While the sale of two of Aetna U.S. Healthcare's managed-care plans in Texas was mandated by the government, Kaiser Permanente's decision to dump five of its plans is voluntary and part of a systemwide restructuring.
Pulling out of five of the 17 states in which it operates, though, is as far as the restructuring will go, according to Kaiser.
"This is it for now," said Beverly Hayon, a spokeswoman for the 8.6 million-enrollee system. There are no further divestitures "being contemplated at this time," she said.
Unlike Aetna, which was required to sell two Texas HMOs because of antitrust concerns over its acquisition of Prudential HealthCare, Oakland, Calif.-based Kaiser announced in mid-June it is jettisoning operations in Connecticut, Massachusetts, New York, North Carolina and Vermont to cut costs (June 21, p. 4).
According to Kaiser officials, the Kaiser Foundation Health Plans in those states aren't pulling their weight financially. The plans have a cumulative enrollment of 685,000.
Hayon acknowledged that Kaiser has had trouble managing operations in New York and North Carolina where it tried to mix its Permanente Medical Group-based group model HMO with large outside networks of non-Kaiser physicians. Such a mixture "doesn't work that well, at least not for us," she admitted.
By raising premiums and reducing costly out-of-system patient care, Kaiser produced a dramatic first-quarter financial turnaround earlier this year, ending a five-quarter skid that resulted in a total of $881 million in operating losses in 1997 and 1998. The company posted a $56 million operating profit on operating revenues of $4.2 billion for the quarter ended March 31.
But officials cautioned at the time that one good quarter might not be enough to turn the tide (May 10, p. 24).
"Right now, our strategy is to get our financial house in order," Hayon said. "We're no longer in a position to subsidize operations that aren't self-sufficient."
Kaiser's Northeast division lost nearly $90 million last year on $942 million in revenues, said David Rooney, a division spokesman.
Kaiser hopes to sell its Northeast health plans by year-end and has started talks with some potential buyers. Rooney, declining to comment on reports that HIP Health Plan of New York is one of those potential suitors, said more information might be available within 30 days.
Rob Mains, a Saratoga Springs, N.Y.-based healthcare analyst for investment firm Advest, warned that any buyers would have to be able to absorb losses and the risk that enrollees would migrate to other health plans.
"In this neck of the woods, there aren't very many people with the capital to be able to do that," Mains said.
In North Carolina, Kaiser's two operations in Charlotte and the Raleigh-Durham-Chapel Hill metropolitan area combined lost $12.4 million on revenues of $202.5 million in 1998, Kaiser's third straight year of losses in the state. Though Kaiser recently announced it's intention to divest the Research Triangle unit, it had already announced in January it would sell its Charlotte unit.
More than two-thirds of Kaiser's enrollees reside in California. However, Kaiser continues to operate in Colorado, the District of Columbia, Georgia, the Kansas City metropolitan area, the mid-Atlantic states, Ohio and South Carolina, along with its other longtime core markets in Hawaii, Oregon and Washington state.