By Amy Goldstein
Washington Post Staff Writer
Saturday, January 3 1998; Page A01

At a tiny clinic on the second floor of the Leaguers' Head Start center, pediatrician Renee Baskerville tended to the poor children of Newark's south ward. She made certain their shots were up to date. She detected weak eyes and flawed hearing. She held monthly lectures for parents on lead poisoning, ringworm, the importance of nutrition.

Two years after it opened in 1992, the two-room clinic won a national award, praised for improving the health of hundreds of children by bringing medical care right into their preschool.

But today, the examination table and scale are in storage. Baskerville has joined a private doctors' practice five miles away. The only clue that children ever climbed the stairs to get health care in these rooms is a red cross made of construction paper, taped to a cabinet that once held medical supplies.

Why the Leaguers' clinic closed last year, along with three other branches of Newark Community Health Centers Inc., is a lesson in the unintended consequences of states' new fervor for managed care.

Like many states, New Jersey has placed most of its 650,000 residents who are on Medicaid, the government insurance program for the poor and disabled, in managed care arrangements that require them to choose or be assigned to health maintenance organizations (HMOs). The idea is to save money while ushering Medicaid patients into the medical mainstream.

But policy analysts are concerned that in the process some states are creating worrisome ripple effects for urban clinics, hospitals, health departments and other parts of the health care safety net that have relied on Medicaid income to help them take care of the large number of uninsured patients who also arrive at their doors.

Managed care Medicaid programs are so recent that research into these ripple effects is in its infancy. Anecdotal evidence suggests that some "safety net" facilities are adapting well. But as the ranks of the uninsured in the United States continue to swell, reaching 42 million today, some indigent patients are discovering that the medical services on which they relied have been reduced or -- as in the case of the Leaguers' clinic -- ceased to exist.

"It is the death dance with Medicaid," said Robert Russell, executive director of Newark Community Health Centers Inc., which eliminated two-thirds of its workers and half of its sites after losing thousands of Medicaid patients. As a result, the centers no longer fulfill their role of guaranteeing medical care to all, regardless of ability to pay. "We delay, deny, dissuade people from getting care because we cannot afford it," Russell said.

In the debate over the future of medical services for the poor, Newark represents a kind of ground zero. Twenty-six percent of the city's 270,000 residents live in poverty, compared with 17 percent in the District of Columbia. The riots of 1967 still figure prominently in Newark's identity; they left it a city virtually without a middle class.

The rates of infant mortality, tuberculosis and AIDS here are among the nation's highest. A nationwide survey last year by the advocacy group Zero Population Growth ranked Newark as the third-worst place in the country to raise children (after Detroit and Gary, Ind.).

In such a setting, Newark Community Health Centers have functioned as "a shadow health department," said Marsha McGowan, health officer for the Newark Department of Health and Human Services.

The centers are part of a breed of nearly 900 nonprofit clinics, sprinkled through the nation's poor neighborhoods, that get federal subsidies to treat people at the margins of the health care system. Last year, these clinics treated more than 8 million patients, two-thirds of them below the poverty line, according to federal figures. Medicaid accounted for one-third of the clinics' income.

As more people are uninsured, and more Medicaid patients are siphoned into private health plans, the clinics are losing ground. Nationwide, the number of Medicaid patients who visited community health centers fell by 11 percent from 1995 to 1996, while the number of uninsured patients increased by 14 percent.

Since Maryland required most of its Medicaid patients to join managed care last July, People's Community Health Center in Baltimore has lost 2,000 patients, about one-fourth of its total. The center has cut its staff twice as its Medicaid income has dropped from $30,000 to $2,000 a month.

In the District, East of the River and Upper Cardozo health centers have not felt similar effects because the city's managed care Medicaid program has been held up for nearly two years by administrative delays and lawsuits. The two health centers have been fighting for months for permission to become one of the city's Medicaid HMOs when the program begins. Virginia is in the process of phasing in managed care Medicaid in different parts of the state.

Newark Community Health Centers had troubles even before managed care came along. Twice in the last five years, state Medicaid officials accused the organization of overbilling, demanding it repay more than $2 million.

Nevertheless, Russell, the director since 1986, said he had thought the clinics would be able to weather the era of managed care. For one thing, New Jersey's Medicaid program built in certain protections for clinics such as his: If HMOs insisted on paying them discounted rates, the state would make up the difference; and HMOs were required to negotiate with the clinics for services, although not to sign contracts.

In his role as head of a statewide primary care association, Russell tried to persuade similar clinics around New Jersey to weld together into a single Medicaid HMO. The effort failed, and when New Jersey issued its rules for Medicaid managed care, the Newark centers could not qualify to become an independent HMO. They lacked the required cash reserves and experience at running a managed care organization.

Even so, Russell believed he would wield considerable leverage in negotiating contracts with the 11 private HMOs that were preparing to join Medicaid but had few ties to the communities where Medicaid patients live. "I got the bodies, I got the docs. If you want to play in my sandbox, what is it worth to you?" Russell recalled thinking.

