An entrepreneur who set out to turn around unprofitable provider-owned HMOs has hit rough times.
Back in 1999, Barry Scheur, founder of Newton, Mass.-based Venture Health Partnership Group, said he planned to buy eight to 12 provider-owned HMOs in a period of 24 months. In one news release, the company pledged to "reshape the practice of managed care, one health plan at a time."
But nearly 2 1/2 years later, Venture Health has purchased just two plans. One of them, the 82,600-member Oath of Louisiana, was declared insolvent by the state's insurance department last month. According to state officials, the plan owes hospitals as much as $40 million for unpaid services.
Venture Health's other HMO, the Oath of Alabama, shed two-thirds of its 90,000 members last year in an effort to reverse losses. The plan, purchased from Birmingham, Ala.-based Baptist Health System in June 2000, posted a profit in the quarter ended March 31 but continues to be monitored by the Alabama insurance department.
Scheur said his company has been unable to attract investors because of a weak managed-care market, and no expansions are planned. "It's very hard to run entrepreneurial plans privately against the consolidation of major players," Scheur said, referring to a recent wave of health plan mergers.
Venture Health bought unprofitable SMA Health Plan from five Louisiana hospitals in 1999 and renamed it Oath of Louisiana.
Scheur said the plan was heading toward profitability before it abruptly nose-dived last year, after agreeing to cover 38,000 commercial enrollees and 7,000 Medicare+Choice enrollees from another failed provider-owned HMO, Gulf South, which ceased operations in April 2001.
Gulf South was owned by Baton Rouge, La.-based General Health, which last month won court approval of its plan to pay back $30 million of the HMO's outstanding debt to providers. A competing hospital, Our Lady of the Lake Regional Medical Center in Baton Rouge, opted out of the agreement and awaits a court hearing later this year to settle the matter. General Health, parent of 423-bed Baton Rouge General Medical Center, agreed to sell other nonhospital assets to finance part of the debt.
Scheur said the company believed it could make money on the General South business by lowering overhead, adjusting rates and implementing capitated medical management. But changes weren't made in time, and the company ran out of capital, according to state insurance officials. "What I found myself with was a book of business that generated mammoth losses in a period of nine months," Scheur said.
Despite the meltdown in Louisiana, Scheur called the Alabama plan's performance an "amazing turnaround" from its $19 million loss in 2000. He said the plan shed unprofitable contracts, began charging a premium for Medicare+Choice members and dropped Baptist from its network last July when the previous owner demanded a 25% rate increase.
The plan, which serves about 32,000 enrollees, reported net income of $376,506 on premium revenue of $26.2 million in the first quarter ended March 31, according to its filing with the Alabama insurance department. Last year, it lost $1.9 million on premium revenue of $211.9 million.