Two more health systems-one in Missouri, the other in Virginia-have joined the ranks of providers unloading their managed-care plans.
Eight-hospital Saint Luke's-Shawnee Mission Health System, Kansas City, Mo., agreed last month to sell its majority-owned health plan, 250,000-member Mid America Health Partners, to Coventry Health Care, Bethesda, Md., to refocus on patient care. As part of the deal, Mid America will shutter its 23,000-member Medicare HMO-Kansas City's largest Medicare+Choice plan-by year-end.
Also last month, Carilion Health System, Roanoke, Va., put its money-losing HMO, Carilion Health Plans, on the auction block as part of a broader effort to rein in rising costs. The six-hospital system also intends to lay off 50 employees and slow capital spending to offset an additional $20 million in expenses projected for next year.
The planned divestitures underscore a growing exodus among providers from the managed-care business and come at a time when at least one state is considering banning hospital-owned HMOs altogether. The number of hospitals owning insurance products has dropped 33.4% from 3,277 in 1996 to 2,184 in 2000, the latest year for which data are available, according to the American Hospital Association.
In Michigan, the state Legislature is considering a proposal that would prohibit hospitals from owning their own HMOs. State Rep. Doug Hart, a Republican who introduced the bill on Sept. 17, contends hospital-owned health plans face conflicts of interest in pricing and patient care, because these plans have incentives to refer members to their own hospitals and doctors and to pay those providers high rates.
Hart's legislative assistant, Tiffany Aurora, said the bill likely would not be passed in this legislative session, which is scheduled to end in November, and would have to be reintroduced next year. "But it has opened the door to future dialogue on the issue," Aurora said.
The American Association of Health Plans said it did not know of any similar measures in other states. For now, however, many hospitals voluntarily are dropping their HMOs amid mounting financial and regulatory strain.
Carilion's 21,000-member HMO, for instance, has lost $2 million to $4 million each year since launching in 1992. Last year, it lost roughly $3 million on revenue of $28 million, and company officials projected it would lose another $3 million in the fiscal year that began Oct. 1.
Like many provider-owned HMOs, Carilion's health plan has faced stiff competition from much larger rivals, such as Richmond, Va.-based Trigon Healthcare, which was acquired by Blues behemoth Anthem earlier this year. Trigon-with 2.2 million members and a dominant 35% share of the Virginia market-is also Carilion's largest payer, accounting for 20% of the hospital system's annual revenue.
"Given the region's waning interest in tightly managed care plans, it is unlikely we will ever enroll enough people to break even, and the losses will continue to mount," Carilion President and Chief Executive Officer Edward Murphy, M.D., said in a written statement.
By contrast, Mid America turned its first profit last year, earning $4.3 million on $250 million in revenue, and is expected to remain in the black this year, company spokeswoman Cheryl Dillard said.
Yet the 7-year-old health plan-which also is owned partly by 14-hospital Carondelet Health System and 180-bed Liberty (Mo.) Hospital-faced growing regulatory and financial burdens, which its provider owners were reluctant to shoulder. Last year, for instance, Missouri passed a law that will triple the amount of risk-based capital that HMOs are required to keep in their reserves.
"Saint Luke's-Shawnee Mission Health System determined its financial resources are better used for providing clinical care, financing healthcare technology and making improvements to aging hospitals," according to an internal memo written by G. Richard Hastings, the health system's president and CEO.
Coventry will use Mid America to strengthen its Kansas City unit, which lost $7.3 million in 2001. The insurer, which covers 2 million members in 13 states, has made a successful habit of buying struggling provider-owned HMOs and restoring them to profitability. It earned $83.5 million last year on $3.15 billion in revenue.
The addition of Mid America will bring Coventry's Kansas City membership to 425,000 and be neutral to 2003 earnings, according to ratings firm A.M. Best Co. The deal requires Mid America to close its profitable Senior Excel Medicare product, which competes directly with Coventry's 11,000-member Medicare HMO, called Advantra.