Hospitals that once thought they could beat HMOs by becoming HMOs continue to learn that it's not easy.
The latest provider-owned HMO to fall: HealthChoice of Connecticut. Despite the prominence of its owners, HealthChoice, a for-profit based in Farmington, will be dissolved, probably by year-end.
The 40,000-member plan has since 1997 been jointly owned by 510-bed Saint Francis Hospital and Medical Center, Hartford; 1,485-bed Yale-New Haven (Conn.) Health System; and Yale University, also New Haven.
The shareholders, who unsuccessfully shopped the HMO to as many as 30 potential buyers in the past 18 months, said last week that with losses mounting, they will just close out the business most likely by year-end in compliance with state and federal regulations.
"We determined we just need to focus on our core mission," said William Gedge, senior vice president of Yale-New Haven Health System.
Gedge said the partners found it was nearly impossible to compete with the big plans that have as much as 10 times the enrollment and the economic efficiencies that come along with that.
HealthChoice is escaping with the required reserves well intact and enough cash in the bank to pay off all the providers and cover the claims of its patients, about 26,000 of whom are in the state's Medicaid program, according to Gedge.
The financial stability is in large part thanks to $20 million the shareholders invested, most of it in 1997 when Yale Preferred Health, an HMO owned by Yale-New Haven and the university, merged with HealthChoice, a PPO owned by St. Francis, said James Gore, chief operating officer of HealthChoice.
But Gore said it's possible that the HMO will be holding out its hand to the shareholders before all accounts are settled.
"It's going to be close. Let's put it that way," Gore said.
The HMO never really got off the ground. It posted a $2 million loss in 1998, then doubled that deficit to $5.5 million in 1999.
By March of this year, it was already in the hole for $1 million. Gedge estimated that losses by year-end will be as much as $4 million. Total losses will be well in excess of $10 million.
Meanwhile, HealthChoice's more than ample net worth fell from the $7 million mark to $5.2 million in the first quarter of this year--still well above the state solvency requirements, said Louis Scotti, director of the financial analysis and compliance division of the Connecticut Insurance Department.
"The hospitals were keeping it afloat, and they will continue to do that until such time as there is nothing left," Scotti said.
But Gedge said the investment was made upfront when the partners merged their organizations, and that delivery of medical care by the hospital shareholders was never compromised by the HMO.
The decision to close out the plan was precipitated early this month when HealthChoice's last hope of a buyer faded when HIP Health Plan of New York backed out in anticipation of New York and Connecticut insurance regulators' not allowing the deal to go through, said Gore. He was brought in last September when the decision was made to sell to HIP.
The 800,000-member New York-based HMO planned to pay about $1.2 million for the business, according to Gore.
HIP itself is passing along some financial risk to several big-name New York City hospitals (See story, p. 12).
"The time element for reaching an agreement expired on July 1, and we decided not to ask for an extension," said Loretta Creggett, a spokeswoman for HIP.