Two HMOs that deal largely with Medicaid patients are teetering on the brink of demise, with their respective states seizing control of their operations because of financial instability.
Xantus Healthplan of Tennessee was placed under control of the state's Department of Commerce and Insurance because the company reported a net loss of $26.7 million for 1998 and a negative net worth of $24.4 million.
The state Department of Insurance has taken over Charleston-based Select Health of South Carolina under a temporary seizure order that was granted because the company's surplus fell substantially below the $2.3 million required to maintain its state license.
In both situations, the companies could be liquidated if they are not financially revitalized.
Xantus officials blame their situation on problems with TennCare, Tennessee's 5-year-old Medicaid managed-care program. The company, with 180,000 enrollees, is the state's third-largest TennCare provider.
Xantus also has a small commercial plan in Tennessee with less than 300 enrollees, and its parent, Xantus Corp., has about 12,000 commercial enrollees in Mississippi. But Xantus Healthplan receives about 90% of its revenues from TennCare, said Silas Deane, a company spokesman.
"As of the third quarter of 1998 financial reports submitted by the HMOs to the Department of Commerce and Insurance, all except two of the TennCare plans reported losses," said Joseph Keane, deputy commissioner of the department's TennCare division.
Still, a state seizure of an HMO is rare, Keane said.
The insurance commission has called in a consulting firm for HMOs to determine the company's fate.
Xantus Corp., formerly called Phoenix Healthcare, is a for-profit firm that was founded in 1993 by Sam Howard, the company's current chief executive officer. Before starting his own company, Howard was a senior vice president at Hospital Corporation of America, which is now part of Columbia/HCA Healthcare Corp.
In South Carolina, the state's Department of Insurance has seized Select Health and has 90 days to evaluate the company and determine whether a potential capital infusion might rehabilitate it or whether it will have to be liquidated.
The private Select Health was formed in October 1995. It is the state's largest HMO for Medicaid patients, with 8,100 enrollees in 15 counties, all of them Medicaid patients, according to records provided by the Insurance Department.
"We've been trying to work with the HMO for some time," said Gwendolyn Fuller, general counsel for the Insurance Department.
In 1994 South Carolina received a state waiver for a Medicaid alternative, a mandated managed-care program called Palmetto Health Initiative, but the state scrapped the program shortly after the waiver was granted and has since stuck with its voluntary Medicaid managed-care program.
Michael Jernigan, Select Health president and CEO, said the company's troubles were aggravated by a complex enrollment process that the state has since amended. He is exploring a possible partnership with an out-of-state HMO company to avoid liquidation, he said.