A northern Michigan hospital has committed $1.5 million to rescue an unprofitable HMO owned primarily by local doctors, but another hospital investor balked at ponying up more cash to bail out the plan.
The HMO, Traverse City, Mich.-based NorthMed, reported a net worth of $523,599 at year-end 1998, barely meeting the state's minimum net worth requirement of $500,000, according to the Michigan Insurance Bureau (See chart).
Munson Healthcare, parent of 368-bed Munson Medical Center in Traverse City, paid $1 million this month to prop up the plan, President and Chief Executive Officer John Rockwood said last week. "The balance of the commitment will go in as required," he said.
State Insurance Commissioner Frank Fitzgerald said he could not comment on what, if any, action the state has taken with regard to NorthMed, which has about 23,000 enrollees.
The capital infusion followed a total contribution of $1.1 million made to the plan last fall by three of its four owners, including Munson.
At the time, Munson contributed $500,000. Healthshare Group, parent of Northern Michigan Hospital in Petoskey, Mich., and M-Care, an HMO owned by the University of Michigan Health System in Ann Arbor, Mich., paid $300,000 each.
"NorthMed's immediate capital requirements are met. Additional capital-raising will occur over a nonspecified period of time," NorthMed said in a written statement last week.
The HMO's majority owner and founder, a 500-physician independent practice association called Northern Physicians Organization, voted in December 1998 to sell part or all of its 52% share.
"The long-term capital needs of NorthMed are significant. As an IPA, we simply don't have the financial resources to continue to meet them," said NPO Executive Director Bob Beverwyk.
NorthMed declined to identify potential investors, but its owners said they were aiming for a larger provider-owned plan in an adjacent market.
Unlike Munson, the Healthshare Group refused to tender more capital unless local physicians opened their checkbooks, said its president and CEO, Jeffrey Wendling.
"We don't think it's fair just to return to the hospitals (for cash)," Wendling said. "We've said no more from us unless all of the shareholders are willing to participate."
M-Care officials could not be reached for comment last week.
Wendling said the Healthshare Group purchased its 8% stake in NorthMed in 1997 partly because all its physicians participate in the plan.
"We've always felt that NorthMed was a good alternative plan for the area," Wendling added.
If NorthMed were to collapse, much of its service area would be left with only one health plan, Blue Cross and Blue Shield of Michigan, which is by far the region's dominant commercial insurer.
Rockwood said more than 20% of the plan's enrollees are Munson employees and their families-one reason Munson wants to keep the plan operating. Munson became a NorthMed owner shortly after the HMO was founded in 1986.
Rockwood said the capital infusion was needed to keep the plan running and "buy the time we needed to straighten out some of the internal problems." He said the physician owners have already contributed to the plan via withholds from their fees.
Owners also acknowledged that NorthMed needs a medical management program to control rising costs.
"It was an HMO that for all intents and purposes was operating as a modified indemnity plan," said Wendling, who blamed a minority of specialty physicians for resisting cost controls.