Sutter Health, one of California's most prominent hospital systems, has withdrawn its application for a limited Knox-Keene license from the California Department of Corporations, MODERN HEALTHCARE has learned.
Such a license, which essentially is a modified HMO license, allows providers to take on insurance-like risk through globally capitated contracts.
St. Joseph's Provider Network, which is part of San Francisco-based Catholic Healthcare West, recently became the first hospital system to obtain a Knox-Keene license in the state (June 29, p. 4).
Sutter's application, which was filed in March 1997, was quietly withdrawn by the 26-hospital system in mid-May, according to system officials.
Sacramento-based Sutter plans to rework the application and refile it in early August, said spokesman Bill Gleeson. He said the system still hopes to obtain a license by year-end.
"Our intention in withdrawing the plan was to reflect in our application a more efficient way of organizing the plan that we expect will reduce the overall administrative burden," Gleeson said.
Sutter and co-owner St. Joseph's Medical Center of Stockton, Calif., put their Omni Healthcare HMO on the block in mid-April and hope to have a definitive agreement to sell the 164,000-enrollee health plan by summer's end. The owners said the plan needed an infusion of capital to grow and survive over the long term.
The new Omni strategy helped precipitate the decision to redraft the license application, Sutter officials said.
Although the system intends to refile its application, it has decided against getting into the Medicare risk-contracting business as a provider-sponsored organization, executives said.
A spokeswoman for the Department of Corporations, which regulates HMOs and related health plans in California, confirmed that Sutter withdrew the application voluntarily, but she said the company had failed to answer some questions about the application. Several industry sources had questioned whether Sutter was forced to withdraw its original filing because of financial concerns.
Gleeson insisted that the changes in the application reflect operational changes within Sutter -- including Omni's role -- that have occurred since the original application was filed.
"There is no sense of urgency," he said. "We're not operating against the clock."
The department has also received a separate application from the East Bay Medical Network, a hospital and medical-group contracting network in the San Francisco Bay Area affiliated with Sutter Health. The status of that application is unclear, and East Bay Medical Network officials couldn't be reached for comment.
So far, the state has granted seven Knox-Keene licenses, said Department of Corporations spokeswoman Julie Stewart. Another 15 applications are pending, she said.
Other hospital-affiliated systems waiting for approval include Cedars-Sinai Medical Center in Los Angeles and Scripps Clinic Health Plan Services in La Jolla.
