HOSPITAL SYSTEMS: Applying For State’s Limited HMO Licenses
Hospital systems in the state are "practically lining up to apply for modified-HMO licenses that allow them to mimic HMOs in key respects," Modern Healthcare reports. Many California hospitals already "take on some of the financial risk for the care of health plan enrollees through various payment methods," but the limited HMO licenses would allow hospital systems to "contract as a whole." According to Patrick Aberle, vice president of managed care at Sutter Health, the new licenses "will eliminate some of the hassles of managed care." He said, "We might have one capitated arrangement at one hospital, and it is different at a neighboring facility in a different county. (The license) allows us to bring all the entities together and improve customer service." Sutter, Cedars-Sinai Medical Center and UniHealth are among the hospitals that have applied for the limited managed care licenses, which the state approved in 1996. To date, six of the licenses have been granted, including one to MedPartners. The licenses allow hospitals to "accept global capitation, but unlike a full-HMO license, it doesn't let them underwrite lives or market themselves as an HMO."
However, many executives are concerned about the potential risks of such contracts. Some are concerned that nonprofit hospitals "will spend tens of millions of dollars to unsuccessfully recast themselves as quasi-HMOs." Peter Boland, president of Berkeley-based Boland Healthcare, a consulting firm, said, "Once an organization commits itself to this strategy, only then will it discover that an enormous amount of resources are required to follow through and implement. The network development and management business ... becomes very difficult for these hospital systems, particularly the larger they are." Boland and other analysts estimate that hospitals would need from $5 million to $50 million "to take advantage of the limited license."
Benefits For HMOs
Other health care executives disagreed with these concerns, saying that "what will happen to costs isn't clear, especially since systems already are continually upgrading their ... infrastructures." Bill Caswell, CEO of SCHS Medical Value Plan, contends that costs could actually be cut. Health care analysts say it is likely that HMOs would be "happy to concede some of the work they perform to hospitals." Steve Valentine, president of the El Segundo-based Camden Group, a consulting firm, said, "The HMOs would retain the administrative and marketing functions, but they'd get to punt the medical cost component." He noted that in particular, hospital systems in small-to-midsized markets, such as Bakersfield or Sacramento, might prosper under the new arrangements. This is because in these areas "systems can more easily obtain the geographic distribution needed to serve the market," he said (Shinkman, 3/2 issue).