Large California employers offering PPO plans will see just a 5.1 percent hike in premiums next year, much less than the 10.1 percent expected rise in HMO premiums, according to a new survey.

PPOs are somewhat similar to HMOs but have wider choice of providers and looser controls over usage but higher out-of-pocket costs.

The survey of 47 large employers by the Towers-Perrin benefits consulting firm found that overall health care costs will rise 8.5 percent after years of double-digit increases.

The unusually low rise in preferred provider organization costs was being attributed to an improved economy and aggressive steps taken by large businesses to control costs after four years of sharp premium hikes.

“Some employers who had not done anything (about the rise in costs) said, ‘This is the year,'” said Ron Mason, a principal at the firm’s Irvine office. “More have sat down and done a hard-edged analysis.”

Mason said his clients reviewed comparative provider costs and made efforts to reduce drug costs and manage employees with chronic diseases something particularly effective with PPOs, which are often part of self-insured health plans.

In addition, Mason believes the improving economy lessened the number of “worried well” who visit doctors when they’re under financial stress.

California’s overall premium increase was slightly above the 8.1 percent national rise found by a separate Towers-Perrin study issued earlier this month. However, the state’s PPO hike was below the 7.4 percent nationwide rise.

The companies surveyed by Towers-Perrin averaged about 9,000 employees nationwide.

Brokerage Fallout

Shares of locally based WellPoint Health Networks Inc., Health Net Inc. and PacifiCare Health Systems Inc. were off as much as 11 percent last week after reports that New York State Attorney General Eliot Spitzer’s probe into corrupt brokerage practices would likely draw in big health insurers.

And with good reason, according to at least one analyst, who was recommending investors “sit on the sidelines” with managed care stocks until the probe blows over.

Spitzer has so far focused his probe on the questionable practices of Marsh Inc. the world’s largest commercial insurance brokerage. Spitzer has accused the Marsh & McLennan Cos. unit of steering business to certain property and casualty insurers through rigged bids in exchange for payments called “contingent commissions.”

Ellen Wilson, a Sanford C. Bernstein & Co. analyst, said in a research note that there isn’t much chance of bid rigging in the brokerage of health insurance benefits, given that no one broker dominates the business in the way Marsh dominates the property and casualty business.

However, she added that health insurance brokers who service small and medium-sized companies are paid something similar to contingent commissions called overrides, which are distributed by insurers for meeting certain volume goals. “This could raise questions (whether) these payments are an undisclosed conflict of interest.”

Spokespersons for WellPoint and Health Net said their companies had not received any subpoenas in connection with the probe, but otherwise declined comment. A spokeswoman for PacifiCare did not return calls.

Expanding Network

AltaMed Health Services Corp. and East Los Angeles Doctors Hospital have joined Health Net of California’s growing cross-border health plan called Salud con Health Net.

The low-cost HMO plan offers a narrow network of doctors and hospitals on both sides of the Mexican border and is aimed at small businesses looking for affordable health insurance to offer employees. Premiums are roughly 30 percent lower than most HMO plans.

AltaMed, which operates five clinics in East Los Angeles and nearby communities, decided to join the network despite having to accept capitation rates at least 25 percent lower than the 10 other plans to which it belongs.

The addition of AltaMed will make the plan more attractive to area small businesses, and clinic officials hope some of the uninsured but employed patients it already treats will now get coverage.

“We are hoping to enhance revenue,” said Laura Jaramillo, the clinic’s assistant vice president of managed care.

Here and There

Alfred Mann’s Second Sight Medical Products Inc. and USC’s Doheny Eye Institute, which are jointly developing an artificial retina, have joined an unusual consortium of research institutions that includes five federal laboratories in order to speed up the development process. USC will receive $6 million in federal research funding, while Sylmar-based Second Sight will receive a limited exclusive license to consortium technology Health Net of California is paying $18 million in bonuses to 70 physicians groups, including $5 million specifically for providing quality care through a Pay for Performance Program. Two medical groups associated with Cedars-Sinai Medical Center and one in the San Gabriel Valley were among the winners Shares of American Pharmaceutical Partners Inc. dropped to a 52-week low last week of $21.28 over the delay in the FDA review of its Abraxane drug candidate, but then rebounded on a favorable earnings report.

Staff reporter Laurence Darmiento can be reached at (323) 549-5225, ext. 237, or at

[email protected]

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