Another Kansas hospital run by North Kansas City-based Employees at Horton Community Hospital in northeast Kansas said they It's the latest in a months-long string of similar cash flow problems for EmpowerHMS, which until. enough supplies and failed to keep the electric and trash bills paid. financial trouble. Employees at Horton Community Hospital in Another Kansas hospital run by troubled North KC-based firm can't pay its employees. Employees at Horton Community Hospital in northeast Kansas said they didn't receive their paychecks Friday and Click to Another Kansas hospital run by troubled North KC-based firm can't pay its employees He died heading to the game, cops say Charity gave NC man with ALS Super Bowl tickets.
hospital by its KC-based troubled firm employees Kansas can’t pay Another North run
Mike Murtha, a spokesman for a rural hospital advocacy group affiliated with Perez, said in December that Empower's cash flow issues were temporary. But Krissy Torkelson, the top nurse at Horton Community Hospital, told the Topeka Capital-Journal that in addition to missing payroll last week, Empower had failed to purchase enough supplies and failed to keep the electric and trash bills paid.
In addition to the bed hospital in Horton, Empower still manages a facility in Oswego, Kan. State officials have said they're monitoring the situation. The company bills itself as a savior of rural hospitals, which are facing financial headwinds nationwide. But Perez and other Empower leaders are under investigation in Missouri for a billing operation they allegedly ran through Putnam County Memorial Hospital in Unionville, which is no longer affiliated with them.
Rural critical-access hospitals get paid more for performing the same tests as free-standing labs. Missouri state Auditor Nicole Galloway said lab revenue rose astronomically at Putnam County after another Perez-affiliated company took over.
Her office questioned whether the hospital possibly could have performed all the tests, or whether it was being used as a shell to funnel bills through. Perez was also an executive in a company accused of running a similar scheme in Florida, at a hospital that went bankrupt. A pending lawsuit brought by a Mission Hills couple with an investment stake in 10 of the Empower hospitals alleges that he and others wanted to use those hospitals as lab billing shells as well.
But the controversy has taken a toll, with Blue Cross and Blue Shield of Oklahoma excluding several Empower hospitals from its network last year due to lab billing concerns. KP—Carolina opposed the surcharge, claiming that risk should not be computed solely as a function of age and that the SHP did not compensate KP for the older members that it attracted.
KP—Carolina's national perspective—that there should be no preexisting exclusion period of any sort and no lifetime cap on benefits—ended up hurting its bottom line. Most of the other HMO competitors had both an exclusion period and a lifetime cap on benefits, which meant that those people who had reached their lifetime maximum in another plan or who had serious medical conditions that could not wait out the usual six-month preexisting condition period enrolled in KP.
A risk adjustment that also considered the patient's sex and severity of illness would have enabled KP to receive more than the standard monthly payment when the employee's health status was less favorable than average. Newer companies such as Wellpath gained market share in the state health plan membership by initially offering their plans at prices significantly lower than KP—Carolina's.
Because younger and healthier employees were motivated primarily by price, these new options were able to attract better risks, leaving both KP and the older HMOs with disproportionately more bad risks UNC Other SHP policy choices also exacerbated the adverse selection problem over time. Unlike some other public employee health programs, the State Health Plan pools retirees and active employees.
These policies had at least two negative effects. Second, this situation probably created an adverse selection, since dependents would have a strong incentive to obtain coverage elsewhere and those who could not would likely include some members who were unable to do so because of their health status. As a result of these problems, by the premium for KP and other health plans was actually greater than that of the fully subsidized percent employer paid CMMP option in the SHP see figure 1.
Although KP initially entered the SHP as a plan option with a premium that undercut even the CMMP's premium, the combination of low enrollment incentives to state employees and the enforced subsidization of the CMMP translated into higher premiums after the first year, further reducing enrollment incentives for state employees. Over time, as KP's premiums rose, most of its members who left went back to the CMMP, which did not raise its base premiums at all from to A smaller number of members transferred to less costly competitor plans.
During this period, KP's premium, paid by the employees, was between 20 and 46 percent greater than the CMMP's employer-paid premium. Thus, at some point, the cost differential became too high, first for the healthier members and then even for the sicker members. Cohesive physician organizations can find ways to inhibit the entry and growth of prepaid group practices.
This can include informal means, such as the public characterization of PGPs as dispensing low-quality medicine. Physicians and hospitals in the traditional medical community in North Carolina were quite hostile to prepaid group practice. KP—Carolina did not adequately anticipate the magnitude of this resistance and so was slow to counter it.
The North Carolina Medical Society also was generally opposed to KP—Carolina, and in fact, some specialist medical societies organized against prepaid health plans. The nature of the market itself may have contributed to KP's failure to expand in this new region. PGPs require sufficient population density so that they can enroll a critical mass of members within a referral area sufficient to support a multispecialty group practice that represents most of the secondary care specialists.
