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November 27, 2000 12:00 AM

Protecting fiscal wellness

Carolinas HealthCare transferring commercial portion of money-losing HMO to N.C. Blues

Barbara Kirchheimer
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    The Wellness Plan, the HMO owned by Carolinas HealthCare System in Charlotte, N.C., has been anything but a source of financial wellness for its parent.

    So like a surgeon excising a painful growth, Carolinas will get rid of at least part of the unhealthy business through a membership transfer agreement with Blue Cross and Blue Shield of North Carolina. Terms weren't disclosed.

    A spokesman had previously told MODERN HEALTHCARE that Carolinas was exploring a sale of the HMO (Oct. 30, p. 10).

    The 17-hospital system is the third acute-care system in North Carolina and one of many nationwide opting out of troubled managed-care businesses.

    "We at Carolinas HealthCare System had been refocusing on our core business, which is directly providing healthcare to patients," said Carolinas spokesman Scott White.

    Founded in 1996 as a Medicaid managed-care plan under a state pilot program, the Wellness Plan expanded into commercial business the following year. In 1999 the Wellness Plan lost $14 million on premium revenue of $126.4 million, according to the North Carolina Department of Insurance. During the first six months of this year, the plan lost $8.2 million on premium revenue of $77 million.

    White said losses have mounted because the Wellness Plan has larger competitors better able to spread risk.

    One of those competitors is the Blues plan.

    "We see (membership transfer) as an opportunity to serve more North Carolinians," said Susanne Powell, a Blue Cross spokeswoman. "It gives us an opportunity to strengthen our marketshare in the important Charlotte market as well."

    The deal with Blue Cross is not technically a sale, White said. Rather it gives Blue Cross a "preferential marketing advantage" to solicit existing Wellness Plan customers for coverage. Financial terms of the deal weren't released, but Blue Cross will pay Carolinas an amount based on the number of enrollees who switch to its coverage, Powell said. The transfer is expected to be completed by May next year.

    Because of the structure of the deal, it doesn't need approval from the state insurance department, said Mark Stinneford, a Blues spokesman.

    The Blues has nearly 2 million enrollees in its various insurance products in North Carolina, 114,000 of whom are in the Charlotte region. The company reported a profit of $46.8 million on premium revenue of $1.5 billion for the three quarters ended Sept. 30.

    Carolinas is a not-for-profit regional system overseen by the Charlotte-Mecklenburg Hospital Authority. Its flagship hospital is Charlotte's 736-bed Carolinas Medical Center.

    The deal affects about 52,000 enrollees covered by the Wellness Plan's commercial insurance product. Of these, the largest group, about 20,000 people, are Carolinas employees and their dependents. For this group, Carolinas will offer a self-insurance product to be administered by Blue Cross, White said.

    Blue Cross is not taking over the Wellness Plan's Medicaid managed-care business, which has about 27,000 enrollees. Carolinas has not decided whether to stay in that business, White said.

    "We're going to honor the contract," he said. "We have not made any decision one way or another, but we're not getting out of it at this time."

    Blue Cross, the largest health insurer in the state, pledged to offer coverage to The Wellness Plan's 500 employer groups that is comparable to what they receive now.

    David Garbrick, a healthcare benefits consultant for Towers Perrin in Charlotte, said the deal will be good for both Carolinas and for Blue Cross, but it also may jeopardize Carolinas' relationships with other insurers.

    Carolinas has had a policy of only accepting exclusive insurance contracts, but Blue Cross recently negotiated a contract with Presbyterian Healthcare, owned by Novant Health of Winston-Salem, N.C., and Carolinas' primary rival hospital in Charlotte.

    "Will the other managed-care systems that still have exclusives with Carolinas feel they are given a fair deal when Blue Cross can sign a deal with Novant's Presbyterian and still work with Carolinas?" he asked. "It certainly gives the others a position for bargaining."

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