UNHEALTHY COMPETITION?

The marketing wasn't cheap. A 1994 Florida state audit found that in one business quarter at the end of 1993, Community Medical Plan spent more than half the money it received from the government on administrative salaries and marketing costs. That's about three times the industry average.

One reason was that Chusid's marketing men were well-compensated for their hustle. The Sun-Sentinel reported that the first 49 new patients the salesmen signed up netted them $15 a head. After 100, the reward grew to $40 per head. In 1993 the salesmen who signed up the most new Medicaid clients were rewarded with a week-long cruise to Hawaii, essentially at taxpayers' expense.

In October 1994, after a licensing battle with Florida regulators, Chusid sold his HMO to a California company. (Palenzuela says there was no disagreement; "The state asked that we make some changes, which we had no problem doing.") Six months later, he and his investors received a license to do business in Colorado (Chusid owns 7 percent of CHPR). Community Health Plan of the Rockies was scheduled to open for business August 1.

Nancy Peters acknowledges that, with the large number of HMOs knocking at the state's door for the opportunity to cover its Medicaid patients, the old days of no advertising are fast drawing to a close. "We're trying to work that out right now--what kind of marketing do we want in Colorado?" she says.

Adds Denver Health and Hospitals spokeswoman Harmer, "It's going to be a very heated battle between Medicaid health insurers over the next couple years. And it's very tricky how you regulate the marketing: Can you give out premiums? Toasters?