Three South Carolina hospital systems, whose proposed merger collapsed three years ago, are shutting down their jointly owned HMO.
The sponsoring not-for-profit systems said last week that they couldn't afford to continue subsidizing the money-losing 3-year-old plan, which executives didn't expect to turn the corner financially for another two years.
"There was no risk of insolvency," said Clayton Ingram, a spokesman for the South Carolina Department of Insurance. "This was strictly a business decision. We're sad to lose an HMO."
The South Carolina systems joined three other major not-for-profit hospital systems in announcing decisions last week to close or sell their money-losing managed-care businesses.
The others were Orlando (Fla.) Regional Health System, Christus Health, based in Irving, Texas, and Houston-based Memorial Hermann Healthcare System (See stories, this page and p. 18).
In South Carolina, the systems that decided that running a managed-care business wasn't in their best interest are four-hospital Greenville (S.C.) Hospital System, three-hospital Spartanburg (S.C.) Regional Healthcare System, and 364-bed Anderson (S.C.) Area Medical Center.
The same three systems tried to form a mergerlike partnership in 1996, which would have become the dominant healthcare provider in the northeast corner of South Carolina, known as the Upstate area. However, the partnership fell apart in the face of a federal antitrust investigation, a nonbinding referendum against the deal by Greenville residents, and a well-orchestrated public relations campaign opposing the transaction by the systems' hospital competitors.
In the midst of those initial systemwide partnership discussions, the three systems formed HealthFirst, a for-profit managed-care joint venture. Greenville owned a 46% stake in the venture; Spartanburg had 32% and Anderson had 22%.
The systems created HealthFirst in anticipation of the state moving to a mandatory Medicaid managed-care system, said Ruth Shuck, HealthFirst's president and chief executive officer. The state subsequently made the program voluntary for Medicaid recipients, and the hospitals shifted HealthFirst's focus to commercial business rather than Medicaid business, she said.
Shuck said HealthFirst began marketing HMO, PPO and point-of-service products in March 1997.
At its peak earlier this year, the combined enrollment in the three plans was about 18,800, according to the state insurance department. In June, HealthFirst trimmed 465 enrollees from its roster by dropping its Medicaid managed-care contract with the state. The remaining enrollees were all commercial, with 11,500, or more than 60%, being employees of the three hospital systems.
Last year, HealthFirst lost about $5.7 million on premium revenues of about $21.5 million, said Steve Meeker, its chief financial officer. In 1997, for the nine months that it was in operation, the managed-care company lost about $3.6 million on premium revenues of about $4.8 million, he said.
Despite those losses, HealthFirst had a positive net worth of about $4.5 million for the year ended Dec. 31, 1998, according to the state, reporting about $11.1 million in assets and about $6.6 million in liabilities.
The sponsoring hospital systems decided that they didn't want to "sustain the long-term investment to bring the plan to maturity," Shuck said.
HealthFirst is talking to other health insurers that would pick up coverage for the plan, which intends to cease operations by year-end, Shuck said.
