A money-losing contract between a major managed-care company and a state employee health plan is behind the demise of a regional physician-hospital organization in rural southeast Missouri.
The PHO, MedAmerica HealthNet, based in Cape Girardeau, Mo., filed for Chapter 11 bankruptcy protection in federal court Dec. 31 and has been liquidating its assets.
MedAmerica said it is being forced to go out of business because of a dispute with the managed-care subsidiary of Blue Cross and Blue Shield of Missouri.
The Blues subsidiary is Alliance Blue Cross and Blue Shield. Among its managed-care offerings is a product called HealthNet Blue.
About three years ago, Alliance negotiated a risk-sharing contract with MedAmerica to care for 15,000 state employees and beneficiaries in the HealthNet Blue product in southeast Missouri. The contract put both Alliance and MedAmerica at risk for the cost of care.
Alliance, however, claims it will lose many millions of dollars because of its contract with the state. It has sued the state plan to gain the right to adjust premiums to reflect utilization and its costs (Dec. 1, 1997, p. 38). The company expects MedAmerica to make up half the losses within its HealthNet Blue product because of their risk-sharing contract.
MedAmerica said it cannot.
"Providers enter into these ventures, and they don't understand the seriousness of the risk they are assuming," said Scott Roman, a lawyer in San Clemente, Calif., who advises hospitals on contracting.
"These PHOs generally don't have any assets; they're undercapitalized, oftentimes underinsured for reinsurance (catastrophic loss). They're set up as a house of cards," Roman said. "If they sign a bad contract, the house of cards comes down."
MedAmerica is a joint venture of six hospitals and 250 physicians. It includes Dexter Memorial Hospital, Missouri Delta Medical Center, Perry County Memorial Hospital, Saint Francis Medical Center, Southeast Missouri Hospital -- all in southeast Missouri -- plus Union County Hospital District in Anna, Ill.
Under its original dissolution plans, HealthNet Blue enrollees were supposed to be able to receive services from MedAmerica providers until March 1. After that, the hospitals and doctors would become out-of-network providers. But under an agreement reached at the end of January with the Blues, the physicians, hospitals and ancillary providers will remain in-network providers until Oct. 1. There will be no disruption in coverage.
Wade Adams, executive director of MedAmerica, said that when the PHO dissolves, the contracts with Alliance will end. But other insurance companies have shown interest in contracting directly with the doctors and hospitals formerly in MedAmerica. The PHO had seven other contracts with insurance carriers, which remain in effect until they're assigned to individual providers, Adams said, or until the corporation dissolves.
The members of the PHO paid between $500,000 and $750,000 total in equity since it was formed three years ago, Adams said, all of which will be wiped out in the dissolution.
The regional PHO, often dubbed a "super PHO" because it includes more than one hospital and medical staff, tried for eight months to resolve the conflict with Alliance, Adams said, but wasn't getting anywhere. Their agreement, he said, required that Alliance provide separate accounting for the MedAmerica/HealthNet Blue offering, but it didn't do that. "When our auditors went in and tried to get answers for our questions," Adams said, "there was no balance sheet, no profit-and-loss statement."
Jim Floyd, spokesman for Alliance in St. Louis, countered: "We gave them all of the data that was required in our contract."
Alliance dunned MedAmerica for half its $16 million in projected losses from HealthNet Blue through 1998. But Adams said MedAmerica won't pay because its auditors can't confirm the losses.
"You can imagine, our hospitals and physicians don't have $16 million to pay," Adams said. "That's a lot of money. Blue Cross has the reserves, not us."
MedAmerica was also the target of a U.S. Justice Department antitrust investigation in 1996 (May 6, 1996, p. 6). No charges were filed, and the super PHO hasn't heard a word from the antitrust investigators since February 1997, Adams said. It is asking the Justice Department for a letter to clear its name.
Randy McConnell, spokesman for the Missouri Insurance Department, said: "Whatever is going on there is not our problem. The (insurance coverage) obligations that exist under those policies continue to exist. We expect Blue Cross or its various publicly held organizations to make good on those obligations."
It's for this reason, McConnell noted, that the National Association of Insurance Commissioners argued during last year's debate on the balanced-budget bill that provider sponsored organizations should not be allowed to assume risk and market services without meeting the requirements of other health insurers.
"I wouldn't necessarily declare that PSOs . . . are all doomed," lawyer Roman said. "It does mean these networks are going to have to be very careful about the contracts they negotiate when those contracts include the assumption of risk."