President’s Page
By Frank Randolph, M.D.

In January 2003, there were 569,001 Medi-Cal beneficiaries in San Bernardino and Riverside Counties. Of that number, 221,461 (38.9%) were enrolled in the IEHP and 87,988 (15.5%) were enrolled in Molina.

A growing number of Californians receive care through one of several managed care models. Ninety-nine per cent of those enrolled in managed care plans are enrolled in one of three models: County Organized Health Systems, the Two-Plan Model, or Geographic Managed Care. In the Two-Plan Model, Medi-Cal beneficiaries are enrolled into one of two managed care plans on a mandatory basis. One of the plans is intended to be a public entity known as the "local initiative," and the other plan is an HMO or "commercial plan." There are twelve Two-Plan counties throughout California (Alameda, Contra Costa, Fresno, Kern, Los Angeles, Riverside, San Bernardino, San Francisco, San Joaquin, Santa Clara, Stanislaus, and Tulare). This development stems from a 1993 initiative by the Governor, State Legislature, and State Department of Health Services (DHS) to move the 3.2 million Medi-Cal recipients into managed care plans.

On April 1, 1999, three years after federal approval of the Two-Plan Model, California's DHS began implementing the Two Plan Model in San Bernardino and Riverside Counties. In the Two-Plan Model managed care program, Inland Empire Health Plan (IEHP) is the publicly sponsored, not for profit, local initiative health plan. Molina Healthcare of California (MHC) is the privately owned, commercial, for-profit health plan. The DHS supervises both plans. The theoretical benefits include increased beneficiary choice and contained long term costs. Local Initiatives are community-based health plans with an emphasis on local control, local accountability and connection to the community. Members of the IEHP Governing Board include county supervisors from Riverside and San Bernardino counties, as well as members of the general public. (Recently we joined Riverside County in asking the Board to consider the addition of physicians to this governance, which, according to Steve Thompson, Vice-President of CMA's Center for Government Relations, has been accomplished in other public health plans). The model requires Local Initiatives to contract with safety net providers, including public hospitals and community clinics. Building a plan based on safety net providers acknowledges that Medi-Cal dollars have subsidized a growing volume of care to California's 6.5 million uninsured people served primarily through safety net institutions. Encouraging the preservation and growth of these safety net providers ensures that all segments of California's population will maintain access to health care services and that expensive tertiary services like trauma centers will be available for all, insured and uninsured alike. The goal is to provide Medi-Cal beneficiaries freedom of choice in selecting their medical services and allow for competition between the plans.

By the end of 1999, 2.6 million Californians, more than 50% of all Medi-Cal beneficiaries were enrolled in managed care. That same year, however, the Urban Institute released a report that found that California's Medi-Cal capitation rates were the lowest of any Medicaid program in the country. The CMA's Center for Government Relations published a summary of Knox-Keene Health Plan expenditures for FY 2000-2001. Medical loss ratios for the public health plans were compared, ranging from 73.4% (Kern) to 94% (Santa Barbara). Amount of revenue declared as profit ranged from (minus) 7.6% (San Mateo) to 15.5% (Kern) with IEHP declaring 2.3%. IEHP medical loss ratios from 1997-2000 were as follows: 85.5, 85.5, 89.0, 90.0%. In like fashion, from 1995-2000, Molina Medical Centers' ratios were 79.3, 83.5, 91.4, 88.1, 88.6, 79.8, and 77.1%.

Tragically, in the lingo of managed care the percentage of revenues that are required to support the medical and hospital expense of a plan is referred to as a "medical loss ratio."
A comparison of the median financial ratios for Medicaid two plan model participating plans in California and the U.S. in 1998 reveals a medical loss ratio of 0.849 (California) and 0.920 (average of eight other states). The two plan models were likely to have been more cautious initially in allocating revenues to medical care while reserves were being built up. Yet, the median administrative cost ratio was .101 (California) and .146 (national). A contributing factor may be the administrative costs undertaken by the plans' subcontracting entities (e.g. IPAs). The delegated model, in which plans capitate medical groups and hospitals for virtually all services, is much more prevalent in California than elsewhere. This risk shifting may be a factor in understanding how and why plans are financially stable despite low Medi-Cal rates. The financial viability of the Medi-Cal managed care plans is only as secure as the viability of the medical groups and physicians with whom they contract. California's Department of Managed Health Care posted on their web site a positive report of Inland Empire Health Plan's financial stability in 2002, and apparently IEHP has done so well that in Riverside County they have matched funds with the Riverside Board of Supervisors to expand coverage for Riverside County children.

What is the impact of this conversion upon California physicians? Are we financially stable? The Medi-Cal Policy Institute has stated that California provides more services to more Medicaid beneficiaries at a lower per-recipient cost than any other state, doing so in part by paying physician rates that are far below Medicare and commercial rates. Medi-Cal managed care costs through 2000 were calculated using the 1985 utilization data from Santa Barbara County, limited by a UPL that is based upon historical Medi-Cal fee-for-service data (rates are further set at 94% of the UPL, rather than 100%). The provision of administrative and quality assurance services (marketing, interpreters, education) by public managed care plans further reduces this proportion. The illusion that a high medical loss ratio means more support for physicians must be tempered by the knowledge that health plans are spending a significant proportion of this amount on hospitals, other medical services, and pharmacy claims. The individual physician's allotment is further reduced by IPA administrative costs and increased office overhead from the administrative burden imposed by the health plans. Even more ominous is the risk shifting inherent in the managed care contract, wherein we must in many cases underwrite the growth of our armamentarium of care (e.g. diagnostic and treatment methods, vaccines, et cetera).

The conversion to managed care has many benefits. Other services provided in the managed care models include member medical grievance system, utilization management/specialty referral oversight, case management, (Medi-Cal FFS does provide some specific targeted case management programs), health education and prevention programs, quality improvement programs, encounter data reporting, cultural and linguistic requirements. Nonetheless, California has yet to address the carved out populations in nursing homes and in rural areas. Moreover, the shifting of risk to the physician community upon an already under funded financial platform spells disaster in the next decade, as the physicians gradually exhaust their bag of tricks (using the income from other practice revenues, deferring cost of living raises). I dream of a California where physicians are treated as health care experts and stakeholders, allowed a meaningful role in the design of the process, with equitable pay, and a role in ongoing governance of the care model. But then I wake up and face reality.