The Mayo Clinic is severely curtailing its once-ambitious push into managed care, underscoring the problems provider-owned health plans are facing nationwide.
Beset by financial woes, the world-renowned medical center has quietly decided to close its second of three HMOs, this one in Florida. Last year, Mayo pulled the plug on its Minnesota HMO. After both those plans cease operations during the next 18 months, only Mayo's HMO in Arizona will remain. And with that plan operating in the red, some industry observers predict it, too, may eventually fall victim to the same fate.
"Mayo's main focus has always been on providing primary medical care," said Jim Hertel, president of Denver-based HCCA, which collects and publishes managed-care information. "Still, (its HMO closures are) a blow, given Mayo's standing in the healthcare community and track record" of success.
In late March, Mayo Health Plan of Jacksonville (Fla.) said it will shut down by fall 2002 because of rising costs, stiff competition and tight government regulation. The news, issued in a notice on its Web site and in letters to enrollees, came just six months after Mayo began phasing out its flagship HMO in Rochester, Minn., where the hospital is based, for similar reasons (Aug. 21, 2000, p. 3).
Mayo established its Minnesota HMO in 1985 to learn firsthand about the managed-care business in and around its hometown. Then, largely at the request of employers, it launched a Jacksonville health plan in 1996 and a Scottsdale, Ariz., plan in 1997. Mayo began operating satellite clinics in those cities in 1986 and 1987, respectively.
Although its membership never exceeded 8,800, the Minnesota HMO enjoyed steady profits through much of the 1990s. Last August, however, Mayo decided to shutter the health plan after it lost $1.6 million in 1999 and projected an even steeper deficit for 2000.
In contrast, Mayo Health Plan of Jacksonville never really got off the ground. Although its membership has grown steadily to 27,000-more than three times that of its Minnesota counterpart-its annual losses have widened, to $7 million in 2000 from $3 million the year before.
Last year, when Modern Healthcare reported on the Minnesota HMO's closing, executives at Mayo's Florida HMO did not respond to repeated requests for comment on its future.
Now, Patrick Healy, president of Mayo's Florida plan, attributed much of last year's loss to problems the HMO encountered with a key network partner, Nashville-based HCA-The Healthcare Co. The national, for-profit hospital company, which operated two of the eight primary-care centers in Mayo's network, hiked its rates 250% in 2000.
"They had us over a barrel, and our costs rose dramatically," Healy said. "When a major vendor sticks it to you like that, there's not much you can do."
Healy also said his locally focused company has had trouble vying with large national and regional insurers, many of which are for-profit. Although Mayo is the third-largest health plan in the Jacksonville area, its enrollment pales beside those of its bigger rivals-1.3 million-member Blue Cross and Blue Shield of Florida and 398,000-member Aetna.
On the surface, Mayo's decision to close its Florida HMO may have appeared sudden.
Last September, the health plan signed a long-term provider contract with four hospitals owned by Jacksonville-based Baptist Health. A few months later, it was gearing up to roll out a PPO product for local employers.
But in many respects, Mayo's actions are a sign of the times.
Several providers have retreated from the managed-care business after being burned by mounting losses in recent years. Last month, Licking Memorial Health Systems pulled the plug on Community Health Plan of Ohio, a 15,000-member HMO it launched in 1986. And a three-hospital joint venture in Connecticut dissolved its 40,000-member HealthChoice HMO in July 2000 after less than four years in operation.
"The exodus has become so big that, at this point, more providers have left the (insurance) business than are still in it," said Bill Fosick, a former managed-care consultant who is a vice president at the Rockford, Ill.-based healthcare recruitment firm Furst Group/MPI.
"Many medical providers began (offering insurance products) five to 10 years ago as a way to have a lock on patients," he said. "But most weren't used to the risk business, which proved to be much more cyclical than they were prepared to deal with."
That's why some healthcare experts are now turning a wary eye toward Mayo Health Plan Arizona.
Weiss Ratings, which grades the fiscal health of the nation's HMOs, considers the 31/2-year-old operation just as "financially weak" as its Minnesota and Florida sisters. Like Mayo's other plans, the 37,000-member Arizona HMO saw its net loss widen last year-to $3.3 million from a loss of $2.7 million in 1999.
"Their capitalization is deteriorating, their liquidity is weak and they're continuing to lose significant amounts of money," said Weiss analyst Donna O'Rourke.
But Mayo officials rejected the notion that the Arizona HMO could be the next to go.
Mayo spokeswoman Anne Tewksbury said that, despite its increased annual loss, the Arizona plan remains "on track" to break even in 2002. She pointed out that the HMO faces fewer competitors and fewer regulatory constraints than Mayo's Florida and Minnesota HMOs.
The plan also is adjusting for its higher losses by hiking premiums this year and rolling out a new, and potentially more profitable, PPO product called Health Tradition Plus in July, Tewksbury added.
"It's business as usual here," she said. "We're not going anywhere."