But in the end, he now says, he made two mistakes. He signed contracts with just two HMOs. And he negotiated payment rates higher than those of other providers in the HMOs' networks so he could continue to offer transportation, drug counseling and other social services, seldom found in private health plans, that his patients need.

The result? "We got dealt out of the game," Russell said.

In July 1996, the month by which nearly 90,000 Medicaid patients in Newark and its suburbs were required to be in managed care, the number of visits by Medicaid patients to the community clinics plummeted to 16,000, half as many as the previous July. Medicaid payments fell from $3.3 million for 1995 to less than $1.5 million for the last year.

"Managed care companies obviously were geared up to do recruitment and enrollment much better than the health care facilities," said Stanley Bergen, president of the Newark-based University of Medicine and Dentistry of New Jersey, which formed its own HMO but still has lost Medicaid business.

At the community health centers, this is what happened: Workers were not paid for six months. Many agonized and ultimately quit. Some who managed to hang on eventually were fired. The work force shriveled from 162 in 1995 to 115 last year, then slipped further to 75 today.

Across the street from the main clinic in North Newark is an abandoned storefront that used to be the AIDS counseling and testing center. In a strip shopping center in Newark's central ward, the teen health center now bears a sign that says, "California fried chicken." In neighboring East Orange, the "family resource center" closed after state health officials learned of the absent paychecks and withdrew a grant.

The cardiologist, the ophthalmologist and the podiatrist are gone.

Joan Miller hasn't had a mammogram since the center lost its technologist. At 64, she has been uninsured since her husband left his job as a security guard supervisor after suffering a stroke 11 years ago. For her annual breast cancer test, she used to walk the seven blocks from home to the main clinic and board a shuttle that would take her to the East Orange branch where the technologist worked, then bring her back.

Now, the clinic is willing to make her an appointment for the test at University Hospital, owned by the state's medical school, but she would have to take two buses each way. "When I think about going all the way over there . . . I don't want to bother with it," Miller said.

Sometimes, patients have trouble getting even the services the clinic still provides. Mary Manning, 32, is an uninsured nursing home housekeeper with three children and a husband who lost his last job at a tannery two years ago. Last year, she got an urgent message to make an appointment at the clinic after she had gone for hospital tests to determine why she was so tired and having trouble breathing. But the Saturday morning of her appointment to learn the test results, she recalled, "I came over here, and they said, `We aren't open anymore on Saturdays.' " Manning had to make a second trip to find out that an inflammatory disease had infiltrated her lungs.

And just this month, there was no pediatrician at the main clinic the day she brought in her 2-year-old daughter, Jade, who had a cough, high fever and was vomiting. "I was stuck bringing her home to doctor her myself," Manning said.

Other patients stay away since the clinic raised its prices. For patients without insurance, the fee had been $7.50 to $40, depending on their income. Now it is $20 to $60. "A lot miss their appointment. They just don't have the money," said social worker Ruby Grace. "We have people right at the point of a stroke their blood pressure is so high. When you have hypertension, you don't need to be missing appointments."

As the role of the Newark Community Health Centers has diminished, so have other parts of the city's medical safety net.

Last February, United Hospital -- which treated more Medicaid and uninsured patients than any other hospital in Newark -- declared bankruptcy and abruptly closed. In a city with too many hospital beds, it had been on the verge of economic collapse for several years, and lately had been spending money on new buildings in a futile effort to attract more paying patients. It too had lost Medicaid patients to managed care.

As some of United's physicians have scattered into private practice, they are not always seeing the uninsured patients they used to treat. Under a New Jersey system of "charity care," the state subsidizes hospitals for treating indigent patients without insurance, but not private doctors. "One night, I saw about 12 patients in my office. I walked out without 15 cents in my pocket," said Alfred Gaymon, a former United internist who now runs his own practice in the evenings. "How am I going to deal with this? It is not economically possible."

Meanwhile, the role of the local health department is ambiguous. Catherine Cuomo-Cecere, the department's acting director, said it is seeing more patients, although it lost some government grants and has only two physicians each for its adult and pediatric clinics. Others contend the health department has a poor reputation and is not open many of the hours when families would use it most.

With United closed and the community health centers withering, doctors and health administrators here said that it is hard to tell where many poor residents are getting care, or whether they are getting it at all.

More patients are turning up in certain emergency rooms seeking a form of health care that is expensive and often reflects a lack of preventive medicine. At University Hospital, emergency room visits had been steady for several years before shooting up in 1996 and 1997, even before United closed nearby.

And Baskerville, the pediatrician who worked at the Leaguers' clinic before joining a practice two bus rides away, still gets calls from the parents of her former patients, wondering if she knows of a convenient doctor who will see them. As she talks to them, it bothers her to hear that some of the children are behind on their shots or their asthma is out of control.

"The whole situation of not being there is very difficult," Baskerville said. "It is just so sad it doesn't exist anymore."