Many physicians in Arizona may be left holding the bag with the insolvency of an HMO created by hospitals and physicians.
Though unsure if they will recoup millions they say Premier Healthcare of Arizona owes them, contract providers are obligated to care for the remainder of the HMO's 55,000 enrollees until those patients are switched to other plans, disenrolled by contract or discharged from the hospital, says Don Harris of the Arizona Department of Insurance.
Premier's downfall, one that is being replayed frequently around the country, was triggered by undercapitalization and a lack of strategic direction, says former marketing director Bill Trenter, who left the health plan after it was declared insolvent and placed in receivership by the Insurance Department Nov. 16.
Providing care since the state seized control has proven problematic for Mary Moyer, M.D., a family practice physician in Prescott Valley, who says she is frustrated by an ongoing lack of specialists for referral, increased denials for procedures requiring preauthorization and reports from patients that pharmacies are demanding full payment upfront from Premier enrollees.
Moyer belongs to the regional independent physicians' association that was key among nine mostly rural physician-hospital organizations founding the HMO in 1995.
"It was an excellent idea to begin with, to try to get all the local doctors together to try to provide healthcare," Moyer says. But the founders' good intentions were soon overwhelmed by their business naivete, she says, and payment delays grew after the HMO was sold last spring.
Now Moyer's solo practice, which sees 7,000 patients, is carrying approximately $35,000 in unpaid reimbursements for services provided to 400 Premier enrollees, she says. Some claims date back as far as two years.
Though Harris says $2.7 million in post-receivership claims had been paid out of a $10 million reinsurance fund as of Jan. 7, with another $1 million in payments soon to follow, Moyer had not received a penny by mid-January.
"We haven't seen a check from Premier since Nov. 17," says her medical manager and husband, John.
"There had always been a history of losses," says Sara Begley, deputy director of the insurance department. The HMO required regular infusions of capital from its PHO owners until it was sold March 22, 1999, to Tucson-based MatureWell.
Acquisition documents dated Nov. 6, 1998, indicate MatureWell offered an initial 125,000 shares of common stock and up to $14,039,200--less commissions, expenses and indebtedness--for the HMO.
Venture capitalists funded the purchase of both MatureWell and Premier, Trenter says, with the price of the HMO totaling some $12.5 million and the collective outlay for both companies running about $28 million.
Despite the initial capitalization, MatureWell was unable to control Premier's operating losses and provider network deterioration, says Charles Cohen, Arizona's director of insurance and Premier's court-appointed receiver.
Facing mounting losses and plagued by sluggish payments to providers, MatureWell devised a plan for two reinsurers to inject capital into the ailing HMO, Begley says, but the agreement broke down last fall.
"MatureWell couldn't identify any other sources of capital. The company was insolvent," he said.
Long before MatureWell came on the scene, the Insurance Department had been tracking the HMO's red ink, Harris says. It reported a net loss of $1,104,007 in 1995; $1,516,082 in 1996; $1,010,126 in 1997; and $24,539 in 1998. "They were turning it around," he says.
After Premier was sold, the HMO reported a net loss of $123,787 in the first quarter of 1999; $3,872,329 in the second; and $5,044,855 in the third, Harris says. Premier's enrollment had jumped from 58,607 in December 1998 to 73,751 in September 1999. "They were out there trying to get more enrollees with real low premiums," Harris says. "The more people they took on, offering these bargain rates, the worse things got for them."
State officials closely monitored the swelling losses reported by the HMO's new owners, Begley says. "We didn't want to act precipitously, and Premier was obviously serving a function in some of the rural communities. We wanted to give them an opportunity to succeed."
Now state efforts are focusing on providing continued care for 22,867 enrollees in Arizona still on Premier's membership roster as of mid-January. Some of those are covered by contract until July, Harris says. Still, Cohen anticipates moving all enrollees to alternate plans by March 1, though patients hospitalized since the receivership date will receive Premier benefits until discharged.
While Cohen believes "valid" post-receivership claims will be paid in full, payments for pre-receivership claims have been suspended for now as Premier's assets are tallied.
It appears providers will bear any shortfalls, and Cohen has warned providers against attempting to collect from enrollees, which is prohibited by state law.
By mid-January, James Thomas, M.D., an OB/GYN in Flagstaff, had not received a payment from Premier or the Insurance Deparment in months and was not optimistic about recovering the estimated $128,700 he and his partner were owed. His wife and office manager, Mona Mason, says she sent a 60-day cancellation notice in late November, to which the state responded with a letter indicating the practice must continue seeing Premier patients beyond January.
