After posting years of losses -- largely caused by an increasing Medicare patient base -- the struggling St. Joseph's Physician Hospital Organization in Phoenix will close its doors May 15, the day its provider contracts expire.
The situation again highlights the hurdles that providers face when entering risk contracts with publicly insured patients. A risk-based contract with the state recently led to the demise of a PHO in Missouri (See story below).
St. Joseph's PHO, which grossed $18 million a year, lost more than $3 million in the past two years and has never had a profitable year since it began operations in 1992. After failing to stem the red ink, even after hiring a third-party administrator and a new medical director last July and cutting physician reimbursement to 15%, the board voted Feb. 11 to cease operations.
St. Joseph's is the second Phoenix-area PHO to close its doors in recent months. The first was 330-physician Arrowhead Physicians Alliance, affiliated with 80-bed Arrowhead Community Hospital and Medical Center in Glendale, Ariz., which ceased operations late last year.
St. Joseph's PHO is an affiliate of 514-bed St. Joseph's Hospital and Medical Center in Phoenix, which in turn is owned by Mercy Healthcare Arizona. The hospital owns one-third of the PHO, and member physicians own the remainder.
Don Anderson, acting director of the PHO, said market forces and managed-care operators' increasing influence proved too powerful for St. Joseph's to operate profitably.
"More and more the managed-care firms were gaining leverage over providers, and we were forced into a situation where we had to cut our fees," he said. Anderson estimated that St. Joseph's capitation fees had been reduced 10% since the PHO began operations.
Moreover, St. Joseph's patient mix gradually segued toward Medicare HMO patients. Medicare enrollees more than doubled in the past two years, to about 4,000. "We had a much higher utilization rate, and we were forced into providing much more complex and costly care, virtually for the same fees we received for other patients," Anderson said.
Two major providers to the PHO, PacifiCare Arizona, with about 6,000 enrollees, and Intergroup of Arizona, with 12,000, already have shifted about half their enrollees to primary-care physicians outside the organization. Mercy Healthcare's two in-house health plans for its employees, Mercy Choice and Personal Choice, already have shifted their enrollees to the Arizona Network PPO.
Bills submitted to the PHO by its physicians and the hospital between Feb. 12 and May 15 and capitation fees will be paid at 50 cents on the dollar. Anderson said the large shifts of enrollees from the PHO have complicated figuring total outstanding payments.
PacifiCare officials were not immediately available for comment.
Intergroup spokeswoman Donna Kreutz noted that most of its enrollees who have been moved out of the St. Joseph's PHO network are being allowed to keep their doctors by contracting with them individually. "We don't want to inconvenience anyone to a great degree," she said.