After a year of negotiations and threats to leave the city, five L.A.-based health maintenance organizations last week were close to an agreement with the city over how much they will pay in business license taxes.
According to HMO negotiator Michael Gagan and City Councilwoman Laura Chick, both sides had moved closer to agreement on key issues and hoped to have negotiations wrapped up in time for a City Council committee meeting on Nov. 4.
"The HMOs may not be happy with the city's proposed tax rate, but they are at the point now where they just want to get this thing behind them and move on with their business," Gagan said. "And in our discussions, I'm hearing the same thing from the city: They just want this over."
Chick, whose West San Fernando Valley district includes four of the five HMOs, said that in her discussions last week with both city and HMO negotiators, the two sides seemed to be near agreement.
"I know we've been down this road before, but this time I've gotten the sense from both sides that they are tired of this issue and want to put it in the council's hands next week," Chick said.
Earlier this year, erroneous reports had surfaced that a deal was near.
Gagan, a lobbyist with Los Angeles-based Rose & Kindel, said agreement has been reached in three of four areas in dispute: the methodology used to calculate the business license tax, how the tax would be applied retroactively and how much interest is due on past tax obligations.
The remaining stumbling block is the tax rate itself. The city has stuck with its proposal of $5.91 per $1,000 in gross receipts, or a combined tax liability of about $7.4 million a year for all five HMOs.
The HMOs are pushing for $4.14 per $1,000 in gross receipts, or about $5.6 million a year.
Gagan said that if the rate is "significantly lower" than the city's original rate, the HMOs would not oppose the tax as it goes through the City Council.
"We are trying to arrive at some rate between $5.91, which the city has acknowledged to us is excessive, and $4.14," Gagan said. "Whatever happens, the city will enjoy a bonanza from the HMOs."
The dispute arose as the five HMOs switched to for-profit status two years ago. As non-profit entities, they were exempt from city taxes; however, once they converted to for-profit status, that obligated them to pay business license taxes to the city.
The five HMOs are: WellPoint Health Networks, Health Net Inc., CareAmerica Health Plans Inc., Prudential Health Systems Inc. and Maxicare Inc. All of the HMOs except Maxicare have headquarters in Warner Center; Maxicare's headquarters are in downtown Los Angeles.
Since negotiations began late last year, all of the HMOs have at one time or another threatened to move some or all of their operations out of the city if the business license tax initially proposed by the city was enacted.
Two of the HMOs have already announced moves from Warner Center, but not because of the business license tax issue. In June, CareAmerica said it was moving to the former Hughes Aircraft Co. site in West Hills, still within Los Angeles city limits. And WellPoint announced in May it is moving its headquarters to one of its facilities in Thousand Oaks because there was not enough space in its Warner Center location to share with Blue Cross of California.
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