Putting the final nail in its managed-care coffin, the Mayo Clinic has announced plans to shutter the last-remaining of its three HMOs by the end of 2003.
Over the past two years, Rochester, Minn.-based Mayo has been drastically curtailing its once-ambitious push into managed care, as Modern Healthcare was the first to report (Aug. 21, 2000, p. 3). The prestigious medical center closed its flagship HMO in Minnesota last year and intends to phase out its money-losing Florida health plan by this fall.
Now Mayo Health Plan Arizona has decided to pull the plug on its 43,000-member HMO and focus exclusively on the more-profitable business of providing administrative services to large self-insured employers.
Mayo's large HMO clients will be given the option of converting to self-funded contracts over the next 19 months. But smaller clients, which account for about 10% of the health plan's membership, will be dropped.
"We knew this was ultimately the direction we wanted to go," said Michael Yardley, manager of marketing and communications at Mayo Health Plan Arizona. "It was just a matter of time." That wasn't the message the HMO was sending last month, however, when a spokeswoman for the Arizona plan flatly rejected the notion that the HMO might shut down (April 29, p. 16).
Industry observers had long predicted the demise of the Scottsdale-based plan, which has amassed losses of almost $14 million since its inception in late 1997. But as Modern Healthcare reported last month, Mayo has been working to stem its losses by taking on more self-insured clients and expanding its administrative services business into neighboring Nevada and New Mexico.
Under its new strategy, Mayo Arizona will help employers administer benefits, process claims, manage their provider networks, implement wellness programs and handle customer service. It also will offer clients access to its network of 30 hospitals and 3,200 physicians, mostly in the Phoenix area. But it will no longer insure them.
That shift makes good business sense for two reasons, analysts say: First, self-insured employers present less financial risk because they pay for their own workers' medical bills. Second, as health insurance premiums continue to rise, a growing number of employers are looking into self-funded plans as a more cost-effective alternative-creating vast growth potential for providers of administrative services.
According to a recent survey by William M. Mercer, 13% of companies with more than 500 employees self-funded HMOs last year, up from 6% in 2000. And that figure is expected to reach 20% this year.
"That's the direction the large-group market is heading, and we are following that trend," Yardley said.
Meanwhile, the HMO business has proved extremely difficult for Mayo. The Arizona market is dominated by large players such as 300,000-member Health Net and 248,600-member PacifiCare Health Systems, which leave small plans with little room for growth. Mayo, for instance, has fallen far short of its original goal of enrolling 60,000 members within five years.
Several other providers have retreated from the managed-care business in recent months after being burned by mounting losses. Earlier this month, five-hospital North Carolina Baptist Hospitals announced it would shutter the last health plan operated by its subsidiary, QualChoice of North Carolina (May 20, p. 18). MedSpan, a group of 12 Connecticut hospitals, sold its 74,500-member HMO in January to Oxford Health Plans. In October 2001, WellCor America, owned by 17 Oklahoma hospitals, decided to nix both its 55,000-member HMO and 2,600-member Medicare HMO. And that same month, the University of Virginia Medical Center unloaded its 110,000-member QualChoice of Virginia health plan to Coventry Health Care.
Still, Mayo's new direction poses some challenges. Now, self-funded clients make up only a small portion of the health plan's business, accounting for about 25% of its total membership. If Mayo fails to convert the bulk of its other large employers to self-insured contracts, it stands to lose a large portion of its business.