Maxicare Shuts Utah Operation to Stem Losses
Ailing Maxicare Health Plans is closing its money-losing operation in Utah, giving employers until Sept. 1 to select a health maintenance organization for the 20,000 Maxicare subscribers in the state.
The Los Angeles-based company, the nation’s largest publicly held HMO, announced a management shake-up last week, replacing Chairman and Chief Executive Fred W. Wasserman and President Pamela K. Anderson with outside director Peter J. Ratican.
At the same time, Maxicare revealed that it expects to report a roughly $50-million loss for the second quarter. Since the beginning of 1987, Maxicare has lost $285.2 million, partly because of overexpansion and soaring medical costs.
The shutdown of Maxicare Utah marks the first time the HMO has closed one of its operations, although the company has opted to sell several health-care plans in recent months for what Wall Street analysts have estimated to be about $100 million. Maxicare had tried to sell the 4-year-old Utah plan to Intermountain Health Care, Utah’s largest hospital chain, but a deal could not be worked out.
Following the closure, Maxicare will have 2 million members in 20 states, down from a peak of about 2.3 million members in 26 states.
“The decision to close Utah was a business decision,” Maxicare spokeswoman Tobi Nyberg said. “Utah historically has been unprofitable, and the problem is high hospital rates.” Attempts to negotiate lower rates were unsuccessful, she said.
“In our position, we can’t continue to fund a losing situation,” Nyberg said. She declined to discuss Maxicare’s plans for other money-losing operations.
Utah Insurance Commissioner Harold C. Yancey said Wednesday that seven other HMOs immediately will begin marketing their plans to employers as a substitute for Maxicare, Utah’s fourth-largest HMO. Although employers will not be required to pick a new HMO until Sept. 1, Maxicare will not be responsible for patients’ bills after Wednesday. Instead, the seven HMOs will pay the bills incurred by patients they sign up, so there will be no lapse in coverage.
An administrator will be selected to settle the debts of Maxicare Utah, an independent subsidiary that has filed a liquidation petition through Utah’s state court system. The size of the subsidiary’s debt is not yet known.
HMOs charge patients a set monthly fee, most of which is paid by their employers. In general, doctors who contract with an HMO are put on a monthly budget rather than being reimbursed for specific services.
The closure of Maxicare Utah was first announced at a news conference Tuesday in Salt Lake City during which Commissioner Yancey said he hoped doctors and hospitals “will continue to see their patients and honor the agreements with Maxicare.”
“The health providers are going to have to make a business decision . . . (but) their claims may or may not be paid,” the Associated Press quoted Yancey as saying.
Telephone calls from panicked patients and employers deluged Salt Lake Clinic, Maxicare’s largest contractor in Utah, said Administrator Robert Smith. “That got a lot of people scared . . . but we’re seeing patients as usual here,” he said.
Maxicare on Wednesday objected to the suggestion that its members’ health coverage was jeopardized. “Members were never not covered,” Nyberg said.
However, Deputy Insurance Commissioner Randall Smart said the agreement with the seven HMOs to pick up coverage of Maxicare members was reached only Wednesday morning, well after the Tuesday news conference.
“We certainly are a lot more optimistic today (Wednesday) than we were yesterday,” Smart said. “A lot has transpired in the last 24 hours, most of which has been positive.”
As for the doctors, hospitals and others who will be Maxicare’s creditors under the liquidation, “I honestly don’t believe that everyone who is a creditor or a claimant will get 100% of their claim or else it wouldn’t be in liquidation,” Smart said.
Smith of Salt Lake Clinic, which treated about half of Maxicare’s Utah patients, said Utah is a high-cost state for HMOs.
For example, obstetrical expenses, a pricey service for HMOs, make up 50% of hospital costs for HMOs in Utah, compared to 35% nationwide, Smith said. Families also tend to be larger in Utah than in other states, he said.
“It’s not just Maxicare,” Smith said. “There are a lot of HMOs that are trying to scratch out a foothold here and have been having a hard time.”
