by Jim Harris on Monday, Oct. 26, 1998 12:00 am
American Health Care Providers Inc., the Matteson, Ill.-based company that operates American HMO, said two weeks ago that it would no longer offer its HMO and point-of-service plans in Arkansas. American could not push beyond the 20,000-enrollee threshold in the state market.
That market is clearly dominated by Arkansas Blue Cross and Blue Shield, which along with Baptist Health owns HMO Partners Inc., better known as Health Advantage.
In 1997, Health Advantage accounted for 53 percent of the state's total HMO premiums. Its premiums totaled more than $191 million. Combining all of its offerings, Arkansas Blue Cross and Blue Shield's premiums total $640 million and make up more than a quarter of the state's $2.3 billion health insurance industry.
In fact, though Health Advantage was not the lowest priced HMO offered in the recent enrollment of the state's public school teachers and was locked out of offering a point-of-service plan, the company still maintained a high percentage of previous enrollees.
United HealthCare of Arkansas Inc. is the second-leading player and has grown substantially over the past two years. Its HMO totaled 47,000 enrollees as of March 31, and its total membership - including fully insured plans, self-insured plans, preferred provider organizations and managed indemnity plans - is more than 130,000.
QualChoice of Arkansas Inc. is the most recent active entrant in the market, and the company received a jump start for its HMO in late spring when it was the low bidder for the state and public school employee HMO contracts and was the sole choice for the combined groups' point-of-service plan. Though QualChoice could not wrest away much of Health Advantage's business, it enrolled about 18-19 percent, according to the company's executive director, Jim Stewart.
William M. Mercer Inc., the St. Louis consulting firm that worked with the state employees board on its insurance recommendations, forecast that about 30 percent would chose the QCA point-of-service plan, a combination of the best parts of an HMO and PPO. As it was, the teachers favored the less expensive HMOs over the point-of-service plan, but most were willing to pay a little more for Health Advantage.
Cigna/Healthsource Inc., according to the most recent Arkansas Insurance Department figures, has remained stable with about 33,000 enrollees. Before the start of the year, the company and St. Vincent Health System severed their partnership that began in 1994.
Prudential Health Plans of Arkansas Inc. stands fifth with more than 17,000 enrollees in its HMO. If one was to speculate about the Arkansas HMO landscape in two years, Prudential might be the most likely candidate to disappear, if only that its parent, Prudential Insurance Cos. of America, has reportedly been trying to sell off its health care division for more than a year, albeit with no takers.
According to industry sources, Prudential's Arkansas division has moved the bulk of its member services to Houston, but a number of employees remain in Little Rock. Norine Yukon, who was Prudential's executive director in Arkansas, left the company late last year for a managed care position in the Northeast. Vic Lazaro now oversees the Arkansas operation from Houston.
Mercy Health System of St. Louis' HMO is licensed for that provider's holdings in Arkansas, which include St. Edward Mercy Medical Center in Fort Smith.
One HMO retains a license in Arkansas but is inactive. Tri-Pointe Health Plan, based in Nashville, Tenn., had big plans for Arkansas more than a year ago, but it cited problems in assuming other business in Kentucky and Tennessee for delaying its entry into the state. Tri-Pointe has yet to follow through with plans here.
American HMO's plight might be reason enough to stay away.
"The reality is that Arkansas is not a good market for managed care today," says Asif A. Sayeed, the chairman and chief executive officer of First American Group of Cos., which owns American HMO. "We can no longer maintain an operation that can deliver the quality of care that we consider essential."
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Several factors outside Arkansas hastened American's departure, but it was obvious for some time that its leaving was imminent. The company was heavy into marketing from 1992-96, but of late it had cut back significantly in its advertising. Fort Smith accounted for about 30 percent of American's business, but the HMO had begun notifying employers there of plans to leave that market a few weeks ago. American HMO will officially be out of Arkansas on April 30.
American has enjoyed far more success in Illinois and Indiana, the other states in which it operates. Two acquisitions in that area had added about 200,000 new enrollees, the company says, and made it easier to turn attention away from Arkansas.
