Advertisement
YOU ARE HERE: LAT HomeCollections

California: News and Insight on Business in the Golden
State

California Advantage to File for Bankruptcy Protection

Health care: The doctor-owned medical plan is stymied by management problems, weak support.

June 03, 1998|DAVID R. OLMOS | TIMES STAFF WRITER

The long-troubled effort by the state's biggest medical society to create a doctor-owned health plan to compete with the state's powerful HMOs fizzled out Tuesday when the plan, California Advantage, said it intends to file for federal bankruptcy protection.

Begun in 1995, California Advantage was an ambitious attempt by the California Medical Assn. to regain some control over health care that many doctors felt had been lost to managed-care insurers. But the effort was wracked by problems, including management turmoil, an unenthusiastic response by the state's physicians and stiff marketplace competition.

"The original vision of California Advantage turned out to be much more difficult than we expected," said Dr. Jack Lewin, CMA executive vice president. "It was a noble effort, but it continually lacked capital."

California Advantage was never able to attract as many patients as it did physician investors. It has 7,600 physician shareholders but only 7,000 plan members.

Similar attempts by medical societies in other states also have failed in recent years.

In a last-ditch effort to save the health plan, the CMA attempted to strike a deal with the state's Healthy Families program for low-income residents. Under the deal, CMA would have partnered with the California Hispanic Health Care Assn., a network of clinics serving poor children, and Doctor's Co. to have California Advantage doctors treat the children of the working poor.

Lewin said Doctor's Co., a large malpractice insurer that would have financed the deal, backed out due to various concerns, including uncertainty surrounding the Healthy Families program.

"The relationship of the parties broke down over issues that could not be reconciled," Lewin said.

Among its problems, California Advantage overestimated the number of physicians willing to invest $1,250 each in the venture. Slightly more than 20%--or 7,600--of the CMA's 35,000 members joined up with the health plan. That fell far short of the 15,000 to 20,000 physician investors needed for the plan to be viable, Lewin said.

Lewin said low fees paid by managed-care companies in California and a high percentage of sicker--and costlier--patients also hurt the plan.

"Physicians, by their nature, wanted to take care of patients, and they signed up a lot of sick people from their own offices," Lewin said. "From an insurance point of view, that's not a winning strategy. We didn't go out and try to avoid people with chronic conditions like cardiac disease or AIDS. "

The plan lost some credibility among doctors and insurance brokers when management continually made overly optimistic forecasts about physician participation and membership.

California Advantage has had three chief executives in the last 15 months.

California Advantage said Legion Insurance Co. of Pennsylvania, its insurance underwriter, will assume operations of the health plan.

Advertisement
Los Angeles Times Articles
|
|
|