Struggling to right itself after a heavy blow to its bottom line, Hawaii's largest healthcare provider is quitting the cutthroat managed-care business.
Queen's Health Systems of Honolulu plans to sell two of its health plans by year-end and close the other two by March 31, 2001, affecting a combined 162,500 members and leaving 65 employees without jobs.
The 556-bed, two-hospital system launched its first HMO in 1980 and then added three other health plans during the next 17 years, eventually building a statewide contracting network of 22 hospitals and 1,500 physicians.
But by late 1998, Queen's was bending under the strain of heavy competition and Hawaii's ailing economy. When it posted a $29.5 million loss in the fiscal year ended June 30, 1999, following a profit of $19.8 million in fiscal 1998, the company decided to pull the plug on its money-losing managed-care unit.
"In fiscal 1999, our health plans lost $10.5 million, and the losses had been increasing over the past few years," said Pauline Osborne, Queen's chief financial officer.
Total fiscal 1999 revenue for the system was $534 million. The health plans brought in $110 million of that.
Queen's agreed last week to sell its Queen's Health Care Plan, a PPO serving primarily members of the military and their dependents, and Queen's Hawaii Care, its Medicaid HMO, to Lifemark Corp. for an undisclosed sum. Lifemark is a Phoenix-based company that provides care-management services to high-risk and chronically ill patients.
Queen's also has sent letters to the 30,800 enrollees of its two other plans, Queen's Preferred Plan, a commercial PPO, and Queen's Island Care, a commercial HMO, informing them that they will lose their coverage within the next six months.
For industry observers, Queen's decision to exit the managed-care market is simply a sign of the times.
While Hawaii still has one of the nation's highest managed-care penetration rates--45% of its insured residents are enrolled in HMOs--competition is fierce. The Hawaii Medical Service Association, the state's Blues plan, holds 50% of the market, while Kaiser Permanente has 17%. The remaining 33% is divvied up among 10 other insurers.
"Hawaii is a small market with a relatively large number of players and a few particularly dominant ones," said John Kawamoto, director of legislation and research at the Healthcare Association of Hawaii. "That combination has made it difficult for smaller players to survive."