Texas Children's Hospital in Houston is the latest not-for-profit hospital system to struggle with its health plan.
Texas Children's Health Plan posted a $28.9 million operating loss in the system's fiscal second quarter ended March 31. That loss dragged parent Texas Children's Hospital to a rare quarterly operating loss of $5.4 million on revenue of $885.6 million, according to the system's recent financial disclosure.
In contrast, the system posted a $10.4 million operating gain in its second quarter last year.
The health plan has struggled over the past two quarters with startup costs and higher medical costs from enrollees under a new Texas Medicaid program called STAR Kids.
The 24,370 members added under the program have more medically complex conditions and require more care coordination, which requires greater information technology and infrastructure spending, the hospital said in its disclosure.
After the Medicaid program began in November, the health plan endured a $7.3 million operating loss in the first quarter.
The plan is taking several steps to improve performance, including "renegotiating future premium rates with the state," the company said in its disclosure.
In a statement, Texas Children's said the acuity of patients covered by STAR Kids was 22% higher than the state had anticipated. That resulted in the health plan losses, which the system expects to be cured through a state rate hike in September, the statement said.
"Texas Children's remains committed to serving medically complex children and their families and our overall, system-wide results are positive despite the initial loss experienced by the health plan," the statement said.
Total health plan membership stood at 437,661 through March compared with 396,100 a year ago.
Operating gains at its main hospital campus and west Houston campus more than compensated for the health plan losses in the first quarter. Through the six months that ended March 31, operating income at the system increased to $28.5 million compared with an operating gain of $14.9 million in the year-earlier period.
Many not-for-profit hospital companies are experiencing growing pains with health plans that they started in recent years.
Partners HealthCare System, the parent of Massachusetts General Hospital, announced in December that it lost more than $100 million on its health plan in fiscal 2016. The Boston-based system said it intends to fix rather than sell the plan. Partners' Neighborhood Health plan was heavily responsible for swinging the system's operating income from a $106.5 million gain in fiscal 2015 to a $108 million operating loss in its fiscal 2016, which ended Sept. 30.
Phoenix-based Banner Health is also trying to fix its health plans. The 28-hospital not-for-profit saw operating losses in its insurance operations widen to $153.8 million in 2016, compared with an operating loss of $38.7 million in 2015. Banner is cutting administrative costs, refining benefit plans and focusing on reducing hospitalizations, said Chuck Lehn, executive vice president of strategic growth.
Catholic Health Initiatives, the 103-hospital giant in Englewood, Colo., is trying to sell its health plan after losing $100 million on its insurance business in fiscal 2016.