THE SOUL OF AN HMO

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Christy, in turn, had no way of knowing that Dr. Glaspy was a member of a Health Net committee convened earlier that year to decide once and for all when bone-marrow transplants would be covered--or that this committee already had voted to deny payments for patients with Christy's level of disease. Or that Dr. Glaspy had voted in favor of coverage but nonetheless had agreed to uphold the committee guidelines.

The old medicine and the new were locked on a collision course.

One index of the angst stirred in California by the rapid advance of managed care is the fact that a March 1995 visit to UCLA by Dr. Hasan has since become legend, embellished with accounts of Dr. Hasan's pulling up in a vast white limousine. The doctor insists that he arranged the visit merely to get acquainted. But given that he controls the flow of 1.2 million patients, or "covered lives," throughout California, perhaps UCLA officials can be forgiven for reading between the lines.

With many hospitals in Southern California now losing money and desperate for patients, HMOs possess great power, direct and implied, to dictate rates and treatment policies. Health Net's contracts reinforce this sense of vulnerability. The stated term of virtually all their contracts is one year. The contracts do contain automatic-renewal clauses, but Health Net can also cancel them at will simply by giving 90 to 120 days' notice. If Health Net does decide to cancel a contract, it can exercise another clause that allows it to reduce sharply the flow of capitation revenue well before the notice period ends.

In reality, says Andrew B. Leeka, chief operating officer at City of Hope, a major cancer center outside Los Angeles, "contracts with managed-care companies aren't for a year or two years, they're for 30 days or 60 days." Running afoul of a health plan's guidelines can be costly but necessary, he says. "I can tell you from experience we have lost contracts because we act as the patient's advocate."

Contract cancellations are rare--last year Health Net canceled only two contracts with medical groups--but they stand as warnings to maverick providers. On occasion UCLA has absorbed the cost of major treatments disputed by an HMO simply to preserve contractual relations, says Francine Chapman, in charge of negotiating its managed-care contracts. It could not have been very reassuring, therefore, when one of Dr. Hasan's first remarks at the UCLA meeting was, "I came here intending to give you hell, but I am in too good a mood." (He attributed his mood to the then planned merger of Health Net and the new for-profit incarnation of Blue Cross of California. The merger collapsed last month. )

"I said it with a smile," he says mildly. "It wasn't meant as a threat." He simply hoped to convey his belief that the center could be far more efficient. He told the group he did not buy UCLA's argument that because it must train new doctors and handle more severe cases it should be paid more than other hospitals. Perhaps, he mused, the center really ought to receive less, given its pool of cheap labor: its interns and residents. "This is a Darwinian world," he said. "Don't forget it." The meeting, especially the Darwin remark, sent shock waves through UCLA.