A month ago, a Jacksonville-based managed care group formed as an attempt to provide better-managed, low-cost health care filed for Chapter 11 bankruptcy.
Officials from the group, Mission:Health, cited rising prescription costs and contracts with HMOs that left little room for error as reasons for its financial failure.
Mission:Health's problems are part of a larger trend.
Nationwide, many hospitals and doctors that own managed care plans are facing tight margins brought on by high costs and the lack of size, expertise and capital needed to compete with large insurance companies.
And because of this, many are being forced to close their doors and others are finding themselves with no alternative but to file for bankruptcy.
"The belief by providers is that insurance companies are making enormous amounts of money," said Mike W. Smith, president of Axis Manage-ment Group, a New York-based consulting firm. "Therefore, if they get into the business, some of the profits the insurance companies are making could get distributed back to the health system." Mission:Health was formed by Baptist/St. Vincent's Health System and the North Florida Physician's Association because the health system and the doctors thought they could manage medical costs better than their HMO counterparts. They also saw insurance as a way to make a profit. But without the financial reserves and time to track what services patients were using, they failed, forcing the seven insurance companies Mission:Health contracted with to take back policyholders. In the early 1990s, when HMOs had higher profit margins than they do today, hospitals and doctors entered the managed care industry en masse. According to U.S. News & World Report, by the mid-'90s, more than 40 percent of all new HMOs were being started by doctors and hospitals. But without the high numbers of policyholders, large financial reserves and years of tracking the services patients utilize, many of these provider-owned managed care groups lost money, forcing them to leave the market, Smith said.
WHY THEY LOSE MONEY
These managed care plans tend to lose money for a variety of reasons. One reason that is often overlooked by many providers is the type of patients signing up for the hospital- and doctor-owned plans. "The patients who are the sickest tend to be the ones that join first," said Peter Kongstvedt, a health care analyst with Ernst & Young, an accounting firm. He also said that physicians look at their patients as potential managed care members. But managed care plans' profits come from healthy people who don't frequent doctors and hospitals or use expensive prescriptions.
"The key problem for managed care organizations is reducing discretionary hospitalizations," said Joel Shalowitz, director of the health services management program at Northwestern University.
That's what went wrong with California Advantage, a plan started by the California Medical Association.
Hobart Swan, the association's spokesman, called its patient base "skewed." He said the physicians, who ran the plan, were taking patients no one else wanted. Also, because doctors ran the plan, they didn't control costs like an insurance company would, he said.
"They tended to give a lot more care that a normal HMO might," he said, adding the plan wasn't getting enough in premium dollars from healthy people to cover those costs.
So with expenses rising, the group filed for Chapter 7 bankruptcy.
"It was really hard for [the doctors] to break into the market," Swan said.
Mission:Health officials were in the beginnings of managing their costs when they filed for Chapter 11, said Jack Groover, former head of Mission:Health.
He said the group was starting a program that would have lowered per-member costs by $2 to $3 each month.
"It would've been a dynamite program," he said, adding Mission:Health would have been able to better gear wellness programs to the health issues that policyholders were utilizing the most, which would have in turn lowered costs. …