Efforts to meld their two unprofitable HMOs into one plan may be slowing down a merger between two of the three hospitals in Rockford, Ill.
The Rockford hospitals are 296-bed SwedishAmerican Hospital and 210-bed Saint Anthony Medical Center. The city's third hospital is 408-bed Rockford Memorial Hospital, which also runs a money-losing HMO.
Last April, SwedishAmerican announced plans to merge into OSF Healthcare System, the Peoria, Ill.-based parent of Saint Anthony. OSF operates six others hospitals in Illinois and one in Michigan.
The deal would give the two hospitals control of more than half the Rockford hospital market, and their proposed merger drew a brief antitrust investigation from the U.S. Justice Department. Several years ago, the department successfully blocked the proposed merger of Rockford Memorial and SwedishAmerican.
The government, though, cleared the SwedishAmerican-Saint Anthony merger in November, which at the time seemed to be the last major hurdle facing the transaction.
Now, it seems that merging the hospitals' two HMOs may be a problem.
Representatives of the two hospitals last week acknowledged that merger talks between the two sides have broken down several times over the five months since they received federal antitrust clearance. They would not elaborate on what specific issues have caused the problems.
Most recently, the boards of the two organizations met March 27 in Peoria to discuss the deal. Its fate remains unclear.
However, executives confirmed that they've yet to file for the required approval from the Illinois Department of Insurance to merge their two HMOs.
"Because of the pause in the (boards') discussions, there has been no date to file," with the insurance department," SwedishAmerican spokesman Tom Myers said.
OSF operates a 23,800-enrollee HMO called OSF Health Plans. The 2-year-old plan lost $6.9 million on $32.8 million in total revenues last year in 1997, according to figures from the state insurance department.
SwedishAmerican, meanwhile, operates a 15,900-enrollee HMO called Benchmark Health Insurance Co. It lost $556,327 on net revenues of $1.5 million last year, according to the insurance department.
Operating unprofitable health plans can be a stumbling block for merging hospitals, experts say, because one may not want to absorb the liabilities of the other's plan. "The risk gets greater when they talk about merging health plans," said Dan Schuh, a managing partner with Deer Creek Associates, a Chicago-based consulting firm.
Seventeen months ago, Swedish-American decided against an affiliation with Oak Brook, Ill.-based Advocate Health Care, which last year sold its 28,000-enrollee HMO, Health Direct, to Humana for $20.5 million.
The two cited "incompatible managed-care markets," as the reason for the decision, Advocate spokesman Dan Parker said.
Executives at both OSF and SwedishAmerican blamed their insurance losses on start-up costs. They also said the unprofitable health plans haven't harmed hospital operations because the losses were anticipated.
"We are a relatively small plan and don't have a chance to allocate our start-up expenses, which include very costly computers, across a larger start-up base," said Steve Hamilton, an OSF Health Plans spokesman. "Our enrollment this year is already up 54% to about 37,000, so we will be able to spread our start-up costs across another 6,000 or 7,000 members."
Myers said SwedishAmerican started its plan as an answer to competition from health plans being launched by Saint Anthony and Rockford Memorial.
Rockford Memorial operates a 48,100-enrollee plan called Rockford Health Plans. It lost $8.8 million in 1997 on $71.2 million in total revenues, according to state insurance figures.