Paramount Physician Network, a Denver-based independent practice association, on Dec. 31 will go out of business, owing almost $3 million to its 1,500 physicians. But it may actually be Paramount's contracted health plans that owe the doctors.
Paramount's dissolution will be the first test of a 1997 Colorado law declaring that any managed-care plan contracting or subcontracting services to an intermediary must "remain responsible for the payment of all participating providers" in the event of that intermediary's "nonpayment . . . or insolvency."
In other words, if a physician organization goes down the tubes, the health plan is responsible for paying claims, even if it paid them to the IPA, practice manager or other organization in advance through a capitation contract. The law, which became effective in July 1997, does not require the state to ensure the intermediary is financially sound; that would be up to the HMOs, following the practice that's common in capitation contracting in most states.
Paramount Chairman Mel Klein, M.D., says when doctors calculate what they're owed, they're likely to go after health plans to get paid.
Anticipating a battle between Paramount physicians and the insurers, the Colorado Division of Insurance already has contacted Blue Cross and Blue Shield of Colorado, Cigna and Great West-Paramount's HMO partners. The division wants to discuss how to handle claims filed by doctors who weren't paid out of the capitation money those HMOs paid to Paramount under 1998 contracts.
The Blues has acknowledged two-thirds of the money in dispute involves its capitation payments, but the exact payment amounts for Cigna and Great West are unknown.
The plans say the law does not require them to pay again for care that was covered through a capitation contract, which is a flat fee paid in advance based on patient load. The insurance division may beg to differ, however.
"This (law) is not a means of dispute," says insurance division spokeswoman Nancy Ryan. "This is the law."
Blues spokesman Neil Westergaard says such an interpretation would give physicians license to mismanage their practices, knowing the health plans would have to bail them out.
"Our position is (that) it undermines the entire concept of downloading the risks and the decisionmaking to physicians," he says. "There isn't any risk for them."
HMOs say this law already is forcing them to monitor physician finances more closely, although widespread cancellations or contract refusals haven't occurred yet.
"There will be efforts to change this (law)," Westergaard says. "It's fundamentally wrong."
The obscure-yet pivotal-collection law is a one-paragraph measure that was inserted into a comprehensive HMO regulation bill introduced by Rep. Joyce Lawrence, a Pueblo Republican, in response to a debacle at medical group ProActive Health Care.
A Medicaid managed-care plan ProActive established with Antero HealthPlans for 5,000 people in the Pueblo area put ProActive about $2 million in debt. The program was dissolved on July 31, 1996. After the principals worked out a settlement, ProActive's 112 physician shareholders ended up losing about $1 million on the deal.
If Lawrence's measure had been in place then, patient care wouldn't have been interrupted and the doctors would have had recourse to collect their money, presumably lost through no fault of their own.
As with many last-minute bill additions, the Lawrence measure was met by either a lack of scrutiny or outright confusion by its potential opponents. The HMO regulation bill passed the House by a 60-5 vote; the Senate vote was 33-2.
For months, the issue never resurfaced--not even at Denver-based Columbine Medical Group, a 2,300-physician IPA that was in financial turmoil as the law hit the books.
PacifiCare Colorado in 1997 had informed Columbine, whose expenses outstripped its capitation payments because of higher-than-expected utilization, that it would drop the IPA on Dec. 31, 1998, says Eric Sipf, PacifiCare Colorado's president and chief executive officer. The exact value of the contract is unknown.
Working around the group, PacifiCare doled out $5 million in bonuses to individual Columbine physicians to keep them from going after back claims and give them the promise of 1999 contracts, Sipf says.
Similar trouble was cropping up at Paramount, which was formed through a 1997 merger of three IPAs. Klein, who also served as acting CEO during Paramount's first year, admits the group made some financial blunders-such as failing to capitalize the IPA at its formation, signing managed-care contracts that didn't cover the bills and taking on an overwhelming amount of management responsibility.
Paramount hired Denver-based management services organization PhyLink in April for what the MSO saw as a "turnaround situation," PhyLink partner Blair Tikker says. About 250 doctors had left Paramount to form their own MSO around Precedent Hospital, which is physician-owned. Klein, a nephrologist, also is a part-owner of Precedent, but he remained at Paramount.
PhyLink and the Paramount board in August attempted to get doctors to pay $5,000 apiece to capitalize the IPA. When the first installment of $2,500 was required from doctors, only 20% of the 600 physician owners responded, Tikker says.
One factor, Klein says, is many of the Paramount doctors belonged to other IPAs.
The IPA legally could have leaned on the doctors, but Tikker says it decided not to because many specialists had not been paid for three or four months. "There was a question of breach of contract," he says.
A potential link with MedSouth, a more successful Denver IPA managed by PhyLink, never materialized. Discussion turned to getting a temporary bailout from Paramount's capitated health plans, which Tikker says represented half of Paramount's revenues, an amount that was not disclosed.
But of the three HMO partners, the Blues held out, Klein says.
The Blues' Westergaard says his plan's capitation payments represent $2 million of the $3 million Tikker says Paramount owes its doctors. Westergaard says his plan was willing to work with Paramount, but the IPA refused a deal. The Blues and other plans started making capitation payments directly to doctors Oct. 1.
Klein says the IPA's future would have been reinforced by a lucrative PacifiCare contract scheduled to start in January. But once no bailout was forthcoming, Paramount started closing up shop.
The law making health plans responsible for paying claims had nothing to do with the decision, Tikker says. The IPA found out only two months ago that the law existed.
Even while admitting his own mistakes, Klein says the law is just, considering how the HMOs treated Paramount. "The patient (base) was a sicker, more needy group" than the plans let on, he says. "They took on some risks they hadn't accounted for and passed them on to us."
Klein says HMOs are being disingenuous about paying twice because they failed to pay enough to cover the cost of care once. "Did we manage care as well as we could have? Probably not. Did they pay us enough to cover the cost of care? Probably not. Hearing that health plans are raising their premiums 20% tells you that we probably were underfunded."
The Blues' Westergaard says that still doesn't mean health plans should have to pay twice. After all, Paramount signed the contracts. "We expect there will be some effort to clarify this," he says.