Continuing a year of upheaval, Atlanta's largest healthcare system announced last week that it's quitting the risk-based contracting business while seeking to replace its chief executive officer for the second time in a year.
Under pressure from state insurance regulators, eight-hospital Promina Health System said by year-end it will cancel all of its capitated contracts, which pay a fixed monthly fee per member. Capitation accounts for 8% of the company's revenue.
Georgia Insurance Commissioner John Oxendine warned earlier this year that Promina was acting too much like a health insurer under its risk-based arrangements, which involved claims processing and medical management, and wasn't subject to state regulations such as prompt-pay laws. In February, after some of Promina's 1,500 affiliated physicians complained about slow payments, Oxendine ordered the not-for-profit to become a licensed insurer or quit capitation.
Losses on some contracts prompted Promina to begin easing out of capitation earlier this year. Recently it revealed that a year-end audit uncovered overpayments to its hospitals and doctors under its capitated contracts, which it's now asking them to pay back. Promina officials said the overpayments involve about 5% of all claims processed under capitated contracts over the past six years, but they were unable to give a dollar amount last week.
"Health systems around the country are getting out (of capitation). We're just a little later than the others," Promina spokeswoman Cheryl Iverson said. "From a business standpoint, it just doesn't make sense for us anymore."
Promina expects to report net income of $35.9 million on revenue of $1.28 billion for the year ended June 30. The previous year, it earned $40 million on revenue of $1.1 billion.
The decision to quit risk-based contracting came just as CEO Bonnie Phipps announced she was resigning to lead Saint Joseph's Health System in Atlanta, effective Sept. 3. Phipps, former head of Promina's managed-care organization, said she had applied to Saint Joseph's before her promotion last year. In July 2001, Phipps had replaced now-retired Bernard Brown, who spearheaded Promina's formation in 1994 as a holding company for three hospital organizations. Promina Chief Medical Officer Robert Ryan, M.D., will serve as interim CEO until a replacement is found.
Phipps' departure caps a year of turbulence. In May there was news that its flagship, 452-bed Piedmont Hospital, was considering pulling out after the arrival of its new CEO, R. Timothy Stack, last November. Stack replaced Richard Hubbard III, a longtime friend and colleague of former Promina CEO Brown.
Piedmont's split would mark the second major defection in three years. In November 1999, five of the system's original 13 hospitals broke off to form WellStar Health System, fracturing Piedmont's market dominance and leaving it without a significant presence in northwest Atlanta (Oct. 1, 2001, p. 26).
Last year, negotiations to bring 346-bed Saint Joseph's, a Roman Catholic hospital, into the fold collapsed. While U.S. bishops had just condemned Catholic-secular hospital alliances, Saint Joseph's officials also said they questioned Promina's leverage in negotiating managed-care contracts (April 2, 2001, p. 30).
Iverson said last week that Piedmont has no plans to secede. "They're still at the table with everything we're doing," she said. However, Piedmont spokeswoman Nina Montanaro declined to comment other than to say the hospital is "constantly re-evaluating its operations."
Promina's eight hospitals include 175-bed Gwinnett Medical Center, 429-bed DeKalb Medical Center, 297-bed Southern Regional Medical Center, 84-bed Decatur Hospital, 100-bed Fayette Community Hospital, 262-bed Joan Glancy Memorial Hospital and 76-bed SummitRidge.
Promina isn't alone in scrapping capitation. A national survey of 300 hospitals and physician groups released last month found that 31% of hospitals were using capitation last year, down from 46% in 2000 (July 29, p. 9).
Recognizing that shift, Promina officials said they've been emphasizing quality as a means of differentiating the system from competitors. For example, Promina recently signed an agreement with Philadelphia-based Cigna Corp. in which the insurer will pay its physicians bonuses for meeting quality and safety standards, Ryan said. In June, Promina became one of two hospital operators to join the Leapfrog Group, an employer coalition that's attacking medical errors (July 1, p. 6).