Count Inova Health System as yet another provider set to abandon a money-losing HMO.
The northern Virginia hospital system has signed a letter of intent to sell its troubled for-profit Innovation Health plan to Washington-based Advantage Health, another HMO.
The sale is significant because Inova has been quick to slam for-profit healthcare as caring more about the bottom line and less about patients. By selling Innovation Health, Inova is showing that the bottom line does matter to not-for-profits.
Inova began shopping the plan around after two years of disappointing losses on both the financial and enrollment fronts (See chart).
"The managed-care market was very different three years ago," said Inova spokeswoman Lisa Wolfington. "It was our intent to offer Medicare and Medicaid plans in addition to the commercial plan. But the reductions in reimbursements (for Medicare and Medicaid HMOs) were so significant that we couldn't go forward with that. It just wasn't feasible to run an HMO, so we're returning to our core business."
Part of the problem, Wolfington said, was that start-up costs were high. Inova poured $5 million into the HMO last year alone, she said.
Wolfington said enrollment in Innovation Health grew by 2,000 under Inova's ownership, but according to the Virginia Corporation Commission, the plan had lost enrollees.
Inova also cited consolidation among the national managed-care players as a significant barrier to growing Innovation Health's enrollment base.
"We had some large competitors," Wolfington said.
Advantage Health, Innovation Health's likely buyer, is one of seven HMOs that serve Washington's 125,000 Medicaid recipients. According to a report released by District of Columbia officials last month, Advantage Health had the lowest enrollee retention rate of all seven plans.
All four hospitals in the Inova system were profitable in fiscal 1996, the last year for which information was immediately available, according to the American Hospital Directory.
There have been numerous instances in the past year where not-for-profit hospitals have jettisoned their poor-performing HMOs for business reasons.
Since the entry of for-profit hospital companies into northern Virginia in the 1990s, Inova has tried to paint itself as a more caring, community-based provider.
In 1997, Inova rallied other not-for-profit hospitals in the region to form a coalition to duel with for-profits in the area, mainly Nashville-based Columbia/HCA Healthcare Corp.
At the same time, however, Inova acted like a for-profit institution. That same year, it followed the lead of other hospitals that were forming their own HMOs to counter the cost-cutting of larger plans. Most of those provider-owned HMOs were for-profit plans, as is Innovation Health.
Inova also was involved in a federal antitrust investigation of its acquisition of 300-bed Alexandria (Va.) Hospital. The deal was eventually cleared by the Federal Trade Commission.
Inova would not say when the sale of Innovation Health might become final, citing ongoing negotiations and due diligence between the parties.