For students of managed care history in Minnesota (if there are any), it feels like déjà vu all over again. Mike Hatch, an astute and politically ambitious state official, challenges the executives and board leaders of a major healthcare organization, pushing for significant changes in leadership and how business is conducted. When the dust settles, the company has made significant changes in its management and governing board, replacing many incumbent board members with new directors chosen by Hatch.
Attorney General Mike Hatch's investigation of spending practices by Allina Health System, parent of the Medica HMO, has grabbed numerous headlines in the past few months. As a result of the pressure applied by Hatch, Allina agreed at the end of July to undo the 1993 merger that brought the Medica HMO and HealthSpan hospital system together. Allina also agreed that David Strand, the CEO-designate for the system, would not hold that position in either of the companies after the split. Allina and Strand took the position that the decision to split the health plan and provider system was the result of a strategic planning process, not Hatchs pressure, and that Strand had himself decided not to seek the CEO position in either organization. A few days later, seven members were named to a new Medica board with Hatch's "consent."
This sequence of events resembles what happened in the late 1980s. In 1987, Hatch was Commissioner of the Minnesota Department of Commerce, the state's insurance regulator. Note that the Commerce Department regulated indemnity insurance and Blue Cross Blue Shield, but the Department of Health was the state's HMO regulator. He became involved in a bitter dispute between doctors contracting with Physicians Health Plan (PHP), then the largest HMO in the state. The dissenting doctors called themselves the PHP Oversight Committee. They challenged a number of practices, including the over-close relationship between the HMO and United HealthCare (UHC). Officers of the HMO were also officers of UHC. In fact, PHP had no independent staff -- it bought everything from UHC in exchange for a percentage of premium revenues.
The doctors sued the HMO, and the HMO countersued. One of the leaders of the Oversight Committee was Dr. James Ehlen, an endocrinologist and head of the medical staff at St. Marys Hospital in Minneapolis. (St. Mary's was later absorbed by its neighbor, Fairview Riverside Hospital.) Governor Rudy Perpich asked Commissioner Hatch and Sister Mary Madonna Ashton, Commissioner of Health, to mediate between the parties. Hatch pushed the parties to a settlement in which members of the PHP Oversight Committee were given seats on the HMO board. Dr. Ehlen later became chairman of the board and soon after was named CEO. The new board renegotiated the contract with United HealthCare.
Within a few years, Medica and HealthSpan decided to merge and form Allina. Both the state legislature and major employers had sent clear signals encouraging provider systems and HMOs to integrate their operations. After a few years, however, those signals were reversed, and both purchasers and state leaders expressed concern about the impact of significant consolidation by both health plans and provider organizations.
Back to 2001: the Attorney General pushed for the breakup of Medica and the provider organizations, saying that would improve competition in the market and result in lower insurance premiums. He contended that the too close relationship between HMO and provider organization resulted in higher premiums for groups enrolled in Medica. It is correct to say that Medica's premium revenues have increased faster than other HMO - that is borne out by a review of data that we have gathered to prepare Minnesota Managed Care Review each year. The figure below compares Minnesota HMOs on their average commercial premium revenue per member month. It shows that Medica was close to the average in 1994 at about $120 per member per month. Medicas average revenue increased to $178 PMPM, while the average grew more slowly, reaching $166 in 2000.
However, it is not clear to us that relationships within Allina caused those higher premiums. Medica does not use Allina hospitals that much, sending more of its enrollees to Fairview hospitals. Because of its strategy of selling health plans with broad provider networks, it has added competing hospitals to its network, to the direct detriment of Allina hospitals. For example, Medica just added Park Nicollet Clinic to its PPO network. Some patients who used to see doctors that practiced at and admitted to Allina's Abbott Northwestern Hospital will switch to Park Nicollet doctors that practice at and admit to Methodist Hospital.