During the mid-1990s, starting new HMOs was a growth industry. New opportunities were opening to serve employers, state Medicaid programs and seniors on Medicare. It seemed that everyone wanted to get into the business: insurance companies and PPOs, entrepreneurs and, especially, hospitals and hospital systems. They concluded that the best way to regain some of the economic power they had lost to HMOs was to try and play the same game. From 1995 to 1997, literally dozens of HMOs were formed (or acquired in a few cases) by hospital organizations.
Many of the HMOs were formed by hospitals to participate in state Medicaid managed care programs. A smaller number thought that Medicare plans provided a good business opportunity. Others thought that they could compete with commercial HMOs in their local markets.
However, most of these hospitals found the results to be disappointing. Affiliated physicians wanted better payment rates, which would have made the health plans non-competitive. Other local HMOs questioned if they should do business with hospitals that owned competing health plans. Competition drove down employer premiums while medical costs soared.
The pendulum has now swung the other way, and hospitals are getting out of the HMO business in droves. Having ventured, often with disappointing results, into health plan ownership, physician management and other non-core businesses, some hospitals have concluded that they would be better off to "stick to their knitting" and to focus on the acute care business. Here are some examples of hospitals getting out of the HMO business.
In Colorado, Centura, one of largest hospital systems in the state, bought a share of the Sloans Lake HMO in the mid-1990s and later bought out the other shareholders. Centura also acquired physician practices and provided the capital for a group of physicians to re-open a mothballed hospital. In 2000, it sold the HMO to Anthem Blue Cross Blue Shield and its PPO to local entrepreneurs. It had already given up on its investment in the hospital.
Health Network of Colorado Springs, a physician-owned HMO, announced that it would go out of business. Health Network had close ties to the Memorial Hospital in Colorado Springs.
In Michigan, the three Detroit-area hospital systems that owned SelectCare put its HMO and PPO operations on the market more than a year ago. SelectCare sold its HMO to health Alliance Plan and its PPO to PPOM, a subsidiary of Blue Cross Blue Shield of Michigan.
Several Michigan hospitals got out of the business of running Medicaid HMOs. When the state accelerated its move to managed care, hospitals and others lobbied the state legislature to allow hospitals to form clinic plans that would contract with the state but would not be required to secure a state HMO license. Many hospitals did just that, and formed "qualified health plans" for Medicaid business. Within a few years, the state decided that it would require these plans to get an HMO license and meet all the requirements for minimum capital and information systems. When the state went out for a new request for proposals in 2000, some of the plans didn't bid and have gone out of business. Among them are the Medicaid plans run by the Oakwood and St. John systems.
Not every hospital is getting out of HMOs. In Michigan, the Henry Ford System and its Health Alliance Plan are leaders in the market. In the Grand Rapids area, Priority Health Plan is prospering, and local hospitals in Lansing, Jackson, Muskegon and Kalamazoo operate Physicians Health Plan. In an unusual twist in April, the Detroit Medical Center (DMC) acquired OmniCare, an HMO that was one of the first HMOs formed to serve Medicaid recipients in Detroit and which also had commercial business. A year ago, the DMC had sold its 35,000-member Medicaid plan to OmniCare. However, OmniCare sustained huge losses in 2000 and needed a major capital infusion to meet state net worth requirements. The DMC did not pay any cash for OmniCare, which was way behind on its payments to DMC.
Orlando Regional Healthcare System in central Florida closed its Medicare HMO in 1999, while the competing Florida Hospital system had earlier closed its Medicare demonstration plan. Tampa General Hospital Health Plan, a Medicaid HMO, was sold to WellCare.
The sponsoring hospitals of Florida Health Choice in Delray Beach (Palm Beach County) sold the plan's membership to Beacon Health Plan. That HMO had been acquired earlier by Dr. Stephen Scott, an entrepreneurial physician from North Carolina, who has now taken over five money-losing HMOs in Florida.
The Mayo Clinic has announced that it will close Mayo Health Plan in Jacksonville. A year earlier, it had decided to close its Minnesota HMO. Mayo continues to administer PPO arrangements for employers. Both HMOs were small and had generally lost money. Mayo may have concluded that the cost of maintaining the HMOs was not worth the return.
The Altru Health System in Grand Forks, ND, in which operates HMOs in both Minnesota and North Dakota, is exiting the HMO business by forming a joint venture with Noridian, the parent company of Blue Cross Blue Shield of North Dakota. It has already transitioned almost all of its North Dakota business to the Altru Choice product and will do the same for Minnesota over the next year.
Ohio Health in Columbus closed its HMO a few months ago, though it will stay in the PPO business. Mt Carmel Health System in Columbus continues to operate a Medicare+Choice HMO, although it has run up significant losses since it started. Community Health Plan, which had been owned by a dozen community hospitals in Central Ohio, has seen almost but one of them drop out.
In Illinois, Accord Health Plan phased out its HMO operations in 1999 and 2000. Accord is a loose network of nonprofit hospitals in the Chicago area. Its HMO at one time had commercial, Medicare and Medicaid business. The University of Chicago ran a Medicaid plan in the mid-1990s but closed it after a short time.