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Standing Tall

Homegrown HMO braces for outside competition

By Bruce Robinson

THERE aren't many of us left," says Bill Hughes, CEO of Health Plan of the Redwoods, the non-profit Santa Rosa-based health insurance company. No, in the age of corporate hospital chains, mergers, managed care, and downsized operations, a small, regional health maintenance organization such as HPR is a rarity, the medical equivalent of a modest family-owned drug store surrounded by Wal-Marts, Costcos, and other predatory superstores.

Yet over its 16-year history, Health Plan of the Redwoods has thrived in Sonoma County, where it now has 82,000 subscribers (plus 14,000 more in Lake, Mendocino and Marin counties). That represents about 19 percent of the local population and makes HPR the second-largest health plan in the county. Kaiser Permanente, the local industry leader, serves 23 percent.

But the competition is getting tougher.

"There are very few other counties where you will have that kind of two-plan domination," observes Chuck Gardner, HPR vice president for marketing.

"The interesting thing about Sonoma County," he adds, "is that you're approaching 50 percent penetration of the population, and that's very, very high, even for California." Much of the remainder is a senior population served by Medicare, self-insured, or covered by employer-sponsored health plans, leaving only about an eighth of county residents uninsured, the HPR executives estimate. "It's not a very well measured number," Hughes acknowledges.

Although HPR now claims one of the largest slices, the total health insurance pie is divided among an even dozen competing providers, and another one is coming. Sutter/CSA, the Sacramento-area company that assumed control of county-owned Community Hospital in Santa Rosa earlier this year after a lengthy bidding war, is also the parent company to Omni Health Care, an 11-year-old HMO that already has 125,000 members in 17 central and northern California counties. Omni has been licensed in Sonoma County since March, and has recently added Marin, San Francisco, and San Mateo counties as part of the groundwork for a major push into the Bay Area.

"The [central] valley has been our service area for the last 11 years," comments Vonnie Madigan, a spokeswoman for Omni, who says the company is still hard at work on its marketing plan for the region. "What we're trying to do is use those relationships wherever Sutter has a presence as our launching pad."

No membership goals have been made public, and Madigan says that a single office in Walnut Creek will be Omni's initial physical presence in the greater Bay Area.

"Omni's pattern has followed the presence of a Sutter hospital, and that's certainly no accident," observes HPR's Gardner. "The presence of Sutter Sonoma for Omni will help them do that. They do have some challenges to overcome, but we are looking at them as a potentially formidable competitor."

Hughes says HPR patients will continue to be seen at Community Hospital, despite the changes at the facility. "We've had very cordial talks with the people over there and HPR contracts with other Sutter hospitals in our network," he elaborates. "Our efforts to develop an integrated delivery system have included the Sutter hospitals as part of that network. We have talked to Mr. Cliff Coates, the new administrator over there, and he is interested in participating in that network. I foresee a continued relationship with them."

He firmly believes that the county was right to seek a corporate partner to keep Community Hospital viable. "To have a county hospital run by the Board of Supervisors puts the supervisors in a tremendously compromised position because the unions that deal with the county frequently have a lot more leverage, simply because they are also voters," Hughes says. "Normally, you don't elect a supervisor to run your county based on his expertise in managing a hospital."

The advent of Omni in Sonoma County may work to the benefit of consumers, as increased competition should help hold health costs down. "As long as there are multiple systems out there, they're going to compete for a share of the market," Hughes reasons. "Columbia HCA is the largest in the world; they own two hospitals in Sonoma County. They won't do well if they try to raise their prices higher than the other people in the county. They're going to have to be competitive."

HPR is now looking to develop a more sophisticated working relationship with Memorial Hospital, the goal being "to try and eliminate any duplicative services that either we own or they own," Hughes explains. "If we have rehabilitation beds at North Coast Rehabilitation Center and [Memorial] has a need for those kinds of services, they should get those services from us, rather than building more.

"Any capital expenditure for building new hospitals or building new nursing homes has to be paid for by the consumers. If we can use your facilities for what they're best suited for and use my facilities for what they're best suited for, without having to compete with each other, we can contain that cost so that the consumer doesn't have to pay for it."

However, that was not what Hughes saw occurring with the construction of the new Cancer Center that Memorial proudly opened last winter. "That's a good example of duplicative services in the county that weren't really needed," he contends. "All of those services, with the exception of one machine, were available [at an existing oncology facility] over on Sotoyome Avenue. There was some construction done that probably wasn't completely necessary."

Is it unnecessary duplication to have competing health plans serve the same area? Hughes doesn't think so. "All of the major HMOs in California, and a few from farther out, have been here wanting to know if we were interested in being absorbed," he reveals. "The board has taken the position that we're a local entity and we're here to serve the fairly narrow community of four to five counties and don't have a whole lot of desire to grow much beyond that."

He notes that six of the 18 members of HPR's board of directors are consumers, rather than health-care professionals, "and they are very adamant that they want to see this plan for the consumers, and not for some shareholders" far removed from the customer base.

Ultimately, Hughes says, "all health care is local. You don't go to a doctor in Fresno, you go to a doctor locally. We've tried to keep that approach."

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From the June 6-12, 1996 issue of the Sonoma Independent

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