Arizona's most profitable and second-largest HMO recently cut payments to physicians, and doctors are worried poorer-performing HMOs will follow suit.
Effective Dec. 1, Cigna HealthCare of Arizona began cutting payments to the nearly 1,000 noncapitated physician members of its independent practice association in the Phoenix area. The HMO reduced reimbursement to 90% from 100% of Medicare's resource-based relative value scale, says spokeswoman Tania Graves.
In a letter to the IPA physicians, Robert Beauchamp, M.D., Cigna's medical director and vice president, explained "1998 has been a most difficult year for Cigna."
According to Jim Hertel, publisher of the Arizona Managed Care Newsletter and the Directory of Arizona Managed Care, Cigna HealthCare of Arizona's revenues were $473.2 million for the first nine months of 1998, and it earned $21.5 million after taxes. During the same period, the state's second most profitable HMO, PacifiCare of Arizona, posted $474.6 million in revenues and $19 million in net income after taxes.
Despite Cigna's profits, its medical-loss ratio (the amount of premiums collected vs. medical expenses) was on the rise all last year. Most HMOs shoot for a medical-loss ratio of 85%, which means medical expenses would not exceed 85% of premiums. At the end of 1997, Cigna's medical-loss ratio was a comfortable 78.5%, but by the end of the first nine months of 1998, it had risen to 87%, Hertel says.
Cigna's enrollment also has risen to 527,443, second in size only to Blue Cross and Blue Shield of Arizona. The IPA sees approximately 55,000 of those enrollees.
Beauchamp says Cigna is targeting the medical-loss ratio by working to reduce hospital stays and pharmacy costs.
Anthony Mitten, executive director of the Maricopa County Medical Society in Phoenix, says some physicians are thinking of quitting the Cigna network.
Medicare payments are already so low, he says, that "90% of RBRVS is getting to the point where you can't practice medicine. If Cigna cuts payments, what's to prevent Aetna, the Blues, and all the other HMOs in town or other managed-care plans that compete with them to attempt the same thing."
Hertel agrees, noting the failure of FPA Medical Management and the closure of its affiliated provider groups (see August, page 2) and MedPartners' closure of Talbert Medical Centers (see December, page 3) have created a sense of lack of stability in the provider community.
"The other HMOs will certainly be watching the impact of Cigna's cuts and the physician response," he says. "HMOs utilizing those same physicians for their IPA products may be inclined to reduce (the doctors') compensation."