Health Care

Consolidation, conflict and reform are the watchwords for L.A.'s health care market in 1998.

Costs will continue to be a key issue. Patients are demanding more care on the one hand while corporate customers will be looking to keep the lid on premiums. Bottom line: Profit margins of L.A.-area HMOs will be under ever-tightening squeezes, leading to more partnerships and consolidations.

"Just based on the conversations in the marketplace right now, the consolidation trend is going to continue unabated," said Mike Dwyer, managing director of health care services with the Los Angeles office of accounting firm BDO Seidman. "We will see more non-profit/for-profit relationships like the Tenet Healthcare Corp. and Cedars-Sinai deal and more outright acquisitions."

There might also be some break-ups as companies that entered into partnerships in recent years encounter problems meshing corporate cultures, Dwyer said. One example took place recently in Orange County as St. Joseph's Health Systems and Bristol Park Medical Group parted ways.

Many of those medical institutions that are not seeking partners or consolidating remain under pressure to cut costs, particularly in the public and non-profit arenas.

The biggest example is Los Angeles County/USC Medical Center. Now that county supervisors have voted for a downsized 600-bed facility, attention will turn to staff cuts and contracting out beds to the private sector.

With all of this downsizing and consolidation, 1998 will likely see increasing tensions between health care administrators and labor unions. Already there have been skirmishes between management and unions at Queen of Angels/Hollywood Presbyterian Hospital, which is being acquired by Tenet.

Meanwhile, a showdown is also in the offing in Sacramento over health care reform.

During this past legislative session, more than 80 bills clamping down on the authority of HMOs were vetoed by Gov. Pete Wilson. In his veto message, Wilson said he did not want to tinker with the health care system until a blue-ribbon managed care task force comes back with its recommendations in January.

With an election year coming up, HMOs are gearing for a barrage of legislation. Reform advocates are focusing on five areas:

- Whether physicians or health care organization administrators should have the final say in patient treatment;

- The extent to which HMO enrollees can choose their own doctors;

- Disclosures of why HMOs deny treatment alternatives;

- Capitation agreements (fixed-payment levels for medical treatments) between physicians and HMOs;

- Which state agencies should have oversight responsibility for HMOs.

There will also be rumblings of reform on the national level, but few industry experts expect much progress in 1998. Significant national reform remains several years off, they say.

Meanwhile, new federal rules on Medicare reimbursements prompted by allegations of widespread fraud and abuse are expected to crimp the bottom lines of L.A.-area HMOs, hospitals and clinics.

Howard Fine

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