Serious financial problems continue to beset managed care companies in the US. The financial losses at some of the largest companies, such as Kaiser (which is expecting to lose over $500m this year), Humana and Oxford are particularly serious.
These financial difficulties have led to questions about the ability of these firms to continue to provide services to their subscribers. The Health Insurance Plan of New Jersey is a case in point.
HIP was established in 1947 as a health benefit plan for municipal workers in New York City. It has grown to an overall membership of more than 900,000 and has branches in New Jersey, Pennsylvania and Florida as well as New York. HIP is one of the largest group practice model health maintenance organisations in the US. The New Jersey plan grew out of the Rutgers Health Plan, a group model HMO which ran into financial difficulties in the 1980s and which was given to HIP by the state to ensure continued operations. The New Jersey HIP plan has 194,000 subscribers, who receive their healthcare from doctors based in group practices and their hospital care from facilities which contract with the plan.
In the mid-1990s, the company began to experience difficulties managing its group practices and was seeking a solution to its problems. In 1997, it contracted with Pinnacle Health Enterprises, a division of PHP Healthcare, a Virginia-based medical practice management company, to buy all its centres and contract with all of its doctors. The deal was structured so that PHE would receive 91.5 per cent of the premium revenues that HIP collected from its subscribers. HIP would have responsibility for marketing, enrolment and quality control, while PHE would be responsible for running the clinics, paying the doctors and other staff and paying hospital and ancillary bills.
In September 1998, complaints from doctors and hospitals that they were not being paid by Pinnacle began to appear. The state of New Jersey began to oversee the operations amid allegations that doctors were owed $30m and hospitals more than $45m. In October, the state took over formal control of HIP and the medical centres.
The state brought in a managed care company from Texas to oversee and run the operation and fired all the former HIP administrators. Pinnacle then filed for bankruptcy. The state structured a payment arrangement in which doctors and hospitals would receive only 30 cents in the dollar for what they were owed and would receive only 75 per cent future fees until the court announces its judgement. This announcement was followed by a new lawsuit from HIP, charging the executives of Pinnacle with fraud for allegedly misrepresenting the firm's financial position.
The fallout from this debacle has been dramatic. The New Jersey Medical Society ruled that its members could refuse to treat HIP patients (except those already in hospitals) since they would not be getting paid what they had agreed to and expected. This was less harsh than it seemed since the doctors only saw HIP patients in their groups (they had exclusive contracts) and thus were not really in a position to turn anyone away. The New Jersey Hospital Association warned that its member hospitals might need a bail-out from the state since they were losing significant amounts of revenue and were still required by state law to treat everyone who came to the hospital.
At the same time other, smaller HMOs in the state also began to report financial problems - although none of these has had problems as bad as HIP to date. In the case of HIP - and in the case of Oxford Health Plans of New York last year - there seems to have been little impact on users of care and no evidence that subscribers did not get the medical care they had purchased. The impact seems to have been entirely borne by the provider community and the company shareholders.
The real question is what would happen if a really large HMO went under or if subscribers found that they could not see a doctor because the doctors were not being paid. It is likely that this episode will lead to new pressures being brought to bear on Congress to enact a patient's bill of rights.
It is likely that the managed care companies will now step up the pace of mergers and acquisitions so there are ultimately fewer but larger HMOs. There are, of course, drawbacks to the concentration of the HMO industry in terms of lack of choice and monopoly control, but these may be seen as minor side-effects of enhanced fiscal stability.
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