Sick of the cash drain and the conflict inherent in both providing and insuring healthcare, as many as four hospital systems are exiting the managed-care business in Houston.
Earlier this month, 27-hospital Christus Health, Irving, Texas, and 11-hospital Memorial Hermann Healthcare System, Houston, agreed to sell their co-owned 94,000-member Memorial Sisters of Charity Health Network to Louisville, Ky.-based Humana for an undisclosed sum (Nov. 22, p. 4).
The sale, which is contingent on regulatory approval, would relieve the hospital systems of a financial drain that reached $895,746 on revenues of $193.7 million in the first nine months of 1999.
Separately, the Harris County Hospital District in Houston is in final negotiations to sell its HMO, Community Health Choice, which cost the two-hospital, county-owned system $3.1 million in 1998 and $685,946 in the first half of 1999.
The sale of the 20,000-member HMO, which had a negative net worth of $1.1 million as of June, could be announced as early as the first week of December. The buyer has yet to be named.
Methodist Health Care System, also based in Houston, would not confirm reports that it is negotiating a sale of its 43,000-member plan.
But the three-hospital system has told employees it is evaluating alternatives for Methodist Care, which lost $6.9 million on revenues of $35.4 million in the first six months of 1999.
If sales of the three provider-owned HMOs are completed, Houston area hospitals will be out of the insurance business and in for more competition.
The acquisition of Memorial Sisters will boost Humana's Houston-area membership to 233,000, making it the fourth largest Houston health plan. The figure includes non-HMO plans.
But a 15% market share of the local managed-care market was not all that Humana sought in the deal, according to Ron Yarborough, executive director of Humana of Houston.
"The reason (for the acquisition) was that we wanted to cement long-term contractual relationships with (Christus and Memorial Hermann) because of their quality and their state-of-the-art (services)." Humana will sign five-year contracts with Christus hospitals in Beaumont, Corpus Christi and Houston, as well as all 11 of the Memorial Hermann hospitals.
Those unusually long-term contracts put other area hospitals at a disadvantage in negotiating contracts with payers, as does the shrinking field of payers overall.
"When you consolidate more market share in fewer payer players, you don't necessarily increase your advantage in contracting negotiations," said Mark Kline, assistant vice president of managed-care services at 594-bed St. Luke's Episcopal Hospital, Houston.
St. Luke's has a contract with Memorial Sisters but only a limited agreement with Humana.
The sale of the HMO also opens the door to heightened competition between co-owners Memorial Hermann and Christus, which compete for market share in Houston and Beaumont.