And now for something completely different...a new not-for-profit HMO.
Sure, that may not sound different when you think of the grand old HMOs that are not-for-profit. Consider Kaiser Permanente, started in 1945, or Harvard Community Health Plan, started in 1969.
However, the 1990s have been the age of for-profit HMOs. In fact, of the 16 HMOs that began operating between January 1990 and January 1994, only one was not-for-profit, according to InterStudy, an Excelsior, Minn.-based HMO research firm.
Perhaps that's why Memorial Sisters of Charity Health Network, a Houston-based not-for-profit HMO, seems a bold, albeit lonely, move.
"We're at the bottom of the feed trough, getting what's left over," complained Dan Wilford, president and chief executive officer of Memorial Healthcare System, about why the hospital system decided to start its own HMO. The HMO is expected to begin operating in 1995.
Forming an HMO with Sisters of Charity Health Care System gives Memorial the ability to "control a little bit of our own destiny," Mr. Wilford said.
The two Houston systems last month decided to invest $110 million over the next five years to build a health network that will include the HMO and 33 primary- and ambulatory-care clinics in southeastern Texas. The assets of Memorial's nine hospitals and the Sisters' 11 won't be merged as part of the deal, although the facilities will participate in the HMO.
Only two other not-for-profit HMOs operate in Texas, according to the state, which lists 19 for-profit HMOs.
For-profit advantage. Just as Wall Street financing has fueled for-profit chains to gobble up not-for-profit hospitals, it's also enabled for-profit HMOs to eclipse their not-for-profit forerunners.
Nationwide, for-profit HMOs now outnumber not-for-profits by more than a 2-1 margin, or 372 to 173, according to the Washington-based Group Health Association of America.
Houston is ripe for HMOs. Earlier this month, the city was identified as one of the metropolitan areas least prepared for healthcare reform because of its low HMO penetration rate. The study by Minneapolis-based Northwestern National Life Insurance Co. compared 16 large healthcare markets. In one of the indicators- percentage of population in HMOs-Dallas and Houston ranked last with 12%. (San Francisco led with 49%.)
Nevertheless, HMOs are infiltrating Houston. About a dozen-all for-profit-operate in the city, and Memorial does business with many of them.
"The insurance companies are trying to beat us up. They're trying to play us against each other," Mr. Wilford said.
He estimated that while HMOs are cutting their reimbursements to physicians and hospitals, they're keeping between 20% and 22% of the premiums. "We know we can administer those contracts for 8%," Mr. Wilford said, noting that the other 12% to 14% is profit that flows to the HMOs' parent companies.
Memorial figures it can use that profit to pay physicians and other providers better. Plus, Memorial doesn't pay taxes, which adds another financial edge in what is clearly a margin business.
Tough challenge.Even so, Memorial and Sisters of Charity easily could be overwhelmed in the Houston market by for-profit HMOs that have the financial wind at their backs.
"A lot of HMOs feel they have more business flexibility if they're for-profit," said Elissa Granick, a healthcare analyst with Standard & Poor's Corp., a New York-based ratings agency.
In addition, for-profit HMOs have a "fantastic ability to raise money in the equity market," she said. One other advantage: "They can compensate their senior people the amount they like." Because of their tax status, not-for-profit organizations can't compete with the lucrative compensation plans of investor-owned companies.
Mr. Wilford's 87-year-old system may be the most likely to start a not-for-profit HMO, given his commitment to the growth of not-for-profit healthcare. For example, as investor-owned systems roam the landscape stalking not-for-profit hospitals to pick off, Memorial has been one of the few to do the opposite.
Last year, it leased a large, for-profit hospital system that included 520-bed Memorial City Medical Center, 129-bed Memorial City Rehabilitation Hospital, 176-bed Spring Shadows Glen psychiatric hospital and 94-bed Spring Shadows Pine nursing home. The lease agreement turned the Memorial City complex in Houston into a not-for-profit system. Memorial City wasn't previously associated with the Memorial Healthcare System.
"(Mr. Wilford) is so committed to the nonprofit philosophy," said Eugene Beck, president of the Greater Houston Hospital Council. "He's bound and determined that...there's always an alternative to the growing investor-owned presence."