Four of New York's most prestigious hospitals are taking on the financial risk for more than a quarter of HIP New York's total HMO membership.
The hospitals, in effect, are becoming insurers themselves--a move that many of the nation's hospitals and physician groups are abandoning in the face of significant financial losses.
Lenox Hill Hospital and Continuum Health Partners, a joint venture between Beth Israel Medical Center and St. Luke's-Roosevelt Hospital Center, have signed capitated, full-risk contracts to operate HIP's eight health centers in Manhattan, starting July 1. Montefiore Medical Center inked a similar deal last December to manage four of the HMO's Bronx and South Westchester sites.
The 12 centers, which serve 220,000 members, were run by New York Medical Group, which sued HIP in December for allegedly steering patients away. A week later, HIP said it would not renew the 226-physician group's contract, which expires June 30, and in turn struck deals with the four hospitals.
Now, instead of bearing the HIP name, the centers will take on the marque of their new operating organizations.
But the changeover may not go as smoothly as HIP envisioned. The state Department of Health told the insurer on May 25 that it must continue to make the services of New York Medical Group physicians available to its members until the department is satisfied that patients will receive adequate care.
Although HIP is working to allay the department's concerns, health officials said it's unlikely that changeover will be approved before June 30.
HIP spokesman Don Maiorana said the new alliances are part of a continued effort by the once-ailing HMO to provide its 800,000 enrollees with greater quality and choice of care.
Maiorana declined to discuss the specific terms of the contract. Last year HIP of New York earned $25 million, up 25% from $20 million in 1998. Revenue rose 6% to $1.7 billion.
Meanwhile, state regulators aren't enthused. According to New York Superintendent of Insurance Neil Levin, capitated, risk-bearing arrangements are a gamble for insurers because the providers they contract with aren't regulated by the Department of Insurance, as are HMOs.
Contrary to the popular belief that HMO risk-sharing is largely a California phenomenon, a growing number of HMOs in New York are contracting with provider groups to spread the financial risk of insuring thousands of patients.
"However, when an (independent practice association) is unable to manage the risk adequately . . . this arrangement can seriously impact the HMO's solvency--placing consumers at risk of losing their coverage," Levin said in a memo on the state Insurance Department's World Wide Web site.
For example, HIP's sister organization, HIP of New Jersey, went belly-up in 1998 because of abuses related to its capitation contract with PHP Healthcare, a medical management firm representing its doctor providers. And Wellcare of New York foundered last year after losing millions from its primary IPA capitation contracts. It was forced to sell its commercial lines and reorganize.
"Provider organizations such as the ones under contract to HIP (of New Jersey) and Wellcare were unable to manage risk and consequently incurred enormous losses--seriously impacting the financial solvency of those insurers," Levin stated.
In order to avoid future calamities, the Insurance Department recently proposed new regulatory standards that would require IPAs to demonstrate their financial stability. Under those standards, providers would have to make security deposits equal to 12.5% of their estimated annual capitation. These reserves would be used to protect HMOs if their providers suffered serious losses.
And while the regulation has yet to be passed, the hospitals are confident they have the wherewithal to succeed.
Terence O'Brien, chief operating officer of Lenox Hill Hospital, said not only is the 652-bed facility financially strong, it also has extensive experience with full-risk, managed-care arrangements.
Last year Lenox Hill netted $18 million on $352 million in revenue. It currently covers about 100,000 lives under a risk-bearing IPA network it launched two years ago.
Montefiore, the nation's largest teaching hospital with 1,032 beds, isn't new to the managed-care contracting business either. The four clinics it's adopting from HIP will be added to the 30 it already runs throughout the Bronx and Westchester County. The hospital reported 1999 revenue of $1.2 billion.