A vast Denver-area physician network voted to dissolve last week, a month after the state's largest health plan terminated capitation payments.
PacifiCare of Colorado said the network, called Millennial: Colorado's Physician Alliance, wasn't making timely payments to doctors. PacifiCare had delegated claims payment to Millennial under a three-year contract that started in January.
It's at least the second time this year that a provider network has been accused of failing to carry out its delegated responsibility to pay claims. Last month Ochsner Health Plan in Metairie, La., was ordered to pay $10.2 million to providers whose physician-hospital organization had not reimbursed them (Nov. 15, p. 26).
The cases show it can be easy for doctors to gain leverage against health plans by combining but far more difficult to maintain that power without infrastructure and experience to manage capitated contracts.
Under state law in Colorado and Louisiana, licensed HMOs are responsible for paying individual providers even if they delegate the function to a capitated provider network.
Meanwhile, PacifiCare of Colorado reported a $3.8 million loss for the third quarter ended Sept. 30 on premium revenues of $207.3 million. PacifiCare President and Chief Executive Officer Eric Sipf said higher hospital costs were mostly to blame.
The plan's chief operating officer, Val Dean, M.D., said PacifiCare management had been reluctant to delegate claims payments to Millennial but felt compelled to do so because of the network's size. He said delegation to a provider network was a first for PacifiCare.
"They had a large percentage of our membership and a healthy percentage of our physicians. They had a lot of market power," Dean said.
Millennial doctors serve about 60,000 of the plan's commercial enrollees and 20,000 Medicare HMO members. The plan's total enrollment is about 450,000.
Dean said Millennial was skimming too much from capitation payments to cover its overhead and didn't have the infrastructure required to manage utilization and pay claims. "I think all these groups (in Millennial) have to take a hard look at how much they pay their management company and whether or not they get value for that," Dean said.
Millennial board member Gary Gaede, M.D., acknowledged the organization was losing money and fell "a couple of weeks behind" in paying its doctors. He blamed PacifiCare for not giving Millennial time or assistance in correcting problems.
He said physicians didn't trust PacifiCare to pay claims appropriately. "I think one of their motives is to destroy the management company, and they succeeded in doing that," Gaede said.
Millennial's market power caused worry outside the market. Millennial officials acknowledged in March that the Federal Trade Commission had requested documents for an antitrust review. No enforcement action had been taken to break up the network, however.
Millennial, which was founded in 1998, had about 1,700 physicians from eight physician organizations in early 1999. The numbers dwindled when some networks managed by Nashville-based PhyCor left after the company pulled out of the market.
In Denver, PacifiCare's decision to terminate the capitation contract last month set off a public relations battle. In its final weeks, Millennial tried to thwart the insurer's attempt to sign new contracts with its member groups and individual physicians.
In a November news release, Gary Klein, M.D., a board member with Physician's Network of Colorado Springs (Colo.), said: "If PacifiCare expects Colorado Springs physicians to simply roll over and accept individual contracts, they're in for a surprise."
But as of last week, PacifiCare reported it was close to signing deals for 2000 with Millennial's two remaining IPAs: 250-physician Aurora (Colo.) Associated Physicians and 350-physician Physician's Network of Colorado Springs. Sipf said the insurer also was negotiating with individual physicians from 300-member South Metro Physicians IPA, which recently disbanded.
PacifiCare said the new contracts would lower physicians' costs and boost their incomes. But in a news release issued earlier this month, Millennial board member Gaede accused PacifiCare of "using patients as pawns."
The insurer said it would pay physicians directly for services rendered in November and December and assume medical management and claims payment functions.
In its short life, Millennial signed one other contract, with 1,200-member Rocky Mountain HMO. That contract was discontinued earlier this year. Gaede said the contract was also discontinued because the plan believed Millennial wasn't paying claims correctly.
Meanwhile, PacifiCare's venture into hospital capitation also flopped this year.
Sipf said the single biggest contributing factor in the plan's third-quarter loss was a decision by hospitals to terminate capitation arrangements as of July, after just six months. He said his company agreed to pay hospitals higher fee-for-service rates than they received in 1998, while inpatient utilization went up. The result was a 30% jump in hospital expenses. "They (the hospitals) were in our network, and we had to have an arrangement with them," Sipf said, explaining the rate increase.
For the nine months, PacifiCare lost $2.1 million on premium revenues of $601.6 million.
Sipf said PacifiCare is raising commercial rates by about 9% and increasing copayments for commercial members, as well as implementing or increasing premiums for its Medicare HMO members.