Faced with an employee health insurance plan profusely bleeding red ink because of high hospital costs, Monterey County is putting together a managed care plan that demands lower hospital rates.

As the county''s biggest employer, Monterey County''s stand is being watched as much by outsiders as its own employees, waiting to see whether the managed care principles long resisted by area hospitals will finally lower some of the highest rates in the nation.

The county is backing up its demand on the hospitals with more than 5,000 patients--its employees and covered dependents--and threatening to send them all to its own Natividad Medical Center (except South County residents, who will still go to Mee Memorial Hospital) unless Community Hospital of Monterey Peninsula (CHOMP) or Salinas Valley Memorial Hospital discount their rates. The county''s proposed managed care plan is still being fine-tuned before being considered by the county supervisors on June 30.

Monterey County hospitals have some of the state''s highest rates--in fact, the second highest in the country, according to one report. A study by the American Chamber of Commerce Researchers Association reported in the Wall Street Journal that the Salinas/Monterey area has by far the highest hospital room rates among urbanized areas in California, and is second in the nation only to Manhattan, NY.

Jay Hudson, the chief executive officer at CHOMP, disputes the report''s findings, noting that hospital room rates are not an accurate gauge of actual costs to patients. In the complicated world of hospital billing, Hudson certainly has a point. But other gauges also point to unusually high hospital costs in this area.

When the cost-cutting managed health care wave crashed over California in the early 1990s, it largely missed Monterey County. The reasons for our immunity from change are myriad, but the prime culprits seem to be hospitals whose geographic monopolies allowed them to just say no to demands for discounted rates, and few employers or insurers large and bold enough to force hospitals to bend.

CHOMP and Salinas Valley Memorial in particular have set rates that they don''t discount for any insurance plans, a very rare stand in California''s managed care environment. As the county''s largest employer, some say Monterey County could be the entity that breaks the dam and lets managed care--with its resulting lower health care costs--flood the area.

"This [new] plan is borne out of a need to hold down health care costs," Monterey County Human Resources Director Ren‚e Mayne told Coast Weekly, "and most of those costs are hospital costs...At this point, our challenge is holding down hospital costs."

According to figures provided by the county, nearly 60 percent of the main county plan''s costs are going to hospital care, compared to an insurance industry average of less than 40 percent, with the balance going to doctors'' visits and other care, which are far cheaper than hospital care.

The reason for that economically disastrous formula--say county officials, insurers, doctors, and even hospital executives--is high hospital rates.

Premiums for HMOs and some other managed health insurance plans for the Monterey-Salinas area are among the highest in the state, indicating high health care costs. State figures also point to area hospitals being well above the state average.

The California Office of Statewide Health Planning and Development requires each of the state''s 521 hospitals to submit data on revenues and patient volume. Dividing gross patient revenues by the number of patient days offers a rough idea of what a day in the hospital actually costs, and how our hospitals compare to other areas.

In 1996, the most recent year for which statewide data is available, gross revenue per patient day statewide was $4,028. For Salinas Valley Memorial, that figure was $5,478; at CHOMP, it was $5,014; and Natividad came in at $4,411.

And then there''s the anecdotal evidence, the statements from those in the health care market who cite as an indisputable fact, without need for quantification, that if you end up at CHOMP or Salinas Valley Memorial, you are going to pay more than if you end up at most other hospitals in the country.

"This area is among the highest costs in the nation, because we haven''t experienced managed care yet," says Howard Classen, chief administrator at Natividad Medical Center.

Monterey County''s move to curb employee health costs marks the second time in recent years that it has tried to hold the line on health care expenditures. The first time was in 1992, when the county launched its Custom Health Plan, which had lower premiums than the existing county-funded New York Life plan, but which limited hospital care mostly to Natividad. The county hospital had at that time cut its rates to plan members by about one-third to capture new business.

Six years later, the Custom Health Plan is doing well, and actually projecting a rate decrease. The New York Life plan, with its lack of hospital care restrictions or rate discounts, has lost more than $1.1 million in just the last two months, and is projecting a 25 percent rate increase just to stay solvent. Or, more likely, it will be scrapped.

The proposed new plan would replace the two existing options and cover all county employees--effectively requiring county employees to use the county hospital. The proposed change has drawn opposition from labor unions that represent the highest paid county employees, who now pay nothing for the best health care coverage.

There was also some grumbling over limiting hospital choice from members of the Service Employee International Union (SEIU), which represents most county workers, but a county offer to cover more of the employee premiums won over the support of union leadership.

Now, SEIU is focusing its attention on the hospitals, asking them to lower their rates and sign onto the new county plan. Will Hirst, of SEIU Local 187, said union officials will meet with CHOMP officials this week about lowering rates, and picketing the hospital could follow on Thursday.

"We want to bring this to the attention of both the hospitals and the public," says Hirst. "We want to continue to have access to these hospitals, so we''re asking them to give a consideration to discounting their rates."

