The CMS intention to raise payments to Medicare Advantage managed-care plans came a few months too late for a physician-owned plan that recently shut down in Miami. But whether more money could have saved it is debatable as the closure offers an insight into the risks hospitals and physicians face in trying to run their own health insurance company.
Inadequate capitalization, inexperienced administrators and sicker-than-average patients were some of the reasons for the failure of DoctorCare, a physician-owned Medicare Advantage plan in Miami that was shut down in November 2006 by Florida regulators.
We paid all our bills, but the actuary said the incurred but not reported (expense) was out of whack by $8 million. It all happened in a matter of a few months, says Julio Pita Jr., chairman of DoctorCare and a Miami-based endocrinologist.
Soon after an audit by the Florida Department of Financial Services uncovered the deficit, state regulators appointed a receiver to manage the company. On Dec. 1, 2006, the CMS terminated the plans contract.
We could fix inefficient care by working with high-utilization doctors, but we didnt have time to collect the $15 million to
$17 million we believed Medicare owed us for DRG coding errors, Pita says. The management was good but not as experienced as we needed.
As of December 2006, there were 403 Medicare Advantage plans, including six owned by physicians, each averaging about 17,000 members. DoctorCare, with about 7,000 members, is the only physician-owned plan to have failed during the past year, according to the CMS.
In April, the CMS said it would be boosting reimbursement rates to Medicare Advantage plans by 4.1% in 2008 (April 9, p. 8).
Some doctors get itthey provide high quality and are efficientand some dont. You need to police them or get rid of them, says Pita, who also is associate clinical professor at the University of Miami School of Medicine. There is enough blame for everyonephysicians, administrators, the system and the cutthroat local healthcare environment.
DoctorCare was started in January 2005 with a $5.5 million investment by 200 physicians and a 20% ownership interest by outside investors. Most members were patients of the doctor-investors.
The premise of DoctorCare was if you take physicians who deliver the care and make them owners that they would guard quality and make careful decisions using generics, shorter hospital stays and diagnostic services, Pita says. That premise failed because some doctors invested lots of money but some invested small amounts. In the end the economic pressures did not alter the way they practiced medicine.
Pita says an experienced managed-care executive familiar with the plan told him that our physicians were thinking of their daily income and not of wealth
Problems started in early 2006, when the plan expanded from about 5,300 members to 7,000, Pita says. They were high-utilizers, he says. We did not keep up with tracking high utilization.
Some doctors had a 70% medical-loss ratio, but others had up to 160%, Pita says. We had a method to identify those doctors and talk with them, but we did not handle that as aggressively as we should have, he says.
Another problem was a too-heavy reliance on contracting with 367-bed Mercy Hospital, Miami, one of six network hospitals.
With 90% of our doctors admitting to Mercy, you would think they would give us a break, Pita says. Mercy charged
us much higher rates than other third-party payers.
While Pita says mistakes were made, physician-owned plans must adopt strict business practices to succeed, a model that many doctors may view as no different from traditional insurers.
I am not sure if you can devise a system to (entice) doctors to be owners, Pita says. In the end, you have to supervise them very closely.