Colorado Access is a managed-care organization in the midst of some growing pains. When its accounting system couldn't keep up with the rapid influx of new members, the Denver-based, provider-sponsored HMO discovered it had lost $3.4 million in 2000 after publicly disclosing a profit of $1.1 million.
As its black ink turned to red, the health plan's minimum cash reserve-which state law requires HMOs to maintain-fell below mandatory levels to $9.6 million from the $14.1 million originally reported in March.
"I was absolutely, totally shocked about it," says Don Hall, Colorado Access' president and chief executive officer. "In hindsight, I thought we were doing better than we should have been doing, but you tend to accept good results easier than you do bad results."
In 1995, three Colorado hospitals and the Colorado Community Managed Care Network, comprising Colorado's roughly 100 federally funded rural clinics, came together to establish not-for-profit Colorado Access. They planned to cover Medicaid patients and underserved segments of the population, says Leonard Dryer, a Colorado Access board member and senior vice president and chief financial officer of 198-bed Children's Hospital in Denver, one of the three hospitals that financially supports the health plan.
The other hospitals with a financial interest in Colorado Access are 334-bed University of Colorado Hospital and Denver Health Medical Center, a 289-bed facility that serves Denver's inner city. Colorado Access is the state's fourth-largest HMO, serving about 60% of the state's 202,000 Medicaid managed-care beneficiaries.
Officials of Colorado Access say rapid growth-the HMO went from about 17,400 members in 1995 to about 154,500 as of August-outpaced the ability of company's accounting systems to keep track, a phenomenon one analyst says isn't uncommon.
"An error like this is not unheard of," says Allan Baumgarten, a Minneapolis-based healthcare finance analyst who studies managed-care trends. "Organizations that are growing rapidly and whose information systems are flagging behind that growth can make a mistake of this scope."
Colorado Access officials first learned of the accounting error in April, when they discovered that a $7 million liability account created to reimburse specialty physicians was never entered into the HMO's accounting system. Hall attributed the oversight to "human error" and says the plan immediately notified Colorado's Division of Insurance.
The error was "an embarrassing symptom of growth," Hall says. "It was one little error that ended up making a significant financial difference for the company."
After correcting its accounting error, Colorado Access said last month that it lost $3.4 million on revenue of $187 million in 2000. That compares with a 1999 profit of $2.4 million on revenue of $146 million. The health plan reported a $2.5 million loss for the first half of 2001.
"Any time you hear of an accounting error, it's a surprise," Dryer says. "I wasn't happy about it. None of us were. We had a company that grew so fast over a five-year period that systems just weren't up to speed."
The failure of the computer systems to handle the additional data forced Colorado Access' four supporting partners to replenish the HMO's reserve fund. They each contributed an equal amount of money-approximately $1.3 million apiece-to do so. Colorado law requires HMOs to maintain reserves of at least 200% of their risk-based capital.
As a result of its accounting error, Colorado Access' reserve had fallen to $9.6 million, or almost exactly 200% of its risk-based capital. When HMOs reach that level, Colorado law requires them to file a corrective action plan with the state, which Colorado Access did.
The accounting problem-and the misleading profits it caused-also prompted the HMO to reduce rates it will pay to its provider sponsors in 2002. "In order for us to make a profit, they're going to have to take less money," Hall says. He doesn't anticipate rate changes for any of the HMO's other contractors.
According to Baumgarten, Colorado HMOs raised premiums 15% last year, with additional increases likely in the next two years. Colorado Access' premiums increased an average of 4.7% last year.
Colorado Access' 2001 budget called for each of the four provider sponsors to contribute money for the company's "infrastructure development," Dryer says. "The fact that we've had to put more money in is not a big deal," he says.
In addition to installing a new accounting system to handle the health plan's volume of claims and accounts, Colorado Access hired a new CFO, Nancy Maurer, in May; she replaced CFO Elaine Martinez, who resigned voluntarily in March. Colorado Access is also working to improve communication and coordination between the company's employees and departments, Hall says.
In many cases, Hall says, when "provider-sponsored HMOs hit a problem like this, the providers don't stand with (the HMO). One thing that has been very positive for us is that the three hospitals and the community health centers have stayed committed to the organization and getting it to where it needs to be."