They will, Mason says, though the growing outstanding balance is having a tremendous impact on the practice.
"We're left holding the empty bag," she says. "We have to hold back bills that need to be paid on medications and rent, and I'm sure there are those who have taken it worse than us."
CEO Brian Turney of Kingman (Ariz.) Regional Medical Center says the hospital, which helped create Premier, lost millions prior to MatureWell's purchase and is now owed more than $4 million in unpaid claims. "I don't think we've ever worked so hard to lose so much money," he says. "We lost money even from the sale."
There is some dispute over the exact financial condition of the HMO when it changed hands, says Begley. As the Insurance Department dissects Premier's history, investigators are quantifying a backlog of unadjudicated claims and outstanding premiums.
"We're going to have to do a lot of forensic accounting," she says.
As of early January, $6.3 million in post-receivership premiums had been collected, which will be tapped as needed to pay post-receivership claims, Harris says. Any coverage will then be channeled to pre-receivership claims.
If the state concludes Premier cannot be rehabilitated, Insurance Department officials will petition the receivership court to liquidate its assets. "There is not much hope that they'll be able to rehabilitate," Harris says.
Turney attributes pre-acquisition Premier's downfall to the "flawed data" HCFA uses to determine average area payments and the difficulties of reducing utilization in a rural environment. He says post-acquisition Premier suffered technical problems. "It was very clear to us in recent months that their computer systems were not handling claims appropriately."
Turney says community pressure for affordable managed care led his hospital in rural Mohave County to join forces with the other founding PHOs in establishing Premier. Organizers also expected enhanced patient care through increased physician control over utilization and higher provider reimbursements through lower administrative costs.
Managed-care organizations born of provider alliances face obstacles that can prove insurmountable, says Jay Williams, a healthcare consultant with Arista Associates in Northbrook, Ill. "What I am finding is that there are increasing pressures on provider-grown HMOs everywhere."
One sticking point is that goals shared by physicians and hospitals are inherently divergent from those of healthcare plans, Williams says. The former require what they deem reasonable compensation, while the latter are charged with minimizing reimbursement. "It's a pervasive issue," he says.
Of Premier's more than 75,000 enrollees, some 21,000 were Medicare beneficiaries who apparently were drawn to the HMO's low premiums and modest copays for office visits and prescription drugs. On July 30 payment delays sparked federal sanctions, and Premier suspended its Medicare contract and closed enrollment until it could improve its bill-paying. The HMO's insolvency sent many beneficiaries scrambling to secure supplemental coverage when they were officially advised Premier's Medicare + Choice plan would expire at month's end.
In nine counties, no other HMOs were available.
"Obviously, it's a strain for seniors," says Joseph Goldberger, M.D., a Prescott internist and rheumatologist who was instrumental in creating Premier and was board president when it was sold to MatureWell. Despite the difficulties, Premier did succeed in bringing the previously uninsured on board, a long-standing goal of area physicians, he says. "I guess a lot of these people are going to go bare again."
Goldberger blames pre-acquisition Premier's ills on low premiums, insufficient centralization, poor risk management and a dearth of information. "You can't take risk and have no information. So, we lost a lot of money."
Information--and money--are what MatureWell brought to the table, says William Nevin, M.D., Premier's current state medical director. Nevin is a Tucson pulmonologist and critical care physician who was affiliated with MatureWell before it acquired Premier.
Until the state stepped in, the new owners were developing a comprehensive data system capable of providing information, including problem lists for members and nationally standardized authorization lists, so its more than 4,000 providers in Arizona, California and Nevada could "use clinical data to make clinical judgments," Nevin says. "Physicians have to be data-based, and not work on hunches."
David Duncan, M.D., is a family practice physician in Prescott and Premier's area medical director before and after its purchase by MatureWell. He takes a long view of the situation, trying to find take-away value for other providers who would grow their own HMO.
Premier was an experimental rung on the evolutionary ladder of managed care, he says, and an attempt to improve a healthcare system that clearly needs help.
Pre-acquisition Premier's fatal difficulties stemmed not from the medical side of the equation but the business side, he says.
"It was the financial management that was the problem. The main complaints were administrative shortcomings." Duncan believes the answer might have been more local control."The concept was such a great idea," he said. "It's too bad it didn't make it. Over the long haul, a better thing will come. I'm just not sure what it is."
Linda Boone Hunt is a Prescott, Ariz.-based investigative reporter and feature writer.