Los Angeles County's new health maintenance organization is struggling to compete against the health care giants in the multibillion-dollar battle for Medi-Cal patients.

Community Health Plan the county's HMO was supposed to have 150,000 Medi-Cal patients signed up by April to financially break even, according to county officials. But as of June 1, the plan had only 78,784 members about half its goal.

By comparison, the private HMOs combined had 420,092 members, according to L.A. Care Health Plan, the umbrella organization overseeing the public and private HMOs in the county system.

Moreover, membership in the largest private HMO in the county system, Blue Cross of California, increased nearly 24 percent between May and June. Membership in the county plan grew about 10 percent.

Because of the plan's failure to meet enrollment expectations, county officials have projected a budget deficit of as much as $6.9 million for Community Health Plan. But more importantly, continued inability to attract Medi-Cal patients into the county HMO could jeopardize services at county hospitals and clinics which need Medi-Cal dollars to help subsidize health care for people who are not on Medi-Cal, such as illegal immigrants and the homeless.

"If you damage the safety net, the poor and uninsured are going to end up in private hospitals," said Dr. Brian Johnston, immediate past president of the Los Angeles County Medical Association. "It could bring the whole health care system down. This is a very serious problem."

Steve Escoboza, chief executive of Community Health Plan, acknowledges the plan has not met expectations in part because administrators were ill-equipped to compete with private providers.

"We are building a new system from being the provider of last resort," Escoboza said. "It takes time. We have made some great strides. We have completely changed our business plan. We are building a plan to maximize enrollment. It has been a struggle, yes, there is no question. The department has never had to be very entrepreneurial or competitive."

Escoboza and other officials contend that the plan's deficit has now been cut to about $500,000 because of a hiring freeze and other measures, although aides to Supervisor Don Knabe assert that the reduction is an accounting maneuver and that the deficit likely will reappear in next year's budget.

"It has the potential to be another big black hole for us, and that is what we have to look out for," Knabe said. "When people have a choice, they are choosing the competitor every time. We have to make it a level playing field."

The changeover to managed care began in 1997 under pressure from the state of California to reduce the costs of Medi-Cal, which covers the health care costs for people on welfare. Los Angeles County set up a managed care-type system in which the county health plan and six private providers would be paid a flat monthly fee for the number of patients enrolled instead of a fee for each service rendered.

The idea was to give Medi-Cal providers incentives to reduce costs by managing patient care in the same way they have done for people on private health insurance plans.

Although the county Health Department had no HMO system, it has become dependent on Medi-Cal revenues to help cover the costs of its public hospitals and clinics. As a result, the county set up the Community Health Plan.

Knabe claims Community Health was doomed from the beginning. Given the choice between a name-brand, private HMO like Blue Cross, or the county plan, it stands to reason that patients would pick the better-known provider, he said.

"The county should be the referee, not the competitor," he said. "Given a choice, they are not going to sign up with us."

Private participants in the system agree. "(Community Health Plan) had very good intentions," said Leland Wong, state director for government and community relations for Kaiser Permanente. "But when you have a member that has a choice between six other major known health plan providers, who would you choose? The answer is obvious."

Wong added that the problem is not only name recognition. The county health department is not set up to run like a business and its top brass are not skilled in the often complex managed care world, he said.

Kaiser is conducting a training program for county executives and also has donated $300,000 toward helping the Community Health Plan upgrade its computer system.

The Community Health Plan's difficulties in attracting patients come in spite of the fact that it is the "default" health care provider for Medi-Cal patients. If Medi-Cal participants do not choose a health plan after 30 days, they are automatically placed in a plan by L.A. Care.

Most of the Community Health Plan members are there by default, according to an L.A. Care spokesman. Participants have the option of changing plans every 30 days, and the retention rate for defaulted members is lower than for people who have voluntarily chosen a plan, said Warren Foon, vice president and general manager for Maxicare California.

"Most of our enrollment has been voluntary as opposed to defaulted members," Foon said. "It is our name recognition. Many of their members have been defaulted and did not voluntarily select the plan."

Critics of the plan say the only way for the county to become more competitive is by expanding its network. Currently, the county is excluded from signing up more than 360,000 eligible recipients because it does not have hospitals in areas like Hollywood, Glendale, Burbank, Sherman Oaks, Carson, Long Beach and San Pedro.

By law, recipients must be within a 10-mile radius of their health plan's hospital.

"One of the things that is most troublesome is that we are leaving out whole sections of the county," said Supervisor Zev Yaroslavsky. "We are not even competing in certain sections of the county. We need to be more competitive to maintain our market share."

The Community Health Plan has only 418 doctors in its network, compared with 1,707 in Blue Cross, 1,636 in Maxicare and 1,294 in Tower Health Plan. Most of the plans have hospitals in every section of the county, unlike the Community Health Plan, which is limited to mostly county facilities.

"The county and the Community Health Plan are aware of the areas they have to strengthen and broaden their network," said Anthony Rodgers, chief executive of L.A. Care, the umbrella group. "They recognize this is a major handicap."

Escoboza said he is negotiating with private doctors, hospitals and physician groups in an attempt to expand their network.

Health Department officials say they want the supervisors to give the program another year to prove itself before undertaking major surgery.

"We will do whatever we need to, to get it straightened out," said Dr. Donald Thomas, associate director of the Health Department. "We have to make sure they get a long enough run. It is just like any new business, you have to give it time."

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