UNHEALTHY COMPETITION?

A NEW, HARD-SELL HMO STORMS INTO COLORADO, HOPING TO SCOOP UP MEDICAID BUSINESS.

This week marks a potentially momentous shift in how the poor and uninsured receive their health care in Denver--and, possibly, in the way all hospitals try to attract patients in Colorado. Fanning the winds of change is a new Colorado HMO called Community Health Plan of the Rockies and its mostly Florida-based owners.

The health maintenance organization is not on the cutting edge of patient care, nor are its ideas on how to run a managed-care organization new. Rather, what makes it unique in Colorado is much simpler: advertising.

Although CHPR opened for business only this week, its executives and investors are not new to health-care marketing. They spent lavishly on an aggressive--and controversial--campaign in Florida to earn millions of dollars from Medicaid, the government's insurance plan for the poor.

Once shunned, advertising for health-care services is catching on. Billboards touting individual hospitals line streets throughout Denver. Advertisements for treatment of everything from asthma to impotence fill the newspapers. Yet the prospect of vigorously marketing medical services to the poor, as is being proposed by CHPR, has many of the city's health-care experts concerned that more vulnerable patients may be taken advantage of.

Last year David West retired as the state's Medicaid director to form Colorado Access, an HMO made up of Denver Health and Hospitals, University Hospital and other facilities that traditionally have treated most of the city's poor. The organization is in the process of getting licensed by the state. "My concern," says West, "is that we don't have episodes that I've heard have occurred in Florida, where you have salesmen approaching a Medicaid housewife in a parking lot with a free chicken if she agrees to enroll with a particular HMO."

The competition for medical patients is becoming intense in Colorado. The majority of the state's residents already are signed up in managed-care programs, so much of the jostling between hospitals and insurance companies now concentrates on recruiting those who aren't. A good chunk of them are Medicaid patients.

Medicaid patients are more than just the dregs of the market, however. Insuring them has become lucrative in its own right. One reason is the reimbursement system called capitation. Instead of hounding the government for reimbursement for a particular procedure, insurance companies now collect a fee for each Medicaid patient they enroll, regardless of whether any medical services are provided.

For an aspiring HMO, this system is particularly alluring in Colorado, which is generous when it doles out money from the government's insurance plan. The state pays an average of $150 per patient per month to HMOs willing to take on a Medicaid client, one of the higher rates in the country.

The result has been a recent scramble among HMOs for the state's estimated 300,000 Medicaid patients. "Two years ago the state tried to get HMOs to sit down and talk to them about providing for Medicaid patients," recalls Doug Clinkscales, deputy manager of managed care for Denver Health and Hospitals. "No one was interested. Now, over the next eighteen months, another two or three plans are going to be added," most of them looking to zero in on Medicaid.

Most experts agree that those companies are going to need to distinguish themselves from one another, so an increase in advertising for Medicaid patients is inevitable. A month ago representatives from all of the HMOs that compete for Medicaid business met with the state. According to people who were there, most of the HMO officials stressed that they'd soon need to begin advertising their services more aggressively.

So far, state regulators have managed to keep tight control of any marketing toward people insured by Medicaid. For instance, some of the techniques used by Medicaid HMOs in Florida (including the one owned by CHPR's investors), such as hiring headhunters to sign up new patients, are still forbidden in Colorado.

"The state's taken a very conservative approach," says Clinkscales. "What they've said is, any marketing you want to do, we want to approve the materials and how you will do it."

CHPR's secretary, Roberto Palenzuela, stresses that his company intends to be a good corporate citizen. He points out that since Colorado health officials closely regulate HMO marketing, any advertising campaigns he launches will have to be approved by the state. "We view this as a partnership with the state," he says.

Still, in its application for a license to do business in Colorado, CHPR seems eager to push the state's boundaries. It proposes a variety of advertising strategies, many of which are currently not allowed here. A look at the company's plans provides a glimpse into the likely future of this state's health care.

Federal laws prohibit HMOs from handling any more than 75 percent Medicaid business. The remaining 25 percent must be in commercial, non-government health-insurance business. The restriction exists to preserve some quality control. A managed-care company that must be responsive to its commercial business is less likely to provide substandard care for its Medicaid business.

But federal laws allow states to waive the 75 percent rule as an incentive for HMOs to enter a market. Among the first things CHPR did when it arrived in Colorado was to apply for such a waiver. Recently, the state granted the HMO permission to begin signing up 100 percent government-insured patients--the first such waiver it has granted, although other requests are pending. Palenzuela says CHPR requested the waiver so it could concentrate initially on the type of business its executives were familiar with from their experience in Florida.

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