Evidence is mounting that running an academic medical center and operating a managed-care plan don't go hand in hand.
Among the companies to opt out of the Medicare managed-care business in recent weeks are subsidiaries of two prestigious academic medical centers in the South.
Last week, Nashville's Vanderbilt University, which operates the not-for-profit, 576-bed Vanderbilt University Medical Center, announced it will discontinue its Health 1-2-3 Platinum plan, which provides coverage for about 14,000 seniors in 18 surrounding counties, at the end of the year. This will leave only one Medicare HMO option in the Nashville area, Health Net HMO, a plan jointly operated by Nashville's Baptist Hospital and St. Thomas Health Services.
Vanderbilt's announcement came on the heels of a decision by Durham, N.C.-based Duke University Health System to abandon its managed-care business altogether, by selling its WellPath Community Health Plans to Coventry Health Care for $25.5 million in a deal expected to close in October. After the sale, Bethesda, Md.-based Coventry will retain about 130,000 enrollees. The deal excludes Duke's 4,000-enrollee Medicare HMO, which like Vanderbilt's, will be discontinued at the end of the year.
"I think our reasons for exiting this market are the same as everyone else's," said Ann Lore, chief executive officer of Duke's WellPath Community Health Plans. "The reimbursement isn't enough to create a successful network for our members, and the overhead cost is extraordinarily high."
Vanderbilt's Medicare HMO lost $26 million since its inception in April 1996. In addition, HCA-The Healthcare Co. opted not to renew its contract with Vanderbilt's Health 1-2-3, which also has a 50,000-enrollee commercial insurance component. About half of Vanderbilt's Medicare members visited HCA facilities last year.
The managers of Vanderbilt's three managed-care plans had proposed a buyout offer to the university nearly a year ago (Aug. 30, 1999. p. 8). Originally expected to wrap up by March, that proposal has since fizzled.
Now Philip Hertik, president and CEO of Vanderbilt Health Plans, and Chief Operating Officer Michael Bailey are considering purchasing only the portion of Vanderbilt's managed-care business that serves Medicaid recipients under Tennessee's TennCare program, said Joel Lee, executive director of communications for the Vanderbilt medical center. Lee said at least two outside buyers are interested in Vanderbilt's 50,000-enrollee commercial insurance plan, the most profitable of the three.
In total, Vanderbilt's managed-care business lost $15 million on premium revenue of $155 million during 1999, according to figures provided by the Tennessee Department of Commerce and Insurance.
"It's a line of business that the board and really the management here has decided we should not spend our time, energy and capital on," Lee said. "It doesn't really contribute to any of our missions of research, teaching or healthcare delivery."