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NEWS ANALYSIS : Health Reform Would Speed Change in State : Medicine: Experts say HMOs would gain greater clout while biotech might find funds drying up.

September 14, 1993|DAVID R. OLMOS and THOMAS S. MULLIGAN | TIMES STAFF WRITERS

President Clinton's health reform proposal would accelerate changes already swamping the medical industry in California, placing new pressures on the state's burgeoning biotechnology industry, speeding consolidation among hospitals and giving already influential health maintenance organizations unprecedented clout over medical costs.

With about 40% of the nation's biotechnology jobs, California drug companies are angry about possible price controls that they contend would strangle investment for new product research and impede the flow of new medicines to consumers.

While California has already made much greater inroads in managed care than other states, experts predict an industry shakeout as weaker HMOs die or seek merger partners and larger ones grab ever greater market share.

Hospitals have already begun striking alliances with each other to gain greater market clout and deal with a glut of hospital beds. A few money-losing hospitals have gone out of business. The Clinton reform plan will speed this process, experts say.

Here is a more detailed look at how certain medical industries view Clinton's health reform proposals:

Insurers and HMOs

From one standpoint, the impact of the Clinton plan will be less dramatic in California than elsewhere because Californians have already accepted managed care--the lynchpin of federal reforms--to a far greater extent than other Americans.

In more populous parts of the state, up to 80% of all privately insured people are enrolled in some form of managed care, either HMOs or preferred provider organizations (networks of physicians who offer discount services in exchange for access to a large pool of patients).

The big national insurers that offer traditional fee-for-service health coverage will have to respond to the Clinton plan by transforming their operations along managed-care lines.

But in California, that process has already taken place. Thus, California is home to such managed care networks as CIGNA Health Plan, Aetna Health Plans, Prudential Insurance Co.'s Prucare of California and Metropolitan Life's Metlife Healthcare Network.

"There's hardly anything left of the standard, major-medical indemnity market in California," said Albert Lowey-Ball, a managed-care consultant in Sacramento.

What Lowey-Ball says will happen now in California is a winnowing out of the carriers--and some will be household names--that haven't figured out how to do managed care right.

The Clinton plan also will result in greater integration of insurers with hospital chains, a process that, again, has already gained speed in California with such moves as the merger of Unihealth America, owner of hospitals and managed care networks, with Blue Shield of California, which has one of the state's largest PPO networks.

California may be leading in the evolution toward managed care, but that doesn't mean the plan will be painless for the insurance industry here.

Insurers are worried about two components of the Clinton plan: guaranteed universal coverage and a cap on the growth of premiums.

Since California has about one-sixth of the nation's 37 million uninsured people, its health insurers expect to carry a disproportionate burden when the uninsured are absorbed into the health care system.

"If they put a tight cap on premium growth and don't recognize that we've got to take a big share (of the uninsured), it's going to make it much tougher," said Kathy Swenson, president of Prucare of California, a managed care network with about 400,000 enrolled.

Tom Pyle, chief executive of Metlife Healthcare, said that premium caps are little different than direct price controls on hospitals and physicians, an approach Clinton earlier rejected. Stifling revenue growth will cause investors to abandon the industry, he said.

"If price controls are strong," Pyle added, "good companies will exit and only the schlocksters will remain."

More optimistically, if the plan fulfills its promise of standardizing benefits and delivering accurate information about quality of care, some observers think it could have big benefits for consumers because they would finally be able to compare apples with apples in choosing health coverage.

Without uniform standards for measuring performance, consumers can't make the kind of rational decisions that make the marketplace function.

"You can get more information today on your TV or car than on your doctor," Aetna Vice President Kathleen Murphy said.

Biotechnology and Pharmaceuticals

The Clinton Administration has been sharply critical of increases in drug prices during the 1980s, and the pharmaceutical industry had feared some kind of price controls would be proposed.

But the industry didn't cheer when the Administration announced that it would steer clear of mandatory price controls on drugs. Instead, industry executives suspect that the president will try to achieve the same ends through a "back-door" approach.

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