Deciding not to sink any more money into their struggling managed-care plan, Sutter Health and St. Joseph's Regional Health System are pulling the plug on Omni Healthcare.
The two not-for-profit California hospital systems said last week that they're shutting down the 14-year-old plan and transferring its remaining 124,000 enrollees to rival Blue Cross of California, a subsidiary of WellPoint Health Networks.
Neither the systems nor Blue Cross released the terms of the transaction, which effectively is a sale. The California Department of Corporations must approve the deal.
Omni hopes to complete the transfer of commercial enrollees by year-end. Shifting the 59,000 enrollees in its Medicaid plan could take until next spring, Omni officials said.
When the deal is done, Sacramento-based Sutter and Stockton-based St. Joseph's will join the growing list of hospitals that are getting out of the health insurance business because of ongoing losses.
Last year, for-profit Omni lost $2 million on premium revenues of $187 million. That was a big slide from 1997, when it lost $200,000 on $174 million in premium revenues.
As recently as 1996 Omni posted a $1.3 million profit on revenues of $157 million.
Even in the highly competitive Northern California market, the recent losses were too much for both Sutter and St. Joseph's. Losses at Omni contributed to a $7.8 million loss on operations at Sutter last year (May 17, p. 24). St. Joseph's parent, Catholic Healthcare West, lost $32 million on operations last year (April 5, p. 22).
"As a small regional plan Omni has had trouble meeting its objectives and competing" against larger health plans, said Bill Gleeson, a Sutter spokesman.
To survive, Omni would have been forced to raise premiums significantly and its not-for-profit owners would have had to invest $10 million or more in information technology and other infrastructure improvements over the next few years, Gleeson said.
He declined to respond to published reports that Sutter has already sunk more than $20 million into Omni. The 26-hospital system owns 67% of Omni, with St. Joseph's owning the remaining 33% stake.
Sutter and St. Joseph's "could have put up the money, but they decided not to," said Robert Fahlman, Omni's chief executive officer.
Sutter and St. Joseph's tried to sell Omni last year but took the plan off the market in December after finding no takers at anything close to their asking price (Dec. 14, 1998, p. 26).
Sources said the systems wanted at least $120 million for Omni. However, the Blue Cross deal "not only isn't in that ballpark, it's not in that league," said a Northern California healthcare consultant familiar with the situation.
As recently as last August, Omni had 164,000 enrollees.
The price Blue Cross ultimately will pay for Omni's enrollees depends on how many of them choose to stay with Blue Cross, officials on both sides confirmed.