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PacifiCare Signs Medical Groups to Longer Pacts : Health: The industry standard is for single-year contracts. The five- to 10-year agreements are seen as providing more stability.


CYPRESS — In a move that signals a change in the way health maintenance organizations deal with doctors and patients, PacifiCare Health Systems said Friday that it has signed long-term service contracts with almost all of its Southern California medical groups.

The physician groups' pacts with PacifiCare of California run for at least five years, although the industry standard is for single-year contracts between HMOs and their medical care providers.

"The new modus operandi at forward-thinking HMOs is to get into long-term provider relationships that will assure access" to quality health care for the patients who belong to the plans, said Ken Laudan, an analyst at Montgomery Securities in San Francisco.

The five- to 10-year agreements between the PacifiCare unit and 23 of its 25 Southern California medical care groups are intended to provide stability and enable the HMO to build customer loyalty and focus on new methods of cost-cutting and efficiency, rather than on replacing medical providers every year.

Cost-cutting pressures in the health care industry are increasing the popularity of HMOs. Many have been taking advantage of what has become a buyer's market for medical groups' services by trimming prices in annual contract renewal negotiations.

While most HMOs have fixed-price contracts for their medical providers, PacifiCare will pay medical groups between 35% and 42% of revenue on a sliding-scale based on competitive factors in each group's market. The arrangement ties the fortunes of the providers to the HMO's fortunes.

PacifiCare's new arrangement also will assure patients that they will be able to keep their preferred doctors for a long period, said Chris Wing, a PacifiCare senior vice president. And PacifiCare will benefit from having a stable network of medical services.

"It's improving the quality of care, building alliances with our network," he said. "I am going to be able to take a lot of cost out of the system."

The 23 Southland medical groups that have agreed to the change represent about 9,000 physicians. Wing said he expects the remaining two medical groups to sign the long-term agreements as well. Together, the 25 groups represent about 80% of PacifiCare's total business in Southern California.

PacifiCare, one of the nation's largest health maintenance organizations, has 1.5-million members in six states.

Peter Boland, an HMO consultant in Berkeley, said PacifiCare is making the right move.

"I think it's far riskier not to develop long-term partnerships with medical groups," he said. "There is no way to attack the root causes of the cost of illness without a multiyear partnership."

A spokeswoman for FHP International Corp., another large HMO based in Orange County, said that it also is signing medical groups to longer term contracts. "We have been pursuing this for many years and we have several five-, seven- and 10-year contracts," said spokeswoman Ria Carlson. "This is something that providers want."


Times staff writer Barbara Marsh contributed to this report.

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