NCPA - National Center for Policy Analysis

California Health System Ailing Badly

November 15, 1999

California's health system is built around a core network of medical groups that act as intermediaries between individual physicians and health maintenance organizations. The structure was supposed to allow physicians more control over medical decisions, while allowing HMOs to curb costs.

But the structure evolved into a bureaucracy, critics say, which sucks money out of the system without necessarily improving it.

  • After the intermediaries take their cut, California's doctors now get only about $13 of every $120 collected by HMOs from employers' patients.
  • The California Medical Association says that nearly one-third of the state's 350 medical networks have shut down or entered bankruptcy proceedings in the past three years.
  • It estimates that two of them alone owe the state's doctors about $100 million.
  • Over the past six or seven years, average premium rates in California have fallen 35 percent to about $29 per member per month -- but medical costs have risen about 7 percent annually for the past two years.

That has left medical networks and the HMOs without any cushion -- or enough money to pay doctors. That situation, combined with soaring paperwork necessitated by the system, has forced some doctors to take out loans just to finance their practices. Other doctors have quit medicine altogether.

Source: Rhonda L. Rundle, "California's Doctors Face Piles of Unpaid Claims as Care System Frays," Wall Street Journal, November 15, 1999.


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