Condition critical: urban HMOs are struggling to stay afloat. (Business News).

Medical Care Management Co. is one of many African American healthcare organizations on the verge of collapse. The former BE 100s company, whose operations included HMOs, voluntarily filed for Chapter 11 bankruptcy protection last December in the U.S. Middle District Court of Tennessee after missing debt payments. The papers filed in the court listed the company's liabilities at $8.69 million.

Medical Care Management is one of many African American-owned or operated HMOs struggling to survive. This is mainly due to rising medical costs, lower Medicaid-Medicare reimbursement, and serving a population that tends to have more health problems than the national average.

While HMOs have been doing fairly well overall, urban-based HMOs--those primarily servicing lower-income inner-city populations--depend upon government reimbursement for revenues in the form of Medicare and Medicaid. On average, Medicaid, Medicare, and other such programs represent only 27% of the total book of business for the 206 HMOs that report Medicaid enrollment. By comparison, that figure is 80% or more for urban-based HMOs according to the National Association of Urban-Based HMOs (NAUHMO), a nonprofit organization of health plans.

"The populations are poor, and you have a higher concentration of persons on Medicaid living in urban areas," says Dr. Clyde Oden, former president and CEO of Watts Health Foundation, a 117,000-member urban-based HMO in Los Angeles.

And when Congress cuts funding, organizations that are more reliant on the government for revenues are thrown into a tailspin. One casualty was Tennessee Managed Care Network a 300,000-plus member nonprofit HMO based in Nashville. The HMO ceased operations in October 2001 shortly after the state cancelled its Medicaid contract. Members were redistributed to Blue Cross Blue Shield.

Another casualty was The Wellness Plan, a 135-member nonprofit HMO based in Detroit, which was affected when the government reduced the reimbursement rate by 25% in 1997. It has been operating in the red ever since. "The cost of healthcare services exceeds the Medicaid reimbursements," says Isadore J. King, president and CEO at Wellness.

As a result, King had to scramble to stem losses. "We've had to renegotiate all our major provider contracts and are paying them less than what we've paid them in the past," he says. "We're looking at every dollar in an attempt to make sure that we're spending efficiently."

Government cutbacks, which can occur at any time, have a profound impact on organizations dependent upon reimbursement. When the government adopts a wartime or military-laden budget, it is sometimes at the expense of programs such as healthcare.

"The problem is the government often changes the rules in the middle of the ball game, so you can have a program that seems to offer a lot of promise and potential and people want to participate in it, and then two years later the economics have completely changed because legislation or political parties have changed in D.C. and the whole rug is pulled out from under you," says HMO analyst Greg Crawford.

So what will it take to improve conditions for these organizations? "There has to be a real commitment from the government to make sure the program is [unchanged] for a while," says Crawford. "It's very hard to plan a business around a partner whose policies and financial commitment can turn almost on a dime."

While shifting economics and government spending patterns are crippling urban-based HMOs, the ones hurting the most are the clientele who live on fixed incomes and are forced to contend with fewer medical choices and services. As Crawford laments, "There's an economic consequence, but the social consequences are really a shame."

HMO Medicaid Plans

Plan Name                     Disposition

Total Health                  In receivership

DayMed                        Changed ownership, subsequently
                              moved into receivership

Unity HMO                     Exited Medicaid market

Mississippi Managed Care      Closed
Network

Family Health Care Plus       Exited Medicaid market

Xantus (formerly Phoenix      In receivership
Healthcare)

UHP Healthcare/Watts Health   Under state supervision/management
Foundation                    (leadership replaced)

Tennessee Coordinated Care    State Medicaid contract pulled,
Network (formerly Tennessee   plan/company closed
Managed Care Network)

SOURCE: NATIONAL ASSOCIATION OF URBAN-BASED HMOS
Alan Hughes
E-mail: [e-mail]