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Independent Health has chosen the CGF Health System as its exclusive hospital network for the HMO's Medicare patients older than 65.

Representatives of the health maintenance organization and CGF Health System described the deal as a way the organizations could control costs and provide members with better-coordinated medical treatment.

But the move, which takes effect Jan. 1, will limit the hospitals the HMO's Medicare members in Erie County can use to those in the CGF Health System.

CGF was formed earlier this year by the mergers of Buffalo General, Millard Fillmore, Children's and DeGraff Memorial hospitals.

The move also could deal a financial blow to the five hospitals of the recently merged Catholic Health System and Bry-Lin Hospital, which were excluded from the arrangement.

Independent Health has 25,000 members in its Medicare HMO known as Encompass 65, and half
of them currently obtain health care in hospitals that will be excluded from the HMO.

Nevertheless, Independent Health and CGF have the potential to enroll tens of thousands more patients as the federal government prepares a broad effort to push senior citizens into HMOs.

"This is a big change for patients in the Buffalo area but is the sort of thing that has become commonplace elsewhere in the country," Dr. Michael Cropp, medical director of Independent Health, said Tuesday.

Nearly 20 percent of the area's 225,000 seniors belong to HMOs -- 18,000 in Senior Choice at Health Care Plan and 1,100 in the Senior Blue plan recently introduced by Blue Cross and Blue Shield of Western New York.

Dr. Arthur Goshin, president and chief executive officer of Health Care Plan, expressed surprise at the announcement. "It seems strange at a time when consumers want more choice and flexibility," he said.

Nationwide, about 5.7 million Americans, 14 percent of the Medicare population, belong to managed care plans, according to the Health Care Financing Administration, which manages the government health care program for the elderly. The goal is to have 30 percent of senior citizens on Medicare in HMOs by 2002.

However, it has not been an easy transition.

The government, while trying to boost Medicare HMO enrollment, is reducing reimbursements to the HMOs that care for senior citizens, forcing many organizations to raise prices and reduce benefits. Meanwhile, Congress in last year's budget-balancing bill made large cuts in the projected growth in Medicare spending for hospitals.

Independent Health recently announced that it will increase Medicare contract rates at the end of the year by $10 a month.

Cropp acknowledged that Independent Health's Medicare HMO was losing money but said that was not the only reason for the deal with CGF.

"Money was a factor, but clearly we needed to look at coordinating the way we deliver health services in a way that controlled costs and improved care," he said.

Independent Health asked the region's major hospitals to essentially bid for its Medicare business.

For CGF, hospital officials said, the arrangement represents a desired and positive outcome to the decision to merge into a giant health system that also includes outpatient centers, nursing homes and home care agencies.

"For the first time, we can demonstrate value. We can provide a group of patients the full continuum of care," said Anthony Zito, vice president of managed care.

Officials said the HMO and hospital network agreed to emphasize what managed care promises but often fails to provide -- monitor all stages of care, watch for trends in treatment and disease, and focus on therapies with the best outcomes.

Western New York is noted for its high percentage of people enrolled in HMOs. But the health plans, unlike HMOs in many other parts of the country, until recently had yet to significantly limit members to smaller networks of hospitals and doctors.

The first big change came in 1996 when Blue Cross and Blue Shield introduced Community Blue Advantage. The Advantage plan offered extra benefits and flexible co-payments to members of the company's traditional HMO, Community Blue, but excluded Buffalo General and other hospitals. Earlier this year Blue Cross and Blue Shield introduced Senior Blue, which also excludes some hospitals and doctors.

The Independent Health deal is the first exclusive arrangement between an HMO and one of the region's new hospital systems.

Erie County Medical Center and Roswell Park Cancer Institute will be a part of Encompass 65 for specialized services. But the Catholic hospitals -- Kenmore Mercy, Mercy, Our Lady of Victory, St. Joseph's and Sisters -- are out, except for emergency care.

"This is the first we've heard about it," said Dennis McCarthy, Catholic network spokesman. "And, it's something we're going to have to respond to . . .."

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