General Health System in Baton Rouge, La., will pay a heavy price for its foray into Medicare+Choice, the government's ailing managed-care program.
The not-for-profit hospital system won preliminary court approval last week to sell two nursing homes and a 54-bed psychiatric hospital to pay some of the outstanding claims of its defunct managed-care operations, called Gulf South Health Plans. The sales are expected to generate about $16 million. In addition, General Health plans to use profits from its remaining acute-care hospital for the next 4 1/2 years to pay off the remainder of the claims.
The plan's total debt is estimated to be $42 million, most of it owed to local physicians and other providers for treating Medicare+Choice beneficiaries, according to the Louisiana insurance department. General Health estimates $13.6 million is owed to its own provider organizations, which will be paid last.
General Health shut down Gulf South earlier this year when it couldn't find a buyer for the 90,000-enrollee plan. The state insurance department assumed control of its Gulf South's assets last week and is beginning the process of determining exactly how much it owes, and to whom.
A hearing for final approval of the payment plan is scheduled for Nov. 5 in state district court in Baton Rouge.
General Health's core asset is 423-bed Baton Rouge General Medical Center, which has two campuses in the city. "They've basically committed all of their profits (from the hospital) to paying off these bills," said Richard O'Shee, Louisiana's deputy insurance commissioner.
But the payment plan is designed to protect the hospital operations, which posted net income of $10.3 million on revenue of $350 million for the last fiscal year, ended Sept. 30, 2000.
General Health spokeswoman Sandy Deslatte said stretching out payments over several years will allow the system to maintain its acute-care services and plan for an expansion. In addition, bondholders will be paid first, which should could help preserve the hospital's credit rating.
O'Shee said the health plan wasn't in bad shape until last year, when it started accepting Medicare+Choice enrollees from other HMOs that had dropped out of the unprofitable program. Medicare+Choice was launched in the mid-1990s to save the government money and allow senior citizens to participate in the then-growing managed-care revolution, but it turned into a boondoggle for many health plans when government reimbursement rates failed to keep up with costs.
"The Medicare+Choice product was the fatal blow," O'Shee said. He said beneficiaries of the government managed-care program accounted for about a third of Gulf South's enrollees but generated 90% of its claims. Gulf South lost about $10 million on revenue of about $225 million for the year ended Sept. 30, 2000.
State insurance regulators plan to meet with the remaining three Medicare+Choice plans in Louisiana this summer to make sure they can continue to pay claims, O'Shee said. At one time, there were as many as eight Medicare+Choice plans in Louisiana.
"We're going to be looking very closely at the remaining Medicare+Choice plans in the state," O'Shee said. "There's concern about where all this risk is concentrating."