A neighboring provider-owned health plan has stepped in to rescue NorthMed, an unprofitable physician-owned HMO in Traverse City, Mich. But not without strings attached.
Priority Health, which belongs to Grand Rapids, Mich.-based Spectrum Health, said last week it was negotiating final details of an agreement to merge NorthMed into its operations. Priority Health has been managing the HMO since July 1.
No purchase price would be paid for NorthMed's assets, and NorthMed shareholders could buy a small interest in Priority Health, said Rob Pocock, director of marketing at Priority Health.
NorthMed's majority owner and founder, a 500-physician independent practice association called Northern Physicians Organization, voted in December 1998 to sell part or all of its 52% share.
NorthMed recorded a net loss of $3.9 million on revenues of $33.8 million for 1998.
Priority Health has agreed to acquire NorthMed's operations only if at least 80% of NorthMed doctors agree to participate in a provider network, Pocock said. Priority Health wants to ensure that physicians in the northern Lower Peninsula market would buy managed-care tools, such as capitation and drug formularies, he said.
Capital infusions totaling $2.6 million have been made to prop up the plan by NorthMed's minority partners: Traverse City-based Munson Healthcare, parent of Munson Medical Center; Healthshare Group, parent of Northern Michigan Hospital in Petoskey, Mich.; and M-Care, the University of Michigan's managed-care plan (April 19, p. 3).
Munson paid $1.5 million to fund NorthMed earlier this year, following a $1.1 million contribution last fall in which Munson paid $500,000 and Healthshare and M-Care paid $300,000 each.
Priority Health has 240,000 enrollees, compared with NorthMed's 32,000.