Two years ago, Cigna Corp. began remaking itself from an old-fashioned health insurance company into a major player in managed care. It started on the costly process of building a network of physicians.
Today, Cigna HealthCare of New York, the managed-care unit, is in the midst of sweetening how it compensates doctors in order to lure them to an operation that is too small to compete in the difficult New York market.
Cigna HealthCare, based in Bloomfield, Conn., miscalculated the difficulty of selling doctors on a system in which they receive capitated payments. It also didn't anticipate how formidable it would be to impose one capitation schedule across the region.
"Capitation will take a while for physicians to get comfortable with," said Kurt A. Weimer, president-general manager of Cigna HealthCare's New York operations. "The key issue will be partnering with providers and hospitals, and then getting a reimbursement level that will allow both of us to win."
Cigna's ability to woo providers is critical. By January 1996, it wants to add 20 facilities to its local network and would then offer roughly 75 hospitals. Unless it reaches that level, it won't have the capacity to handle more enrollees, including the conversion of large indemnity customers to managed care. Hence, Cigna's four-month-old sale.
Doctors joining Cigna's roster of physicians can get paid on a fee-for-service basis for the first 50 Cigna patients. After that amount, payment is capitated.
The contract is even richer for Manhattan primary-care doctors. They get 150 members at fee-for-service rates and capitated payments for additional enrollees.
Cigna has 18,200 providers in the metropolitan area, up from 13,700 in June 1994. By the end of the year, Cigna says it will have 23,000 providers signed up.
"That is one of the challenges-to get across to the marketplace that we are not the small network we were when we started out," Weimer added.
Cigna is on target with its goals of building market share in southern New York and attracting 1 million managed-care enrollees by 1998. Premium volume in the metropolitan region is $3.5 billion. Cigna said it now has 675,000 enrollees-178,000 in New York-up from 546,000 in June 1994 when it had 133,000 New York enrollees.
Cigna also has kept its medical costs down, paying out 83% of premiums on medical claims. Administrative expenses are 11%, slightly above its goal of 10%.
But Cigna has stumbled on its capitation policy.
The problem Cigna faces is that the capitated rate may not cover overhead for doctors in pricey locations. The rates are less workable on the north shore of Long Island, where medical offices rent for up to $40 a square foot, than they are for eastern Long Island, where space can be $15 a square foot.
"We typically look at the entire marketplace with one capitation number. We realized that cap has not been as workable," Weimer said.
At a recent six-week open-enrollment period at North Shore University Hospital, 170 out of 450 primary-care doctors signed up with Cigna, as did 500 of 850 specialists. Weimer said Cigna is satisfied with the participation, although he would have liked half the primary-care doctors-an additional 55-to have enrolled.
Yet one North Shore specialist said "the rates weren't sufficient."
But Cigna is becoming flexible, said Guy Mintz, M.D., a cardiologist in Great Neck, N.Y. He said Cigna had too few cardiologists on the north shore. Mintz joined in May, but before he signed up he treated three Cigna patients when Cigna's specialists were unavailable. After some cajoling, Cigna paid him for his service, unusual because it had no contract with the specialist.
Cigna, whose stronghold has been large companies, wants to lure smaller businesses. It just slashed its rates for companies with fewer than 50 people. "What we are trying to do is compete more efficiently in the under-200 groups," Weimer said.
For now, Cigna is losing money on its community-rated business for small groups, according to its quarterly filings with the state Department of Insurance. Weimer said Cigna is trying to "support the lower end of the market. I would not look to improvement until the third quarter."
Cigna is correcting another weakness. It is moving further into the government market, an area where U.S. Healthcare dominates. Cigna has roughly 5,000 Medicaid enrollees and will enter the Medicare market after it receives federal approval.
Another segment Cigna needs to improve is the competitiveness of its benefits, said Richard Allen, president of Manhattan-based American Corporate Benefits. Cigna, for example, doesn't cover nongeneric drugs. Enrollees have to foot the bill for the difference between the generic and nongeneric price.
Other HMOs only impose a higher copayment. Allen said in a spreadsheet comparison of HMOs, Cigna "doesn't always come out on top."