University of Kentucky Hospital and its five hospital partners said last week they will put up nearly $18 million over the next year to cover the expected losses of their 12-year-old HMO. However, hospital officials said they do not intend to cease operations or sell the plan.
The six hospitals formed the HMO, called the Commonwealth Health Alliance, in 1986. It's the latest in a string of provider-run HMOs that have experienced financial difficulties of late.
Murray Clark, chief financial officer of the University of Kentucky Hospital and chief of the finance committee of the CHA, said the losses are primarily the result of two factors.
First, under a Kentucky healthcare reform plan that has since been repealed, the HMO was unable to increase its premiums for nearly two years, Clark said. That left premiums too low to pay for the rising costs of healthcare. With the repeal of the rate controls, the CHA expects to increase premiums by as much as 25% this year, he said.
The second factor was the rapid growth of the HMO. According to Clark, the business plan for the HMO called for enrollment of about 40,000. However, the total enrollment of the HMO is now about 195,000, Clark said. Of that, about 94,000 are commercial enrollees, 65,000 are Medicaid patients, 16,000 are self-insured, and 20,000 are University of Kentucky employees.
"The problem is, we just grew larger than we could handle," Clark said.
According to papers filed with the Kentucky Department of Insurance, the CHA lost more than $1 million in the quarter ended March 31, on premium revenues of nearly $33 million.
In 1997, the plan lost $9.2 million.
According to Kentucky Commissioner of Insurance George Nichols III, the CHA has been put on his office's "watch list" and required to submit monthly financial statements.
But Nichols said he is "comfortable with where (the CHA is) given the financial contribution made by the university," which Nichols called, "evidence of long-term commitment."
Clark said the plan is expected to lose an additional $17.7 million in the next year. The six partners have pledged to cover those losses but individual contributions have not been determined..
The HMO is jointly owned by Appalachian Regional Healthcare in Lexington, Ky.; Mary Chiles Hospital in Mount Sterling, Ky.; Pattie A. Clay Hospital in Richmond, Ky.; Rockcastle County (Ky.) Hospital; St. Luke's Hospital, Florence, Ky.; and the University of Kentucky in Lexington. The University of Kentucky Hospital is the majority shareholder.
According to Clark, there are no plans to close down or sell the HMO.