Hospitalization Costs to Rise Under HMO Plan

By LAURENCE DARMIENTO
Staff Reporter

PacifiCare Health Systems Inc. is offering a new California HMO plan that cuts employer premiums up to 20 percent but only by socking enrollees with co-payments of up to $400 a day for visits to certain "pricey" hospitals.

The plan, versions of which Health Net Inc. and WellPoint Health Networks Inc. are considering, is intended to cap what studies have shown to be a leading cause in the recent, rapid rise of health care costs: demands by hospitals for higher rates of reimbursement.

But already the hospital industry is attacking the plan as little more than a new ploy by insurers to regain the upper hand in contract negotiations.

Under the Select Hospitals Plan, businesses with at least 50 employees can get premium reductions of 5 percent to 20 percent compared to the rates of the insurer's regular HMO. But the discount comes with strings attached.

Instead of being able to choose without restriction among all 230 hospitals under contract with PacifiCare, employee enrollees must make a selection based on a tiered pricing plan.

They can still avoid hospital premiums, a common advantage of HMOs, by choosing hospitals on a "select" list that PacifiCare says negotiated favorable and reasonable reimbursement rates with it.

But if they choose a hospital not on that list perhaps one their longtime physician is associated with they would face hospital co-payments of $100, $250 or $400 a day, depending on their employer's premium discount.

"It's a way for us to have employers save some money," said Cheryl Randolph, a spokeswoman for PacifiCare, based in Santa Ana. "But there are still a lot of great hospitals on that (select) list."

Large hospitals on list

About half the hospitals PacifiCare contracts with statewide are on the "select" list. In Los Angeles County, that includes such industry heavyweights as Tenet Healthcare Corp. and Catholic Healthcare West, as well as UCLA Medical Center. However, there are some notable exceptions, including Cedars-Sinai Medical Center and Huntington Memorial Hospital.

Jan Emerson, vice president of external affairs for the California Healthcare Association, the state hospital industry trade group, said that the plan is nothing more than a weapon PacifiCare is using to extract reimbursement concessions from hospitals.

"It puts the patients in the middle, because if their doctor is not associated with one of the (select) hospitals they have to make a choice," she said, noting that few patients would choose to go to a hospital not on the list given the high daily co-payments.

PacifiCare caps the co-payments at $3,000, $4,000 and $5,000 depending on versions of the plan.

Lee Exton, a vice president in the Glendale office of Segal, a benefits consulting firm, questioned the relationship between a hospital's inclusion on the select list and its contract, noting that not all hospitals have known where they stood until PacifiCare announced it.

"In coming to the market, you would think that first they would have approached the hospitals," he said.

While the insurer wants to drive down reimbursement rates under the plan, Exton said market factors might have much to do with whether a hospital makes the list or not.

In L.A. County, for example, PacifiCare would be reluctant to exclude Tenet from the select list no matter what the reimbursement rate, given the company's market penetration.

That may also be the case with Henry Mayo Newhall Memorial Hospital. The independent community hospital, which recently filed for bankruptcy protection, is the only facility serving the fast-growing Santa Clarita Valley, not a population PacifiCare would want to ignore. The hospital made the select list, though Newhall President Roger Seaver insists the issue never arose during contract negotiations.

Early stage of marketing

Randolph maintained that the insurer made efforts to inform hospitals statewide about the plan, and it was an element in contract negotiations. But she said that in cases where hospitals already had favorable contracts it might not have been an issue.

PacifiCare only started marketing the plan, which will be offered starting Jan. 1. The company projects that 10 percent of its mid- and large-size employer customers eventually will sign up.

Michael Chee, a spokesman for Thousand Oaks-based WellPoint, said that insurers need to educate HMO members that not all hospitals cost the same, often without any relationship to demographics or outcome.

Chee said Blue Cross of California, a WellPoint subsidiary, is evaluating starting a pilot program, while a spokesman for Woodland Hills-based Health Net said that it may soon proceed with its own program.

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