Those who saw last week's Oscar magnet "Titanic" will recall a fateful moment in the story. (If you don't, consult your teen-ager, who likely has seen the film several times.) It occurs when the glory-seeking shipowner leans on the captain to accelerate the voyage to arrive ahead of schedule and grab headlines. The giant ship, which lacks maneuverability and attentive lookouts, speeds into an iceberg, and hundreds of people take a moonlight swim in the North Atlantic.
Hospitals and physicians might keep this scenario in mind when considering whether to dive into the provider-sponsored organization business. While the appeal of this new form of Medicare risk contracting is undeniable, some recent stories of provider managed-care ventures featured in last week's issue (March 23, pages 5 and 16) ought to make any good executive slow the engines and study the iceberg reports.
In Connecticut, the chief executive officer of Griffin Health Services resigned after its HMO proved to be a cash drain on the parent corporation's profitable hospital. Plan losses totaling $7.4 million for 1997 and 1996 stemmed in part from an aggressive campaign to boost enrollment. That effort succeeded, but too many enrollees in the HMO's point-of-service plans sought expensive treatment outside the provider network, according to Griffin officials.
And in the Kansas City metropolitan area, HMOs operated by hospitals lost the most money while simultaneously gaining the most revenues. The HealthNet HMO, with eight hospital shareholders, lost $14.1 million on revenues of $88.9 million in 1997. 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 the first case, executives attributed the losses to normal start-up costs. In the latter, they blamed physician practice purchases.
Whatever the exact causes of these losses might be, the point is that taking on insurance risk is not for the fiscally faint of heart or the unprepared. The recent troubles of supposedly sophisticated managed-care giants such as Oxford Health Plans, PacifiCare Health Systems and Kaiser Permanente show that excellent planning and constant vigilance are necessary for success.
The point of all this is not to avoid the PSO voyage, but to enter any such efforts with adequate planning and cost monitoring. Most providers have little experience with insurance risk. They should carefully study the logs of past efforts instead of sailing blindly into such ventures.