Reassessing the plight of physician organizations in California: the uncertain future for IPAs.

With numerous medical groups and individual practice associations (IPAs) in California now reporting operating losses--and many approaching financial insolvency--the question arises why physician organizations are in such a tenuous situation. One line of thinking is that the problem is attributable to the market dominance of the major health plans and their ability to impose actuarially unsound low capitation rates on professional providers. This article describes four other reasons for the current plight of physician organizations: (1) a physician-centric approach to IPA governance, (2) lack of qualified staff within key operating units, (3) management reporting that is insufficient to support utilization analysis and health plan negotiations, and (4) a highly charged political process for determining physician reimbursement. IPA survival will ultimately depend upon whether IPAs are perceived by their physician members and leaders as true business operations or just as another income source.

Using risk assessment to evaluate adverse selection under capitated contracts.

Most provider organizations rely on health plan or market-based information about capitation rates, per member per month costs, and utilization trends to benchmark their performance. However, these statistics can be misleading because of differences in enrollee mix and contracting terms across provider organizations. This article describes the limitations of health plan contract provisions in protecting against adverse selection. It describes various actuarial and statistical data sources for evaluation of adverse selection. The article then presents various approaches to risk adjustment on population basis and their use in quantifying adverse selection for health plan contract negotiations.

Medical groups in California: managing care under capitation.

California-based health maintenance organizations (HMOs) have reduced use of hospital services well below national averages; much of this reduction appears linked to lower surgical procedure rates. Also, multispecialty groups in California have been able to maintain physician compensation under capitated payment arrangements at the expense of retaining earnings at the group level. With capitation payments linked to HMO premiums for commercial enrollees, and with HMO premiums having dropped in response to market pressure from employers, California's provider groups are coming under increased financial pressure. A shakeout among thinly capitalized medical groups is anticipated. As full-risk capitated contracting becomes more common outside of California, these general trends are likely to be replicated at a national level.

The competitive effects of health maintenance organizations: another look at the evidence from Hawaii, Rochester, and Minneapolis/St. Paul.

There has been much discussion about the potential cost-containing impact of HMOs upon the local medical care market. Three areas have been identified by various observers as experiencing such beneficial effects: Hawaii, after the development of Kaiser in the late 1950s; Rochester, New York, which experienced rapid HMO growth and declining Blue Cross hospital use in the late 1970s; and Minneapolis/St. Paul, which has been the focus of vigorous HMO competition in the last decade. While comprehensive data on health care expenditures are not available, bits of evidence can be pieced together to develop case studies of each area. Careful review of the available data often identifies internal inconsistencies and contradictions, but in none of the three sites is there a reduction in hospital use that is most plausibly attributed to HMO competition. Instead, the reported reductions are in each case attributable to other factors--including biases in data, long-term trends predating HMOs, indirect effects of other policy changes, and other forms of competition.