St. Joseph Healthcare's $10 million experiment in Medicare risk-sharing is over.
Just 18 months after the Albuquerque-based not-for-profit system of four hospitals received the first Medicare provider services organization license from HCFA, it said last week it would pull the plug on its program, St. Joseph MedicarePlus, on Dec. 31.
"The objectives and goals we originally wanted to establish we were unable to do because of payment rates," said Arthur Dunn, interim chief executive officer of St. Joseph Healthcare.
Dunn, a senior vice president with the Hunter Group, a St. Petersburg, Fla.-based turnaround firm, replaced Steven Smith, who resigned in April (April 10, p. 4). A reason wasn't given for Smith's departure, but St. Joseph has been under mounting financial pressures. Smith helped engineer the PSO and other joint ventures with area health plans during his tenure.
Dunn noted that New Mexico's Medicare capitation rates are among the lowest in the country.
The 2000 rates average $409 per member per month in the four counties where St. Joseph MedicarePlus operates. That compares with capitation rates of $794 per month in Miami; $757 in New York City and $661 in Los Angeles.
St. Joseph officials said the payments were easily $50 to $100 per month below what was required to break even.
"The original projections showed that this would be a very profitable pursuit. It simply didn't live up to those projections," Dunn said.
Once touted as a new way to provide low-cost Medicare services by contracting directly with providers, the PSO concept has proved to be a bust.
Provider organizations, led by the American Hospital Association and the American Medical Association, lobbied hard for the PSO-enabling legislation, which took effect in 1997. They argued that mission-driven hospitals and physicians would help senior citizens in service areas shunned by commercial managed-care companies (See story, below).
St. Joseph was the only organization to receive a PSO license from HCFA, which allowed it to enter Medicare risk-sharing contracts without using an HMO or other form of health plan intermediary.
HCFA also started a PSO demonstration project in 1997 with eight participating organizations. Two of the participants, Crozer-Keystone Health System in Pennsylvania and Florida Hospital Healthcare System, have since dropped out.
Although St. Joseph MedicarePlus serves areas where nearly 90,000 Medicare beneficiaries live, only 5,100 have enrolled in the PSO. St. Joseph had all but stopped marketing its PSO last spring, Dunn said.
HCFA confirmed that no other PSO applications are pending.
"Providers have been looking at their marketplaces and questioning whether they want to take up the risk," said a HCFA official who asked not to be identified.
The experiment has been costly for St. Joseph Healthcare, which is an affiliate of Denver-based Catholic Health Initiatives. Officials say $2.5 million was spent to obtain the PSO license. Another $6 million to $8 million has been lost since St. Joseph MedicarePlus began accepting enrollees in March 1999.
"We had to end it now before the losses became catastrophic," Dunn said.
St. Joseph is projected to lose as much as $7 million on operations this year. It posted an operating loss of $4 million on revenue of $194.5 million in 1999.
About 40 employees will be affected when the PSO shuts down at the end of the year.
In addition to closing St. Joseph MedicarePlus, St. Joseph will also stop managing QualMed Senior Security Medicare Health Plan at year-end. About 2,100 enrollees are in that plan, which is owned by Albuquerque-based Health Care Horizons. St. Joseph had agreed late last year to absorb the membership.