MEDICAL CARE: THE SOUL OF AN HMO

(4 of 15)

The company pays its medical groups and some hospitals a set monthly fee for every subscriber assigned to their practices or likely to be admitted to their wards--a system known as capitation. Typically the doctors' groups hold back a percentage of this revenue to cover their operating costs and produce a profit. They in turn pay their primary-care physicians a set capitation fee and further negotiate capitation contracts with an array of specialists, such as cardiologists and ophthalmologists. Every time a capitated doctor performs a service or admits a patient to the hospital, it cuts into his income. If he spends less than the capitated rate, he pockets the difference; if he spends more, he eats the losses or recoups them through "reinsurance" policies sold by Health Net and others.

One result of widespread capitation in California is that specialists, hospitals and research centers have found their incomes slashed--great news for employers such as Chevron and Bank of America. A recent survey of 376 HMOs found that from 1994 to 1995 the premiums charged by HMOs actually declined, with the number of days members spent in the hospital shrinking nearly 13%, from 315 per 1,000 members to 275. The average last year in Los Angeles was 204, clear evidence of how managed care now dominates the region.

But consumer advocates say the new medicine has replaced the admittedly flawed fee-for-service system with something even more perverse. Capitation by definition places the interests of doctor and patient in conflict, they argue. "Understand, every time a patient comes into the doctor's office it's a liability, not an asset--because he's on a fixed income," says David Robinson, hired in 1989 to serve as a primary-care physician for Rancho Canyon, the deMeurerses' medical group.

The system troubled him, he says. He would request what he believed were necessary tests and referrals, only to have them countermanded by utilization-review managers. He recalls requesting a CAT scan for a boy who had experienced seizures and occasional losses of consciousness, possible warnings of a brain tumor, only to have his request denied. He grew so dissatisfied that he left the practice two years later, resolving to see only fee-for-service patients.

The year Robinson left, Health Net hired a new associate medical director, Dr. Clifford Ossorio, ostensibly to develop quality-control systems. But the job evolved into something Dr. Ossorio says he had not anticipated. He wound up on the front lines, making coverage decisions on specific, sensitive cases. "I hated that job," he says. "I didn't get hired for that job. I never want to do it again."

Yet one of Health Net's managers, Janice Bosworth, learned firsthand how vigilant Dr. Ossorio could be. She was 31 when she discovered that her breast cancer had spread to her liver. Her oncologist, Gary Davidson, suggested she consider an evaluation at Duke University, a leader in using transplants to fight breast cancer. Even Bosworth, with her insider's knowledge of company policies, believed transplants were covered.