Even though one Chicago hospital system sold its money-losing HMO to an insurance company last year, another system in the Windy City market believes that operating a health plan should be part of its future.
Roman Catholic-owned Accord Health Network's 5,088-enrollee HMO lost $1.2 million last year, but its nine hospitals will forge ahead with plans to use the HMO as a provider-sponsored organization.
Last year the network bought an HMO from Chicago-based Mercy Hospital and Medical Center, which is not a member of Accord. Accord changed the HMO's name from MercyCare HMO to Accord Health Plan and now intends to use it as a PSO vehicle, entering a risk contract with Medicare in 1999.
"This (HMO) will be the entity to be the PSO," said Burton Vanderlaan, M.D., president and chief executive officer of Accord Health Network and president of Accord Health Plan.
Vanderlaan said the strategy makes sense because HMOs and PSOs are similar. Both agree to provide all the healthcare services their members need for a fixed predetermined fee.
"I believe there will be significant movement of Medicare (enrollees) into managed-care programs," Vanderlaan said.
Terms of the acquisition weren't disclosed. State insurance department records say the Catholic HMO hasn't turned a profit since it began operations in February 1996 as MercyCare, piling up losses of nearly $1.7 million during the two-year span.
Vanderlaan blamed the losses on early start-up costs and predicted the HMO would turn a profit by the end of 1999. It has a Medicaid contract with the state this year that adds 7,000 enrollees, he said.
On the other side of the fence is eight-hospital Advocate Health Care of Oak Brook, Ill.. Advocate sold its 20,000-enrollee HMO, Health Direct, to Humana in January 1997 for $20.5 million after it lost a total of $4.3 million during its 4-year history, according to financial data MODERN HEALTHCARE obtained last week from the Illinois Department of Insurance.
Advocate said it sold to Humana because it wanted to focus on its area of expertise as a provider, not as an insurer.
"You have to be pretty talented to run an HMO," said Charles Francis, Advocate's senior vice president of business development. "Why a hospital would make a decision to be in that industry is a question for the industry to look at."
Advocate said its strategy is to contract with, not own, HMOs, PPOs and other insurance products.
"The folks that are in the PSO or HMO business have made a decision to be in the distribution and marketing business, and we don't view that as essential," Francis said. "It's not our strategy to develop our own PSO."
Since Louisville, Ky.-based Humana took over operations, it has been able to reduce losses 80% to $328,205 in 1997 from $1.5 million in 1996 when Advocate owned the plan.
State insurance department records indicate Humana was able to reduce administrative expenses 35% to $4.3 million from $6.6 million in 1996 under Advocate ownership.
Humana's takeover of Health Direct may offer a glimpse of the future of PSOs. Many observers have predicted that large national commercial insurance companies will take over PSOs after providers find running them too difficult or unprofitable.
"It may well be that the reason the insurance industry doesn't oppose providers' getting into this is because they don't think it will be terribly successful," said Dan Schuh, a managing partner with Deer Creek Associates, a Chicago-based consulting firm.
Accord member hospitals are behind the PSO effort and say the health plan's losses aren't hurting hospital operations.
The network acquired its HMO license at mid-year 1997 and operated the plan for just six months, noted Trisha Cassidy, senior vice president of system development and strategy at Loyola University Medical Center, the network's largest hospital. "It is not unusual for an HMO to experience losses in the first year of operations given the start-up costs associated with a new HMO. These costs were anticipated in the first-year budget."