The three hospital owners of the Advantage Health HMO in New Orleans each infused $9.5 million in additional capital in December 1997 to keep the struggling plan afloat.
That $28.5 million almost covered the $30 million the plan lost last year, according to documents filed March 10 by the health plan with the state Department of Insurance.
The plan's hospital owners have declined repeated requests for interviews. Consequently, it's not known how they came up with the money or what effects such expenditures have had on their hospital operations.
The uncertain fate of the 94,000-enrollee HMO should serve notice to hospitals nationwide that want to get into Medicare risk-contracting: Running an insurance company might be tougher than they think (See editorial, p. 42).
Louisiana Insurance Commissioner Jim Brown is watching the HMO closely to make sure it continues to meet its obligations. He has placed an employee on the premises to observe operations, but the plan has not been placed under formal administrative supervision.
Advantage Health is the fourth-largest HMO in Louisiana, measured by market share. In the four years of its existence, it has lost $35.6 million.
It's normal for start-up HMOs to lose money in the first few years, but it's unusual to lose so much money so quickly and to have the losses surge so dramatically, according to insurance experts.
Advantage Health's net worth declined from $8.4 million on Dec. 31, 1995, to $6 million a year later, to $2.4 million by Dec. 31, 1997.
Like other HMOs that have posted huge recent losses, such as Oxford Health Plans, Advantage Health grew too fast without having installed the claims-processing capabilities or support structure to serve so many enrollees and providers, said Betty Chowning, interim chief executive officer of Advantage Health.
The plan's owners are Touro Infirmary in New Orleans; Franciscan Missionaries of Our Lady, based in Baton Rouge; and Sisters of Charity of the Incarnate Word Healthcare System, based in Houston. Franciscan Missionaries of Our Lady operates three hospitals in Louisiana. The Sisters of Charity operate 10 hospitals in three states, including three in Louisiana.
Executives at the three owners referred questions to Chowning.
"We've had some performance issues," said Chowning, a former administrator of Humana HMOs, PPOs and hospitals. "We have an action plan in place to help us perform more efficiently and act like an HMO."
Chowning, a consultant with the Pace Group, joined Advantage Health as CEO on Dec. 2, 1997, the same day its founding CEO, Jane Cooper, resigned. The health plan fell drastically behind in claims processing, angering providers and upsetting enrollees.
Additional people have been hired to shovel down the mountain of unprocessed medical bills, which totaled $22.2 million last Dec. 31.
Sources in New Orleans said Advantage Health's problems became known in the market some time ago. An employee at Touro Infirmary said patients and employees there used to call it "Disadvantage Health" because service was so poor. The plan employed only one person to handle customer complaints for its entire enrollment, said the employee, who requested anonymity.
A source in the insurance brokerage community said he sold group health policies to two employers but soon stopped selling Advantage Health after he heard it was not paying its claims promptly and had high customer dissatisfaction.
What pushed Advantage Health into Titanic territory, however, was winning a capitated contract it was unprepared to cope with, state documents show. The iceberg in this case was the Louisiana state employees group benefit program.
In 1997 Advantage Health submitted a very low bid of $152.79 per enrollee per month for first-year, single, active employees. Other bidders, including Aetna, United HealthCare Corp. and Gulf South, offered bids in the range of $190 to $195.
Advantage Health was hoping to get 5,000 state employees and dependents in the New Orleans and Baton Rouge areas. It got 45,000, more than doubling its enrollment overnight. "Our system and staff was not prepared for that large enrollment," Chowning said.
The state contract runs from July 1, 1997, to June 30, 2000.
Tommy Benoit, counsel for the trustees of the state employees plan, said he knows the Department of Insurance is watching Advantage Health closely. "At this point Advantage is prepared, and we're prepared, to move into the second year of our contract," Benoit said.
Advantage asked for a rate increase, so the state plan raised the per-enrollee-per-month premium to $168.07, effective July 1, 1998.
Richard O'Shee, a healthcare analyst in the insurance department, said the department isn't too concerned about the health plan's solvency because its three hospital owners have the financial capacity to keep it solvent.
One person close to the situation said the issue is very sensitive at the hospitals. In an attempt to limit speculation, Brown, the state insurance commissioner, has instructed all the parties "to keep their mouth shut," the source said. "That's part of our dilemma. Even if we wanted to say something, we can't."