HMOs run by hospitals are leading the way into the red in the Kansas City metropolitan area, where HMOs lost $30 million in 1997, according to the Missouri Insurance Department.
The two HMOs that lost the most money, while at the same time gaining the most in revenues, were locally owned and sponsored by the city's two largest hospital systems.
The HealthNet HMO has eight hospital shareholders but is controlled by St. Luke's-Shawnee Mission Health System, which operates three hospitals. In 1997 it lost $14.1 million on revenues of $88.9 million. In 1996 it lost $4 million on revenues of $21.8 million.
HealthNet officers said the plan is losing money because all startup HMOs lose money at first. But they said the plan is expected to break even in 1999.
Blue Advantage, a joint venture of five hospitals and two Blue Cross and Blue Shield plans, lost $15.5 million on $155.2 million in revenues last year. In 1996 it lost $10.6 million on $111.5 million in revenues.
Blue Advantage was created in 1992 with the stated goal of aligning the incentives of providers with the insurer. Blue Cross and Blue Shield of Kansas City owns 52% of Blue Advantage and is managing partner; each hospital owns about 9%; and Blue Cross and Blue Shield of Kansas also owns a small share.
Tom Bowser, chief operating officer for the Kansas City Blues, said the HMO has worked relatively well, and its losses have been acceptable to all parties. The disappointment arose from losses associated with Blue Advantage's physician practice purchases, he said.
At one point Blue Advantage was operating 22 health centers and employing 65 physicians. In 1997 Blue Advantage downsized to 11 health centers and 34 physicians. No information was available on losses from the strategy.
The Kansas City Blues as managing partner has issued two capital calls to meet state reserve requirements and keep the HMO fueled with money.
One hospital officer who asked not to be identified said his organization has put about $1.5 million in additional capital into Blue Advantage. "The prospectus showed this to be positive cash flow after the third quarter (of the first year)," he said, and it has never made a clear profit.
The plan has signed some unfavorable contracts with groups, such as public employees in Kansas City, who have had high medical costs and low premiums.
Health Midwest, the largest hospital partner in Blue Advantage, continues to feel "the underlying concept behind Blue Advantage was and is a good one," said Tom Cranshaw, senior vice president for strategic planning.
Bowser pointed out that Blue Advantage now has 96,000 enrollees. At a market value of $800 per enrollee, the equity partners have created a plan now worth $77 million.
The other big HMO money loser, HealthNet, started out in the 1980s as a pure PPO but decided to create an HMO in 1994. It was restructured a year ago to give St. Luke's-Shawnee Mission a 49% interest. At the same time, St. Luke's pledged to invest $41 million to keep the plan solvent and develop the needed infrastructure.
Joe Stasi, HealthNet's vice president for finance, said the strategy remains sound even though the HMO has lost $25 million since 1993. "It revolves around the doctors and hospitals making decisions about how to render care, vs. Wall Street HMOs having to return a certain amount to their shareholders," Stasi said.
HealthNet's HMO expects to lose $6 million in 1998 but should turn a profit in 1999, Stasi said. It has 55,500 enrollees.
Despite the losses, a spokeswoman said St. Luke's is committed to the HMO because there's a need for a locally based provider-sponsored HMO option.