With Los Angeles County at the center of a state health care crisis that has physician groups failing as most hospitals operate in the red, the coming year promises a host of initiatives aimed at providing financial relief for medical care providers.

In the wake of a landmark agreement announced last week between the California Medical Association and Aetna USHealthcare that should raise fees for doctors, the CMA plans to ratchet up its pressure on HMOs to raise payments to other physician groups.

Doctors also plan to join hospitals to lobby state government for a comprehensive solution to chronic underfunding of emergency rooms and trauma centers.

At the same time, doctors will find themselves under closer scrutiny as the state's new Department of Managed Care requires audited financial statements of physician groups for the first time.

And hospitals will face tough new requirements for seismic retrofitting as they are obligated to implement costly new federal patient privacy regulations.

The bottom line? Things could get worse before they get better.

"Sixty-four percent of the hospitals in California are operating with negative margins averaging 5.14 percent," said Jim Lott, executive vice president of the Healthcare Association of Southern California, a hospital industry group. "That's red ink, and that's where we're starting from."

Cornerstone issue

The CMA, and its Los Angeles County counterpart, the Los Angeles County Medical Association, have made realistic HMO capitation rates what managed care plans pay each month per patient a cornerstone of their agenda in 2001.

The association made headlines last week when it announced in Los Angeles that it cut a deal to get better rates with Aetna, the nation's largest medical care insurer, though not the largest in California.

Aetna committed to paying "actuarially sound" rates that reflect the actual cost of care as well as at least temporarily assuming the cost of new drugs and technologies that become standards of care but are not included in existing doctors' contracts.

The medical association hopes the deal will become the basis for settling a lawsuit it filed in May against WellPoint Health Networks Inc. and its Blue Cross of California subsidiary, Health Net, and PacifiCare Health Systems, over inadequate capitation rates.

There have been some moves to resolve the complaints, but CMA chief executive officer Jack Lewin said the two sides have a long way to go before they reach a mutual understanding.

"HMOs are beginning to recognize that physicians are, along with patients, their customers," he said. "But in fact HMOs have acted very arrogantly with respect to doctors. Every time they needed to cut money out of premiums, the simplest thing to do was to cut doctors' reimbursements."

Groups under scrutiny

This past year, about a half million patients around the state had their care disrupted when their physician management groups the organizations that actually contract with HMOs on behalf of doctors who join them went under.

That included the spectacular failure of KPC Medical Management, which had 250,000 patients in Los Angeles County and Southern California when it closed its doors in November.

But the HMOs charge that the failure rate of physicians groups is not out of line with what would be expected in any industry, indicating that it may be a group's management that is to blame, not the system.

"From a business standpoint it's not an alarming rate," said Bobby Pena, spokesman for the California Association of Health Plans, an HMO trade group, which is seeking audits of physician groups to gauge their financial health.

Indeed, the Financial Solvency Standards Board of the new state Department of Managed Health Care decided just last week to require physician groups to submit to audits by certified public accounting firms, said Daniel Zingale, the department's director.

"There were an enormous number of people affected (by these failures)," said Zingale.

Warren said the CMA can live with the audits provided HMOs do not use them to absolve themselves from paying for medical care given by doctors in the event of a physician group failure. But HMOs contend they should not be at risk for direct care, only their contract obligations to medical groups.

Hospitals and doctors, meanwhile, will team up this year to try to find a comprehensive solution to the problem of emergency rooms and trauma care centers, which have become big money losers for both. Just this month, Los Angeles County allocated $4.3 million in tobacco settlement funds to stave off any more closures in its already shrunken trauma care system, a network of three county and 10 private hospitals that provide the highest level accident care. But that is no long term solution.

"You have an army of doctors standing by 24 hours a day, seven days a week, 365 days a year waiting for the war to start, and that is a very expensive prospect," Lott said. "Commercial insurers and the government don't want to pay for that level of readiness."

The push this year will be for a minimum of $2 million in state funding for each trauma center in the state, a total of $86 million, Lott said.And while not at the staffing level of trauma centers, emergency rooms are having their own set of problems enticing specialists, such as neurosurgeons and orthopedists, to sign up for on-call service.

The specialists find it difficult to get paid for services, because HMOs may claim there was no medical emergency, or, especially in Los Angeles County, a patient may be uninsured, said Steve Thompson, the CMA's vice president of governmental affairs.

Aside from supporting plans to reduce the uninsured and raise Medi-Cal reimbursement rates, the CMA plans to seek $50 million in recurring annual funding for the state's 320 emergency rooms, double what the state has so far committed, he said.

All this is occurring as hospitals grapple with a new federal law that will require them to better safeguard the privacy of patient medical records, something requiring computer software and in some cases hardware upgrades, Lott said.

Those costs may eat up 20 percent of some hospital's budgets, though it is just a one-time cost. But it comes at the same time hospitals must meet a state law requiring them to seismically strengthen their facilities, he said.

Hospitals must complete their first seismic upgrade planning report this January. And while actual improvements are more than a decade off, the potentially enormous costs will require them to start socking away capital. There will be an effort to amend the regulations this year as a result, Lott said.

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