Virginia's Sentara Health System and a regional division of Bon Secours Health System are scrapping their mutual Medicare HMO, sending about 14,000 beneficiaries along Virginia's coast into traditional Medicare coverage.
The move by the two not-for-profit systems throws water on the proposition that mission-driven providers will offer Medicare HMO coverage to the elderly in markets where traditional insurers won't go.
Richard Wade, senior adviser for communications at the American Hospital Association, said there is a difference between providers' wanting to serve a market and their being financially able to do so.
"Going there is great if there is reasonable payment," he said. "But if you can't get paid a reasonable amount of money to do the service, it doesn't matter who you are or where you are."
The AHA used the mission argument to successfully lobby for legislation that allows hospitals to directly contract with Medicare as provider-sponsored organizations for the care of beneficiaries. David Bernd, chief executive officer of Sentara Health System, is an AHA board member.
Sentara's withdrawal from the Medicare HMO business doesn't mean it is abandoning the elderly in its market, said Michael Dudley, president of Sentara Health Management, the Sentara arm that runs the system's health plans.
"There's no pullback from the community mission of serving this population," Dudley said.
Last year, about 100 Medicare risk plans left various markets or reduced their service areas, affecting more than 400,000 beneficiaries nationwide. Although insurers blamed low payment rates from Medicare for their decisions, a recent report from the General Accounting Office tied the retreat to market conditions, including low enrollment and heavy competition (May 3, p. 7).
No other insurer offers a Medicare HMO in the Hampton Roads area of the state. But others, such as a subsidiary of Trigon Blue Cross and Blue Shield in Richmond, offer them in other parts of the state.
Sentara and Bon Secours' pullout is believed to be only the second time a provider-based health plan has dropped its Medicare HMO. Intermountain Health Care in Salt Lake City did so last year.
The decision by Sentara and Bon Secours comes despite the fact that other insurance lines in the health plan they own more than covered losses on their Medicare HMO product.
Norfolk, Va.-based Sentara owns 80% of 164,000-enrollee Optima Health Plan, and the Bon Secours Hampton Roads Health System, also based in Norfolk, owns the other 20%.
Under the umbrella of the 8-year-old Optima Health Plan are commercial and Medicaid products, in addition to Optima Medicare Choice, the 14,000-enrollee Medicare HMO.
Ironically, Sentara and Bon Secours are hospital competitors in the Hampton Roads area. Sentara operates six hospitals there, while three Bon Secours hospitals are in the same market.
Kathy Williams, a vice president and chief financial officer of the Bon Secours' Hampton Roads division, said the Roman Catholic system supported the decision by Sentara's management to exit the Medicare HMO market, effective Dec. 31.
Sentara largely blames low Medicare reimbursement rates for the retreat.
"We are just not able to make ends meet," Dudley said.
He said that last year the Sentara system lost $9 million on its Medicare HMO business. But only $2.5 million of that was an actual underwriting loss, he acknowledged, while the remainder was an estimate of underpayments from the Medicare HMO to the system's hospitals for treating beneficiaries.
Traditional Medicare coverage typically pays providers at higher rates than Medicare HMOs do, and some providers have launched public relations campaigns to urge beneficiaries to drop their HMO coverage (May 31, p. 8).
By scrapping their own Medicare HMO, Sentara and Bon Secours benefit financially both as insurer and as provider.
Overall, Optima Health Plan eked out a profit of $416,295 on total revenues of $300 million last year, according to the Virginia Corporation Commission. That's a big drop from 1997, when Optima earned $4.5 million on total revenues of $247.4 million.
Dudley said Sentara held focus groups of about 40 seniors, who preferred returning to traditional fee-for-service coverage to facing higher HMO premiums.