And American officials couldn't see the HMO/provider relationship changing soon enough to suit its bottom line.
"The fundamental problem in Little Rock and other areas of Arkansas is an excess supply of physicians and an excess supply of hospital beds," says Dan Splain, American's executive senior vice president.
Splain explained that reimbursement of providers for health care services is higher in Arkansas than metropolitan areas such as Chicago, resulting in a hospital admission and bed day rate 50 percent higher than what is found in Chicago.
He adds that Arkansas providers have shown "strong hostility"' in dealing with HMOs.
Industry sources say American HMO offered one of the best provider/physician lists of any company - the company will continue to lease its list to other insurers, and it will continue to operate a PPO. The only negative mentioned about the company was the occasional complaints of slow payment.
But American only had 6.24 percent of the HMO market last year. As a part of the entire health premium picture in Arkansas, American accounted for just 0.9 percent.
American wasn't going to wait around to build those numbers, but apparently there is room for all HMOs to grow. Though managed care (including PPOs and self-insureds) have grown beyond 50 percent market penetration in Arkansas during the 1990s, HMOs made up just 15.8 percent of all health care premiums in 1997.
Apparently when Arkansans think HMOs, many first think of Health Advantage. That is the apparent message of the recent enrollment of public school employees that began in August. That contract went into effect Oct. 1. The enrollment for state employees is under way, with that contract beginning Jan. 1.
According to David Howell, executive director of the Arkansas State and Public School Employees Insurance Board, the two groups account for a potential 75,000 enrollees - 45,000 teachers and 30,000 state employees.
Health Advantage was not the lowest-cost bidder for an HMO and was not chosen as the POS offering. But as of figures on Oct. 19, according to Max Heuer, a spokeswoman for Blue Cross, Health Advantage and the Blue Cross PPO indemnity enrolled a combined 72 percent of the employees.
"That was a good test for Blue Cross: 'Can we not be the low-cost bidder and still keep the membership,'" says Rob Herndon, chief executive officer of United HealthCare of Arkansas and the president of the Arkansas Association of HMOs.
Even Stewart, whose QualChoice/QCA offered the lowest-priced HMO and the only POS, doffed his cap toward Health Advantage and Blue Cross.
"As a competitor, I have to say it was an admirable performance," he says. "They obviously had relationships with those customers and many of those customers, in spite of higher prices, picked one or the other Blue Cross plans."
Still, Stewart says, the state and public school employee rolls have boosted his firm's totals.
"The QCA health plan was very small. We ended 1997 at 4,400 members. With January enrollment and with the recent enrollment of teachers, we're at 30,000 members [for the HMO]. We have been adding commercial members, about 20-30 groups a month, or about 1,000 enrollees total a month." With all its managed care offerings, Stewart says, QualChoice has about 60,000 members and should reach 70,000 by Jan. 1.
The not-for-profit QualChoice already was offering a managed care plan for some state employees since its inception. QualChoice was created when the University of Arkansas for Medical Sciences sought a managed care plan to compete with the other providers with managed care links. Tenet Healthcare Corp., which has several Arkansas holdings and is partnered with St. Vincent Health System, bought a significant share of QualChoice last year. QualChoice is also partnered with The Zenith National Insurance Corp.
The tie with Tenet and St. Vincent gives QualChoice a network that covers about 75 percent of the state.
"We feel we've put a lot in place that will make us a strong contender as the market begins to mature," Stewart says.
A maturing market likely will mean a contracting market, says United's Herndon, though he's reluctant to speculate as to "who, why or when. But I think the market will contract a little bit." It has long been speculated - and was reaffirmed by American HMO's officials in discussing their decision to leave - that the Arkansas market could only support three HMOs.
Figure the Birmingham, Ala.-based United Healthcare to be among the players who will stay for the long haul. United is licensed in 42 counties in Arkansas - focused on the most populous counties.
"We continue to see growth and stable growth factors, growth trends in our products," Herndon says. "A lot of companies will see big spikes and low valleys in growth. We have continued to grow in Arkansas and we don't see any strong barriers that will keep us from continuing."
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