Two major Medicare risk plans in Utah, one for-profit and another operated by a prestigious not-for-profit hospital system, announced last week that they will shut down.
The plans, which had racked up combined losses of $24 million last year, said they will exit the market by year-end.
The move by the two plans-including one operated by the state's largest not-for-profit hospital system, Intermountain Health Care-is another warning to providers that want to get into Medicare risk contracting as provider-sponsored organizations.
The shutdowns also raise questions about whether not-for-profit hospitals are willing to endure the kind of financial strain that risk plans can cause.
In arguing for the creation of Medicare PSOs, the American Hospital Association has stated that community-minded hospitals would venture into markets with Medicare risk products where for-profit managed-care companies would fear to go.
But Intermountain's decision casts doubt on how long not-for-profit providers are willing to stay in the game. The system's executives said the move shouldn't tarnish its reputation.
"We've gotten a lot of understanding from government officials at all levels," said Intermountain spokesman Daron Cowley, who noted that Utah has one of the lowest Medicare capitation rates in the country.
The departure of Intermountain and PacifiCare of Utah, also based in Salt Lake City, affects 20,500 seniors, or about 10% of Utah's Medicare population. They will return to the traditional Medicare program on Jan. 1.
The two companies said the Medicare beneficiaries' medical costs consistently exceeded reimbursements, a problem that was exacerbated by higher-than-projected utilization rates for their enrollees.
"The members we attracted were sicker than the general population," Cowley said.
Intermountain said it spent $450 per month per enrollee and received an average adjusted capitation rate of $310, far below the nationwide average Medicare capitation of $545.
PacifiCare's cost averaged $400 per enrollee per month, while its average adjusted capitation rate was $328, according to spokesman Dee Brewer.
"Those are very low capitation rates for Medicare, and at that level it's difficult to break even, let alone make a profit," said John Tiscornia, director of the western regional healthcare practice for consulting firm Arthur Andersen.
Although only 7,000 of Intermountain's 450,000 covered lives in Utah were enrolled in the Medicare risk program, the system's SeniorCare product lost $10 million in 1997, following a $1.5 million loss in the previous year.
PacifiCare's Medicare plans, with 13,500 enrollees out of a total enrollment of 193,000, lost $14 million last year.
Both plans almost simultaneously notified HCFA in May of their intent to exit the market. Although the plans did not work together on their pullout, PacifiCare and Intermountain jointly announced the move last week, at HCFA's request.
"We were moving in parallel paths, and it made sense from a consumer standpoint to announce our intentions at the same time," Cowley said. "It would have been a disservice to have one plan announce it was leaving, then have all the enrollees try to get into the other plan."
David Gessel, vice president of governmental relations and legal affairs at the Utah Association of Healthcare Providers, a hospital trade group, doesn't believe Intermountain and PacifiCare's exit will cause disruptions in the state's healthcare delivery.
"The number of lives they covered out of the entire Medicare population was not very substantial," he said.
The decisions by Intermountain and PacifiCare follow a similar move announced last month by Anthem Blue Cross and Blue Shield, which said it was dropping its Medicare risk program in most of rural Ohio (June 15, p. 26). That change, effective Jan. 1, will affect 20,000 beneficiaries in the state.