In deciding late last month to sell its half-ownership in 38,000-enrollee Antero Healthplans, Denver-based Exempla Healthcare joined a growing number of hospitals backing out of the HMO business after being burned by losses.
The sale of Antero, which Exempla co-owns with Mutual of Omaha Co., will save Exempla about $66,000 a month. That's how much the system has been shelling out since January 1998 to help keep the plan afloat.
The plan lost $397,000 on $17.2 million in revenues in the quarter ended March 31. Last year the plan lost $1.6 million on $60.9 million in revenues. Exempla and Mutual of Omaha share equally in the losses.
"In this marketplace, having a health plan with 38,000 enrollees with two sponsors who are not willing to put the capital reserves into it to build it up to 10 times that size, you're in never-never land," said Jeff Selberg, Exempla's president and chief executive officer.
Antero is among the smallest of about a dozen plans that operate in Denver.
PacifiCare of Colorado, which will buy Antero for an undisclosed sum, will become the state's largest plan once the deal is completed. The closing, contingent on regulatory approval, is expected in two to three months.
"We just have to concentrate our resources on the actual delivery of healthcare rather than trying to be all things to all people," Selberg said.
"We simply couldn't put our financial resources into this health plan, nor could we put our management resources," he said.
Within Exempla Healthcare, Antero's losses were dwarfed by those of Exempla Medical Group, a physician group which accounted for $13.8 million of the hospital system's $16 million operating loss in 1998.
The physician group was formed by Saint Joseph Hospital, Denver, and Lutheran Medical Center, Wheat Ridge, Colo., in 1995, and became a part of Exempla Healthcare when the three organizations signed a joint operating agreement in late 1997.
Exempla Healthcare won't be selling the group, however, because there are no willing buyers. Instead, Exempla is moving to a physician practice management model under which it will provide administration services for a fixed fee and physicians will assume all revenue-related risk.
The restructuring of physician compensation packages will eliminate losses to Exempla Healthcare by 2001, Selberg said.
The salaries of about half of the group's 66 doctors are now tied to the group's financial performance, he said. The rest of the doctors will continue to receive fixed salaries that are not tied to productivity until their contracts expire in late 2000, Selberg said.
The contract restructuring will reduce Exempla's losses on the medical group to $7 million in 1999 and $3.5 million in 2000, Selberg said.
The changes have helped put Exempla back into the black this year, Selberg said.
Through May, the system earned $5.7 million in operations on $172.6 million in patient revenues, he said.
Exempla may not be done with divestitures, Selberg said. It's evaluating the viability of its nursing home and home health and hospice services.
"With the impact of (the Balanced Budget Act of 1997), we have to find more ways to reduce our costs," Selberg said.
Exempla is the third-largest healthcare system in Denver, after Columbia/HealthOne and Centura Health.