Modifying managed competition to address cost and quality.

California's health care marketplace is undergoing rapid transformation--from one characterized by aggressive but unregulated competition to one that approximates managed competition. The Pacific Business Group on Health purchases health insurance for large employers; the California Public Employees Retirement System acts as a purchasing pool for both state workers and smaller public employers; and The Health Insurance Plan of California is a pool for small employers. Each focuses on price-conscious competition among health maintenance organizations. These large purchasing cooperatives also are addressing biased selection among the health plans they offer. Initially focused on simple demographic adjustments, risk adjustment now also entails adjustment for high-risk cases, such as acquired immunodeficiency syndrome (AIDS) and liver transplants. These purchasers also devote more detailed attention to the quality and process of care.