The heralded "Henry Ford" model is losing part of a wheel.
Last week, the Henry Ford Health System announced plans to sell part of its managed-care operation to another hospital system in an effort to reduce its anticipated operating losses this year.
The move is a blow to the Detroit-based system, once seen as the prototypical integrated delivery system, with hospitals, physicians and a health insurance business under one umbrella. But, like many similar systems are finding out, managing all three can be tough business.
Specifically, Henry Ford is selling its managed-care business in Ohio to the Toledo, Ohio-based ProMedica Health System, in a noncash deal, the participants said.
The business to be sold is the 45,000-enrollee Medical Value Plan. It is part of Henry Ford's larger HMO, the 550,000-enrollee Health Alliance Plan. ProMedica intends to merge Medical Value with Paramount Health Care, its for-profit managed-care company.
In exchange for essentially giving Medical Value to ProMedica, Henry Ford's Health Alliance Plan will get "proportional ownership and board representation" in Paramount, said Francine Parker, chief operating officer at Health Alliance.
Neither side would disclose specific financial terms of the transaction.
The parties expect state regulatory approval for the sale in the first quarter of next year, with the close shortly after that.
ProMedica officials said they believe that the acquisition creates economies of scale that should turn things around at Medical Value Plan.
"We think we can make it feasible from a financial standpoint," said Mark Moser, Paramount's vice president of marketing.
ProMedica operates four Toledo-area hospitals-The Toledo Hospital, Flower Hospital, Children's Medical Center and Defiance Hospital-and plans to build a combination hospital-wellness center in east Toledo next year.
In addition, the system recently formed a joint operating company with the Blanchard Valley Health Association to run nearby Lima (Ohio) Memorial Hospital, which holds a 50% stake in the operating company.
Paramount, which operates a commercial HMO, a Medicare HMO, a Medicaid HMO, point-of-service and PPO products, now has about 163,000 total enrollees.
Paramount shares much of its existing provider network in northern Ohio and parts of southern Michigan with Medical Value.
Medical Value has been blamed for a significant share of the Henry Ford system's projected $7.5 million in operating losses this year. The system had a 1997 operating profit of $37.5 million (Sept. 28, p. 18).
The system, which also includes five hospitals and a 760-physician medical group, expects revenues to match last year's $1.9 billion.
Despite being dragged down by results at Medical Value, Henry Ford's Health Alliance Plan posted a modest first-half profit of about $6.5 million this year on revenues of $488.3 million. Last year, Health Alliance earned $21.1 million on revenues of $902.5 million.
At deadline, a breakout of the financial performance of Medical Value was unavailable.