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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.


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 an even greater share of the California market.

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 linchpin 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).

"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 will also 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.

Tom Pyle, chief executive of Metlife Healthcare, said 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 said, "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 to apples in choosing health coverage.

Biotechnology and Pharmaceuticals

The Administration has singled out the pharmaceutical industry for its hefty price increases during the 1980s, and industry executives had feared mandatory price controls would be proposed.

Although the White House plan avoids mandatory price controls, industry officials complain that the President is trying to achieve the same ends through a "back-door" approach.

Pharmaceutical executives are upset over two aspects of the Clinton health proposals included in a draft report of the plan. First, the plan would require drug makers to discount products supplied to Medicare patients by about 15%, a similar reduction to ones that companies now give states for drugs provided to low-income Medicaid patients. (The Clinton plan would include prescription drug benefits as part of all insurance coverage and would include for the first time prescription drug coverage for Medicare patients.)

Also, the plan would give the secretary of health and human services the authority to negotiate price reductions with companies for new "breakthrough" drugs. If the Department of Health and Human Services decided that the price of a new drug was unacceptably high, it could be excluded from the Medicare program.

Price controls would have "a striking detrimental effect," said Carl B. Feldbaum, president of the Washington-based Biotechnology Industry Organization. "Such reviews, which could be 'back-door' price controls, may keep new drugs, vaccines and diagnostics from ever reaching patients."

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