Another prestigious university hospital is shedding its struggling HMO, while the buyer, a for-profit managed-care company, continues to spin gold from straw.
University of Virginia Medical Center in Charlottesville last week announced plans to unload its QualChoice of Virginia Health Plan to Bethesda, Md.-based Coventry Health Care. Coventry agreed to pay $12.5 million for Blue Ridge Health Alliance, the parent corporation of 110,000-member QualChoice. The parties said they hope to complete the deal by Oct. 1, pending approval by the Virginia Bureau of Insurance.
Coventry has made a successful habit of scooping up provider-owned HMOs. Last year, for example, Coventry bought Duke University Health System's 130,000-member WellPath Community Health Plans and 83,000-member Health Partners of the Midwest, which was owned in part by the Washington University School of Medicine in St. Louis.
In total, Coventry insures 1.8 million people in 13 markets in the Midwest, Mid-Atlantic and Southeast.
QualChoice, primarily owned by 555-bed University of Virginia Medical Center and its affiliated academic medical group practice, lost more than $30 million since its creation in 1994. In fiscal 2000, it lost $592,000 on revenue of $117.2 million. The university has been trying to sell QualChoice for the past nine months.
"Academic health systems are finding that the demands of operating managed-care organizations in today's rapidly changing markets are a major distraction from the main mission," said Leonard Sandridge, the university's executive vice president and chief operating officer. "We want to focus on what we do best-providing excellent healthcare, advancing medical research, and preparing the next generation of doctors and nurses."
One day after the QualChoice acquisition announcement, Coventry reported net earnings of $20.4 million on $786.7 million in revenue for the second quarter of 2001, marking a 54% increase over last year's second-quarter profit.
"The skills needed to be successful in the health insurance business are those that we have, and they are a different set of skills than those needed to be successful in running a healthcare institution," said Coventry Chief Financial Officer Dale Wolf.
Although the University of Virginia Medical Center was one of many hospitals that jumped into the HMO business in the 1990s, it says the move was a mistake. "In retrospect it was a bad business decision for us with the benefit of the historical record now for eight years," Sandridge said.
Coventry also owns Southern Health, a Richmond-based HMO with about 50,000 enrollees in Virginia. The combination of the two plans give Coventry a presence as a "second-tier" player in the state, according to Mark Pratt, executive director of the Virginia Association of Health Plans. Two million-member Trigon Blue Cross and Blue Shield, based in Richmond, leads a handful of HMOs that Pratt described as the "top tier" in terms of enrollment.
As part of the agreement, Coventry will enter into a five-year provider contract with University of Virginia Medical Center and its affiliated medical group practice, the 600-physician University of Virginia Health Services Foundation.
Coventry said it has not determined if it will retain QualChoice President and Chief Executive Officer Martha D'Erasmo, who has led the company since 1998. Also, Coventry has not decided if it will continue to use the QualChoice name.
Despite the losses of its HMO, the University of Virginia Medical Center earned a $20 million profit on $550 million in revenue in the fiscal year ended June 30, a university spokeswoman said.