A physician-owned HMO in Louisiana failed last week after accumulating losses of $4.6 million in its first nine quarters.
Patient's Choice, created in 1997 by the Louisiana Medical Society, is winding down operations under the supervision of the state insurance department.
It's the latest in a lengthening list of physician-sponsored HMOs to either go belly-up or to quit the market.
"We are working diligently to ensure that none of the 14,435 subscribers of Patient's Choice is left without health coverage," said state Insurance Commissioner Jim Brown.
For 2,500 of those enrollees, it marks the second time in eight months they have witnessed their provider-sponsored HMO collapse. The last remaining enrollees in Advantage Health, which was sponsored by three Louisiana hospital groups, were rolled over into Patient's Choice after the former plan succumbed to its $72 million in accumulated losses in January (Jan. 25, p. 12).
Patient's Choice was the only HMO in the state that applied to take those patients, the insurance department said.
"Now (the enrollees are) really screwed," said New Orleans insurance broker Rusty Levy. Many of the 2,500 were individual enrollees.
Patient's Choice Chief Executive Officer Pat Powers said enrollees still have coverage while the Baton Rouge-based plan winds down.
As of June 30 the plan fell below the state's statutory net-worth requirement of $3 million. A call for more capital went out to physicians, but not enough answered, Powers said.
The state medical society organized M.D. HealthShares Corp. in 1996 and started enrolling patients in the plan, called Patient's Choice, in 1997. The society signed up 2,142 physician shareholders, who put up $6,000 per share, raising $12.8 million. Later it added another 1,000 physicians as providers to fill in gaps in its network. It signed up 100 hospitals.
That was part of the problem, Levy said. Like many physician-sponsored plans, this one was created out of doctors' frustration with the limitations placed on patients and providers by rigid managed-care plans.
While Patient's Choice allowed freedom, it signed up too many hospitals, which gave it little negotiating room. At first the physician network was the shareholder group, and it didn't always respond to the local population's medical needs.
Then the plan created a very rich benefit package and didn't control utilization or costs very well.
"It was complete open access," Levy said. "How can you price it (less than) an Aetna or Principal (Health Care) or United HealthCare, and you're allowing a patient to go to any specialist he wants? They were in trouble before they opened their doors."