New rival for HMOs unlikely for now Community network bill expected to perish in House committee

April 02, 1996|By M. William Salganik | M. William Salganik,STAFF WRITER Staff reporter Marina Sarris contributed to this story.

The House Economic Matters Committee is likely this week to kill a bill that would allow a new type of health network formed by doctors and hospitals to compete with health maintenance organizations and insurance companies.

Committee members, who are expected to vote on the measure today or tomorrow, have indicated that they feel they need more time to review the bill, which was heavily amended before being passed last week by the Senate. That would allow the issue to be studied over the summer and be re-introduced next year.

The bill has been the top legislative priority in this session for the Maryland Hospital Association and has been strongly opposed by the Maryland Association of Health Maintenance Organizations (HMOs). The main issue has been whether so-called community health networks (CHNs) are so similar to HMOs that they should operate under HMO regulations, or whether they are different and need different rules of operation.

Despite the intense lobbying for and against the bill, it is not clear how extensive or how immediate an impact it would have on the local health market.

Several of the larger hospital-affiliated networks in Maryland, for instance, are wary about trying to compete directly with HMOs and insurance companies -- entities with which they have historically done business.

Nor is there much of a track record. In Iowa and Minnesota, the first two states to create similar entities, few community networks have started. And those that have have been small, and the HMOs in those states are not upset about them.

Currently, in Maryland and across the country, many hospitals and doctor groups are building networks -- made up of hospitals, doctors and clinics -- to provide care. The networks sign contracts with HMOs and insurance companies which, in turn, market the services to employers, the government and individual subscribers. Increasingly, the health providers are assuming financial risks through contracts from insurers that pay them a flat rate per member.

The CHN bill would allow hospital and doctor networks to contract directly with employers and other payers, bypassing the insurance companies and HMOs, while oper- ating under different rules. For example, CHNs would have a lower solvency requirement than HMOs.

But entering the insurance business while still depending on contracts from insurance companies "is a point of concern," said Peter Clay, president and CEO of the Maryland Health Network. His network, one of three major hospital groupings in the state, is made up of St. Agnes, Northwest and Greater Baltimore Medical Center in the Baltimore area and Holy Cross and Montgomery General in Montgomery County.

"We are not out to compete with the HMOs for business," says Mr. Clay. "It comes down to how much of the pie goes to which piece of the puzzle." Having the option of selling care directly, he said, "effectively gives us leverage" if the hospitals think insurance companies are taking too much of the health dollar.

Pushing for the bill, the hospitals have argued that by cutting out the insurance middleman, they save money that could be reflected in better care or lower-cost coverage. Yet a hospital-based network would also have "overhead to maintain many of the functions an insurance company performs," said Michael Merson, vice chairman of the five-hospital Helix Health network. "We're not sure about the theoretical price advantage."

Mr. Merson said Helix has not made a decision about whether to go into the insurance business if the legislature permits it.

Maryland Health Network might be inclined to do so, but Mr. Clay said that at least initially, it would be for government business -- Medicare and Medicaid.

"It is clear this is where we could have the most impact," he said.

Roughly half a million Marylanders are covered by each of the two big government insurance programs. The two -- especially Medicare -- have relatively low HMO enrollment and are seen as a major growth area for HMOs and other managed-care health plans.

Despite the tensions over the Maryland bill, hospital-based networks have not proved controversial in Iowa, which passed legislation creating CHN-like entities in 1993, and in Minnesota, which passed its law in 1994.

Iowa has only one such network, SecureCare of Iowa, owned 50 percent by Mercy Hospital in Des Moines and 50 percent by 380 physicians. It is a for-profit entity, but showed a slight loss in its first year because of start-up expenses, according to Roy Fredricksen, executive director.

He said SecureCare hoped to offer lower-cost health coverage, but, while it is always "price-competitive," is not necessarily able to underprice large insurers such as Prudential and the local Blue Cross plan. "We're up against some pretty deep pockets," Mr. Fredricksen said.

In Minnesota, there are four small community networks, three in rural areas. If they grow, they may chose to meet higher solvency standards and become regular HMOs, said Michael Scandrett, executive director of the Minnesota Council of HMOs.

And in Iowa, people on both sides say there is already little difference between HMOs, usually run by insurance companies, and the new entities organized by doctors and hospitals.

"Essentially, it's a nondifference difference," said John Schachterle, executive vice-president and general counsel of the Iowa Managed Care Association, which represents HMOs. "The regulations are similar. Whatever theoretical difference there was in the beginning is rapidly disappearing."

"From an employer standpoint and a member standpoint," said Mr. Fredricksen of SecureCare, "this looks, acts and smells just like an HMO."

Pub Date: 4/02/96

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