A money-losing physician-hospital organization linking the last independent hospital in the Sacramento, Calif., market with its doctors may have been salvaged by a last-minute compromise. The latter entails how the PHO splits managed-care revenues between 107-bed Marshall Hospital in Placerville, Calif., and an affiliated physician group.
"We have a deal that will work for both parties. We got done what we needed to," said Charlie Stephens, president of the hospital's board of directors.
Until early this month, it looked as if 4-year-old Marshall-El Dorado Physician Hospital Organization, which serves as the managed-care contracting arm for Marshall and El Dorado Medical Associates independent practice association, might implode. It had multimillion-dollar losses and a $750,000 debt to the hospital, which the IPA's doctors incurred through a shared risk pool.
The IPA represents about 70 doctors in the Placerville area, which is about 35 miles northeast of Sacramento.
"The hospital's risk pool has been drained," said Frank Nachtman, Marshall's administrator. He said the hospital has suffered about $12 million in PHO-related losses during the Marshall-El Dorado PHO's brief existence.
More than 80% of those losses came from Medicare-risk contracts, Nachtman said.
Overall, the hospital lost $2.7 million on revenues of $112 million in the fiscal year ended Oct. 31, 1998. It expects to lose another $2.2 million this year, according to Nachtman.
Under a compromise reached late last month and ratified at a Sept. 1 meeting of the IPA's membership, the hospital will forgive the doctors' $750,000 debt and take on future downside capitated risk in return for a number of concessions. These include giving Marshall 65% of next year's Medicare-risk revenues, a healthy increase from the hospital's current 55% cut, and an agreement to capitate specialist physicians.
The IPA also agreed to implement stricter utilization review and efficiency standards, according to Shannon Terwedo, the PHO's chief executive officer.
The hospital "needed relief and a commitment from physicians to behave in a different manner," Terwedo said.
Before the compromise, some local observers expected the PHO to fall apart as physicians bolted from the relationship and left the PHO to its own devices.
PHOs and provider-owned health plans haven't fared well in recent years in many markets, and the situation is especially grim in California. "Very few such organizations in California are financially viable at this time," said Albert Lowey-Ball, a Sacramento-based healthcare consultant.
The Marshall-El Dorado PHO has negotiated globally capitated contracts with PacifiCare Health Systems, Santa Ana, Calif., and Western Health Advantage, a 2-year-old not-for-profit HMO jointly owned by three provider groups: Mercy Healthcare, a Sacramento-based unit of San Francisco's Catholic Healthcare West; NorthBay Health System of Fairfield, Calif.; and the University of California at Davis Health System.
These contracts cover about 9,500 enrollees, including 7,000 PacifiCare members, 1,100 Marshall employees covered by the hospital's self-insurance plan and 1,400 Western Health Advantage enrollees, according to PHO and health plan officials.