Monterey County has few very large employers who can use their clout and the promise of high patient volumes as leverage to force hospitals to lower their rates. As a result, Classen says, area hospitals have been able to set whatever rates they want.

"The hospitals, specifically Community Hospital and Salinas Valley Memorial, have been very successful at not negotiating their fees," says Dr. Eric Del Piero, president of the Monterey County Medical Society and a member of the Board of Trustees for the California Medical Society.

Sam Downing, chief administrator of Salinas Valley Memorial--by far the most expensive hospital in the county--did not return any of several phone messages from Coast Weekly left over a two-week period.

But Hudson steadfastly denies that CHOMP is more expensive than most hospitals, and he supports that with a report comparing CHOMP''s charges with those of 16 other Northern California hospitals that he says are comparable. CHOMP comes in third cheapest on the list, with a charge per stay of $15,686.

Hudson does agree that CHOMP''s figure represents what the hospital actually charges, and he says all of the other hospitals on the list discount their charges to most health plans, so the costs actually paid by most consumers are far less than the listed price.

"Charges are almost meaningless," says Liz Lorenzi, director of business development at Natividad. "Nobody pays charges anymore. It''s all reimbursement rates."

Many of the other hospitals on the list also offer more expensive and complicated surgeries than CHOMP--such as open heart or brain surgeries--which are more expensive and require longer hospital stays. CHOMP''s average stay is 4.2 days, compared with a state average of about five days.

Hudson said CHOMP''s position of refusing to discount prices is actually an attempt to hold down hospital costs since hospitals simply pass on the costs of discounting rates to other patients.

"We''re saying everybody gets the same price, no matter who you are," Hudson says.

High hospital rates are being cited as the reason for changes in the county plan, but Hudson maintains the new county plan is being prompted by the county''s need to expand the patient base at Natividad, where the county is now completing a $114 million renovation and addition that is 20 percent over projected costs.

"They need patients at Natividad," says Hudson, "and that''s the bottom line."

Classen says such charges just don''t ring true when you look at how much the county plan is losing. "It is not a ''bail out Natividad'' plan, it is a ''bail out the county'' plan, which has become unaffordable."

Mayne echoes that sentiment: "This was not borne out of trying to save Natividad Medical Center. This was truly borne out of these numbers."

"We just don''t believe it," says Hudson. "We don''t have any idea how they came up with those numbers."

Mayne is surprised by Hudson''s questioning of actuarial numbers from the plan calculated by an independent and reputable third party, New York Life Insurance Company: "The numbers speak for themselves."

Mayne and Hudson both predict the county and CHOMP will eventually reach an agreement, allowing employees to go to the Peninsula''s only hospital. It is a prediction shared by others in the medical community, many of whom also predict there will be no similar agreement with Salinas Valley Memorial, mostly because a Peninsula hospital is needed by the plan more than a second Salinas hospital.

"I think the employees are going to demand choices, and that puts them [the county] in a bind," Hudson says. "Patients still have a voice and they will still say ''we want to come to Community Hospital.''"

But whether a county-CHOMP agreement will come as a result of the county acquiescing to employees who want access to CHOMP despite the cost, or whether CHOMP will find a way to discount its costs to avoid losing several hundred patient visits each year and taking a public black eye from the unions is a question yet to be answered.

"This is the first employer that has really gone this far with them [the hospitals]," Lorenzi says, "and it''ll be interesting to see what happens."

High health care costs in Monterey County have forced other large local employers to get creative. Three years ago, Pebble Beach Company opened a family practice/wellness clinic to help care for its 1,600 employees.

"It is an opportunity for us to be a gatekeeper and to help control health care costs," says Susan Merfeld, the company''s human resources director.

Pebble Beach Company currently pays all health insurance premiums for its employees, but Merfeld says the company has clearly and consistently communicated to its employees that such a generous benefit will only continue if employees self-regulate, keeping hospital costs in check. The program is evaluated annually.

Because CHOMP doesn''t discount its prices, Merfeld says it is not in the insurance plan''s primary hospital network, for which 90 percent of costs are paid. But it is on the second tier, for which 80 percent of costs are paid. And Merfeld says their own studies have found CHOMP''s costs are comparable to Bay Area hospitals.

There have been a few other recent managed care rumblings in Monterey County:

&bul; Salinas Valley Memorial and the Mission Independent Practice Associates last year contracted with several capitated HMO plans, which medical providers assume the risks for if the cost of care exceeds patient premiums. Hospital and Mission IPA representatives did not return CW calls, but several sources in the medical community say the arrangement has been less than profitable for the two entities.

&bul; The Community Health Plan formed as a coalition among area doctors, hospitals and employers (including Monterey Bay Aquarium and CHOMP''s own employee plan), cutting insurance companies out of the picture. Doctors like Del Piero see the innovative, growing plan as a way to lower health care costs in Monterey County. Hudson also sees promise, but says it is too early to conclude the plan is a panacea for the local health system''s economic ills.