VHA Southwest, one of 28 regional systems of VHA hospitals, has been considering buying or developing an HMO, resurrecting a strategy the national alliance abandoned some five years ago.
The Dallas-based group of Texas hospitals approached FirstCare, an
Amarillo, Texas-based HMO owned by one of its members, 319-bed High Plains Baptist Health System, about a possible deal earlier this fall.
"They said they would talk about anything from buying the whole thing to buying partial interest," said Dale Bowerman, FirstCare's chief executive officer. Last week, Mr. Bowerman and VHA Southwest officials confirmed that discussions have since broken off.
However, VHA Southwest left the door open to pursue other managed-care strategies, which may include buying or developing an HMO in the future. The 60 hospitals in the group "really want us to bring them together in a managed-care strategy," said Philip Trimarco, president and CEO of VHA Southwest. VHA's regional systems are mini-alliances of the group's members.
The prospect of a VHA system getting into the HMO business is significant because it's another example of alliances trying to serve their not-for-profit hospital members on managed-care deals. Irving, Texas-based VHA is the nation's largest alliance of not-for-profits, with more than 1,000 hospitals.
The alliance's taste of HMO ownership came in the mid-1980s when it launched a 50-50 joint venture with Aetna Life & Casualty Co., Hartford, Conn. The venture, called Partners National Health Plans, was designed to funnel patients into VHA hospitals.
However, Partners proved an expensive and divisive experiment. By June 1988, VHA Enterprises, which owned VHA's interest in Partners, had lost $87 million on $305 million in cumulative revenues, most of the loss stemming from Partners. The financial struggle led to the September 1988 resignations of VHA's and VHA Enterprises' top executives, Don Arnwine and Thomas Reed, respectively.
In 1990, VHA sold its Partners stake to Aetna for $60 million, which included $34 million in assumed debt.
Afterward, a group of VHA hospitals in Connecticut, VHA of Southern New England, bought a 45% interest in the local Partners plan, Aetna Health Plans. To date, that group is the only VHA regional system that owns an HMO interest, VHA officials said.
That could change, however.
"The problem with the Partners Health Plan was it was national," Mr. Trimarco said. "Healthcare is a local business."
Jim Lordeman, VHA's vice president of integration management services, agreed that the alliance's corporate office is not inclined to jump back into HMO management or ownership. But, he said, some regional systems may pursue the same strategy as VHA Southwest in buying or developing an HMO. On the corporate level, VHA sees its role as giving hospitals the tools to develop managed care. For example, United Healthcare Corp., Minnetonka, Minn., has agreed to provide VHA hospitals with software and services to form managed-care systems, he said.
Meanwhile, Methodist Hospital in Lubbock, Texas, and Hendrick Medical Center in Abilene, Texas, are each buying a one-third interest in FirstCare, Mr. Bowerman said. Terms were not disclosed. Methodist is a VHA hospital; Hendrick is not.
The for-profit HMO has 49,000 enrollees.