A group of Connecticut hospitals and their affiliated physicians have become the latest providers to retreat from the managed-care business.
Hartford, Conn.-based MedSpan, founded 12 years ago by the parent of 874-bed Hartford Hospital, last month announced the sale of its 74,500-member HMO to investor-owned Oxford Health Plans, Trumbull, Conn. The $19 million sale will more than double Oxford's Connecticut commercial membership while eliminating the state's last provider-run health plan.
Like many provider-owned HMOs, MedSpan has faced stiff competition from larger national and regional insurers, such as Anthem, Indianapolis, and Health Net, Woodland Hills, Calif. Anthem and Health Net have statewide memberships of 1 million and 365,000, respectively.
"With the managed-care industry growing more and more capital-intensive, we realized it would be extremely difficult for a local provider-run organization like ours to make it on our own," said Kevin Kelly, MedSpan's chief executive officer.
Hartford Hospital and its parent, three-hospital Connecticut Health System, own 30% of MedSpan, Kelly said. Twelve other hospitals in Connecticut's New Haven and Hartford counties own a total of 25%, with physician groups and other private investors holding 45%.
Founded in 1990 as a PPO, MedSpan amassed a statewide provider network and repeatedly made Inc. magazine's annual list of the nation's fastest-growing private companies. It created a 14,000-member Medicare HMO, which was disbanded at the end of 2001.
Kelly said medical costs rose more rapidly than expected last year. MedSpan lost $5.8 million on $169.6 million in revenue in the nine months ended Sept. 30, 2001. The previous year, MedSpan earned $1.6 million on $183 million in revenue. The purchase will boost Oxford's Connecticut enrollment to 131,500, making it the state's fourth-largest health plan.