dedication to improving access, quality and value for children and families, makes them an ideal partner for CHOC Health Alliance.”
Rady Children’s is the largest pediatric hospital in California by bed size. It includes a trauma facility and serves as a tertiary and quaternary referral center. It had $1.02 billion in revenue for the 12 months ended June 30.
CHOC’s primary campus in Orange ranked No. 4 on the Business Journal’s most recent hospital list. The facility posted pretax profit of $19.7 million on net patient revenue of $544 million for the 12 months ended last September.
CHOC also operates a satellite facility at Mission Hospital in Mission Viejo. CHOC at Mission, with 132 beds, had a pretax profit of $4.8 million on net patient revenue of $56.2 million for the 12 months ended Sept. 30.
