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UNHEALTHY COMPETITION?

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.

In addition, the company has indicated that it intends to spend far more on salaries and marketing costs than HMOs here are accustomed to spending. In fact, the numbers CHPR predicted caught some state regulators off guard.

"The administrative expense--20 percent of premium--seems high," an actuary for the Colorado Department of Insurance noted in a letter after reviewing CHPR's license application. "Why is there any need for marketing at all? I'm not familiar with HMOs organized in this manner, and was surprised to see the marketing sections included in [CHPR's] application."

While many managed-care providers in the state concede that Colorado is behind the times on advertising to Medicaid patients, they add that they are concerned over who will be the target of future mass-marketing campaigns. Since the HMOs are paid according to the number of patients they sign up and not the treatment they provide, that could result in what is called "creaming"--recruiting only those patients who requre little medical care.

That worries people whose business has always been treating the poor. For instance, although Denver Health and Hospitals is also getting into the Medicaid HMO business, spokeswoman C.L. Harmer predicts there will be crucial differences between Colorado Access and CHPR.

"I can assure you that this new Florida plan is not interested in our AIDS patients or our disabled patients," she says. "They make their money treating healthy women and children. So there aren't going to be a lot of advertisements for AIDS services, because they're too expensive."

Indeed, a sample radio advertisement submitted to the state Department of Insurance by CHPR portrays one woman in her "mid-to-late twenties" telling another woman of a similar age how worried she is about the health of "little Bobby." After consulting her family physician, it turns out that nothing is wrong--the ideal situation for an HMO interested in collecting the Medicaid premium but providing no costly medical care.

Palenzuela responds that his company has no intention of discriminating against any patients. "We're going to market to the Medicaid recipient as a whole; we're not pinpointing any segment of the Medicaid community," he says. He adds, however, that CHPR "doesn't have the specialists or resources to treat all the AIDS patients in Denver."

Because Colorado doesn't permit insurance companies to use brokers, CHPR won't be paying anyone based on the number of new patients enrolled. Still, the company's application proposes something not too different: placing "education staff" at the government offices where people are initially declared eligible for Medicaid "in order to facilitate members' enrollment into CHPR." Palenzuela stresses that such staff will be trained medical personnel--perhaps nurses--who can answer medical questions.

Nancy Peters, director of acute and ambulatory care for the state Department of Health Care and Finance, says no other Medicaid HMO is doing that now in Colorado. Nor, she says, are other HMOs attracting Medicaid patients through direct mailings, radio advertisements or billboards--all tactics being proposed by CHPR. The advertising plans "are definitely a concern of the department," says Gary Snider, health plan manager for the finance office.

Adding to the state's concern is CHPR's roots. It's not the first HMO started by the same group of Florida investors and executives. In 1991, using less than $500,000, they founded a similar company in Florida called Community Medical Plan Inc. The president was a man named Howard Chusid.

CHPR is sensitive to the connection. A fact sheet prepared by its local publicist stresses that CHPR is "not affiliated with Community Medical Plan" and that "Community Health Plan of the Rockies has many shareholders in common with Community Medical Plan but it is a totally different company."

For instance, Palenzuela explains that, while CMP had no intention of providing care for anyone but Medicaid patients, Community Health Plan of the Rockies "is first and foremost an HMO." He predicts that within five years, half of the company's patients will come from commercial insurance plans.

 

Still, comparisons are worthwhile: Not only do the two companies share the same investors, but most of CHPR's executives once worked for the Florida HMO. And the two companies are, for now, in the same business: catering exclusively to patients covered by Medicaid.

In a remarkably short period of time, Chusid and Community Medical Plan made a fortune off the government's insurance plan. In 1993, less than three years after he started it, Chusid sold CMP for $35 million--70 times the original investment.

Not before running into concerns about the way his company did business, though. One was the way CMP signed up patients. Because of the capitation reimbursement system, the more people CMP signed up, the more money it made. This was true for all of Florida's Medicaid HMOs.

Yet according to a series of articles published in the Fort Lauderdale Sun-Sentinel, the company was particularly aggressive about finding new customers. At the time, Florida's Medicaid health-care business was relatively unregulated, and Community Medical Plan took full advantage of the state's permissiveness. It set up booths outside federal food-stamp offices, hoping to snag newly eligible Medicaid clients. On occasion, it offered free life-insurance plans and funeral costs if a person agreed to sign on with CMP.

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?


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