Hospitals and doctors in Louisville, Ky., have joined the growing national parade of providers who have shed money-losing insurance plans to concentrate on what they say they do best-caring for patients.
Preferred Health Plan, created nearly 15 years ago by a 2,400-member physician group and several large not-for-profit hospital systems in the Louisville area, was sold in mid-November to Louisville-based Midwestern Insurance Alliance, Kentucky's biggest workers' compensation company.
"As providers, I don't think we have the expertise to be running third-party administrative plans; it's just not part of our core business," said Michael Lawton, vice president of managed care for Norton Healthcare, Louisville.
Preferred Health, a third-party administrator for self-funded health plans that covers about 30,000 individuals, was formed in 1989 by Baptist Healthcare System, Caritas Health Services, Jewish Hospital HealthCare Services, Norton and Physicians Inc., one of the nation's largest group practices with about 2,400 doctors.
A spokeswoman for the Kentucky Department of Insurance said she could not provide details on Preferred Health's annual financial figures, but the plan has never turned a profit.
"When we looked at the marketplace down here, and what our primary business was, we said this (health plan) is not a business that makes sense to us," said John Katsianis, vice president and chief financial officer at Caritas. "From our perspective, it wasn't a good match."
Terms of the sale were not disclosed, but officials at Midwestern, which reported about $30 million in premiums in 2002, said the company is expected to exceed $100 million in revenue next year with the addition of Preferred Health. More than 80% of the physicians and hospitals in the region are members of the plan.
Norm Risen, president and chief executive officer of Midwestern, which currently administers workers' compensation plans for more than 3,600 companies, said the acquisition will solidify Preferred Health's position in the marketplace and ensure that it remains locally owned.
"Our business goal through this acquisition is to provide the professional management necessary to stimulate PHP's growth in the market," Risen said, "while maintaining the high comfort level that participating physicians and employers already hold with PHP."
The divestiture of money-losing managed-care plans is nothing new for providers. Nationwide, the number of HMOs has dropped about 30% to 454 over the last five years, according to InterStudy Publications. Meanwhile, 10 provider-owned plans were scuttled last year, according to Cain Bros., an investment-banking firm.
The physicians and health systems that formed the Preferred Health coalition in 1989 had no real incentive to continue a plan that was hatched as a way to compete against large rivals like Humana, which operated its own closed managed-care network for the three for-profit hospitals it owned in Louisville until the early 1990s. Now, all of the hospitals involved with Preferred Health have contracts with Humana as well as their own managed-care plan.
"Hospitals determined that they really shouldn't be in the insurance business-they had no desire to continue," said Paul Jennings, president and CEO of Physicians Inc. "They have no motivation to do it."
Though Preferred Health was never profitable, Jennings called it a solid plan that could be a financial success once it grows outside its relatively small scope in Louisville. The original owners of the plan will remain involved with the company's operations as advisers.
"PHP could be very successful," Jennings said, "but only if you're willing to really back it up with growth and go statewide. That wouldn't benefit the local hospitals. So what was best for PHP was to get someone who had the ability and the desire to create a state- wide network." [[[[