A major player for provider-run HMOs is forfeiting the Medicare managed-care game, leaving fans scrambling and opponents smiling.
Crozer-Keystone Health System, one of the first and most prominent provider participants in Medicare managed care, said last week that it will not renew its three-year contract with HCFA.
Crozer-Keystone's Health Plans of Pennsylvania was one of eight provider-sponsored organizations, or PSOs, to contract directly with Medicare under a demonstration project called Medicare Choices. The contract expires Dec. 1.
Crozer-Keystone is the second of the original eight to pull out of the program. The first was Florida Hospital Healthcare System, which last year withdrew from Medicare managed care after sustaining "insurmountable financial losses" (Oct. 12, 1998, p. 8).
"The reason (we've decided not to renew) is that the financial risk it poses to our entire system is too great," said John McMeekin, president and chief executive officer of Springfield, Pa.-based Crozer-Keystone, a not-for-profit system of four hospitals.
From mid-1997, when Crozer-Keystone began enrolling beneficiaries in its Medicare HMO, through the end of 1998, the plan lost nearly $8 million (See chart).
Some say Crozer-Keystone's departure is yet another sign that providers were not meant to dabble in health insurance. Many hospital systems and physician organizations have been selling or dissolving their HMOs because of continuing financial losses that threaten their ability to deliver care.
Medicare HMOs owned by Intermountain Healthcare in Salt Lake City and Sentara Healthcare in Norfolk, Va., have dropped out of Medicare managed care in the past year. Unlike Crozer-Keystone, those plans participated in Medicare+Choice, which came after the demonstration project began.
Crozer-Keystone's departure "is not any surprise to us, because that's exactly what we said would happen," said Bill Pierce, a spokesman for the Blue Cross and Blue Shield Association, which opposed the participation of provider-run HMOs in Medicare+Choice. "It leads one to believe that providing healthcare as a business and a service is not easy to do."
Susan Pisano, a spokeswoman for the American Association of Health Plans, said Crozer-Keystone's departure raises questions about how Medicare pays HMOs.
"The bigger message is how different the (Medicare+Choice) program is now and how the unintended consequences are playing out," said Pisano, whose group represents HMOs run by insurers and providers. "We haven't seen a rush of provider-run HMOs into the program, but we have seen departures."
Because Crozer-Keystone is a PSO, its withdrawal puts the American Hospital Association in a pickle. The group began pushing for PSO participation in 1995 and won passage of a PSO provision in the Balanced Budget Act of 1997, which created Medicare+Choice. Now the health system headed by McMeekin, an AHA board member, has admitted it can't make the PSO work.
"I don't think it says there is no future for this," said Carmela Coyle, senior vice president of policy at the AHA. "The demonstration project tried to test different models, and this shows that some payment models work and some don't."
McMeekin echoed that statement, saying that the payment formula HCFA used wasn't covering the plan's costs. He added that the plan was attracting sicker and more costly patients.
"HCFA and we were unable to come to grips on how that risk would be adjusted (in the payments)," McMeekin said.
Just last year, in a commentary for MODERN HEALTHCARE, McMeekin expressed confidence that his system could make a go of it. "Our PSO has given us a new chance to partner with neighboring systems," he wrote. "You have to accept the loss of hospital revenues to gain the managed-care revenues that can come from keeping people well."
McMeekin said last week that Crozer-Keystone would re-enter the managed-care arena if the opportunity was right.
"I would put money on us coming back," he said.