Two Catholic Health Initiatives-sponsored hospitals in Nebraska are losing money on their fledgling HMO, but they are betting that the new venture will be profitable in the long run.
Good Samaritan Health Systems in Kearney and Saint Francis Medical Center in Grand Island established Pioneer Health Plan in March 1998, when many hospitals and systems in other parts of the country were rethinking their money-losing moves into managed care.
Pioneer, which has about 4,500 enrollees, lost $600,600 on revenues of $2.4 million in the first half of 1999.
But Pioneer Executive Director Brad Stephan said the plan's losses were expected and related to its start-up. The plan is ahead of pace to break even in 2001, he said.
"After its first 18 months, Pioneer is nothing but a good-news story," Stephan said. "We're very pleased with where we are at."
Good Samaritan, with 267 beds, and Saint Francis, with 198 beds, have sunk $4.5 million each into the venture and have budgeted for at least $800,000 more through 2000, he said.
The money will come from capital reserves and not from the hospitals' Denver-based parent, spokesmen said.
"There was no compromising of any patient-care areas," said Dan McElligott, Saint Francis' vice president for finance.
The hospitals have plenty of cash for such a venture. Saint Francis, which depends on investment income for its positive bottom line, had a 14% profit margin in 1998, according to HCIA, a Baltimore-based healthcare information company. Good Samaritan's 1998 profit margin reached 16.8%, according to HCIA.
The hospitals launched the plan as "part of our mission to provide healthcare access," McElligott said.
The plan's enrollment is now commercial only, targeting small employers. Its hospital owners envision eventually offering coverage to Medicare beneficiaries.
The hospitals hope the HMO will help them capture a larger patient base, McElligott said.
The plan's popular open-access system, which allows patients to see physicians who are not plan providers, appears to undermine that hope. But Stephan said the plan has mechanisms to control medical costs and keep patients within the hospitals' service areas.
Pioneer charges higher co-pays for self-referral and lower co-pays for local services. Geography also keeps most patients within reach of the sponsoring hospitals, since Lincoln and Omaha are several hours away.
And, like any other HMO, Pioneer requires pre-authorization for inpatient stays and certain high-cost outpatient procedures.
The hospitals think the plan could save money through aggressive preventive services, which are offered at no cost. Asked if providing free services might jack up medical costs, Stephan maintained it would save money in the long run.
As for the biggest pitfall for provider-owned HMOs, the sponsors maintain it's possible to be a profitable provider of both healthcare and insurance.
"There will always be conflicting forces out there, and to balance them is the challenge," McElligott said.