The Research Triangle had the smallest and least dense population base of any market in which KP operated. The market analysis on which KP based its decision to enter the state suggested that KP—Carolina would have had to enroll 40, members in order to achieve financial viability, a figure that, in retrospect, looks astonishingly low.
As it turned out, KP—Carolina needed a much higher enrollment, perhaps as many as , members in the Triangle alone, to reap the economies of scale on which its business model depended.
Although it exceeded that number in the state, it never gained that market share in the Triangle. Two important marketing and financial assumptions proved difficult to meet: For KP to market its comparative advantage, employers would need to be willing to offer choices among plans and also be willing to structure the choice so that employees could share the savings if they selected a less expensive plan.
As is the case with any new health plan, KP—Carolina faced a two-tiered marketing challenge. First, it had to convince employers to offer its product. Then, if employers offered several different options to their employees, KP had to convince the employees to choose its product over other health plans. Most employees worked in firms in which multiple choices would be very costly to administer, such as national firms with a small concentration of employees in many regional markets.
And not until , facing the rising costs of employee health benefits, did the Research Triangle's largest employers, like IBM and Cisco Systems, become members of the newly formed Triangle now North Carolina Business Group on Health personal communication from Jack Rodman, May 20, Unfortunately for KP—Carolina, many employers especially small firms preferred contracting with a single carrier or insurer that could offer a menu of health plan options to contracting with multiple carriers.
Major commercial carriers and insurers have capitalized on the administrative convenience of single-plan replacement and have developed employee-choice products for small employers. Because of adverse selection and other concerns, carriers often refuse to offer a comprehensive plan alongside a different carrier's plan that has a markedly different level of coverage.
For example, a KP manager noted that many of the large banks in Charlotte claimed that commercial insurance carriers offered better deals, broader geographic coverage, and greater physician choice than KP—Carolina could. In addition, some large employers were national firms with centralized buying offices that negotiated only with those health plans that had a presence in several states, including those where KP did not have a presence.
KP—Carolina faced two other challenges in marketing its product to private-sector enrollees. First, employers that contracted with KP—Carolina often continued a historical practice of paying all or a high fixed percentage of the monthly premiums. KP's initial market analysis signaled the pervasiveness of this practice when it noted that only 35 percent of the employers it surveyed required employees to pay all or part of the monthly premium KPAS That is, two-thirds of the surveyed firms dampened one of KP—Carolina's key selling points to prospective enrollees: In addition, KP's premiums were higher than those of some of its competitors.
Consequently, KP—Carolina attempted to enroll recent arrivals to the state, the majority of whom relocated to the Charlotte and Triangle markets. In addition to meeting the two-tiered marketing challenge, KP's success depended heavily on efficiently providing medical care through the group-practice model.
Here, too, the Carolina Permanente Medical Group encountered difficulty. As one interview participant noted:. In those markets where [KP] had created a favorable cost structure, the local medical group has essentially taken and executed the responsibility for making that happen. They have found ways to perform more effectively than community physicians, often requiring some sacrifices on the part of the physicians to achieve that level of performance either in how hard they work or in how much they get paid or in how they utilize resources.
The medical groups have themselves created those efficiencies. Whether it's will or skill or circumstances, the medical group in Raleigh was never able to achieve the level of efficiency that would afford that kind of cost structure. The CPMG also faced the dilemma of having to operate many small clinics in order to maintain convenient access for its geographically dispersed enrollees, even though the high fixed costs of doing so undercut its ability to achieve and sustain the scale efficiencies necessary to support its cost-leadership strategy.
Those clinics were filled. However, not all of KP—Carolina's nine medical offices had such a high volume of patients. KP—Carolina and the CPMG could not achieve the economies of scale necessary to generate and maintain market share by offering lower premiums, lower out-of-pocket expenses, and more comprehensive benefits to prospective enrollees.
PGPs require a supply of high-quality providers hospitals and specialists willing to contract on terms similar to those granted to other carriers. The CPMG did not employ its own specialists or own its own hospitals, as KP and its medical groups did in other parts of the country. Even obstetric and gynecological services, often considered primary care specialties elsewhere, were not provided by the CPMG until the early s, perhaps because KP—Carolina lacked the volume necessary to support the fixed costs of internalizing these services.
This meant that the CPMG exerted less control over utilization and costs than it might have. And many interview participants suggested that the CPMG compounded the problem by contracting with specialists and hospitals at unfavorable fee-for-service rates. The high fixed costs of maintaining a PGP infrastructure became an increasing liability as new market entrants increased the level of price competition.
Prospective enrollees did not see a significant enough price difference to offset the restricted choice and geographic inconvenience of KP—Carolina physicians and facilities. People were looking to the health plan where they could maintain their provider relations. Like other organizations with multidivisional structures, KP's corporate headquarters struggled to find the right balance between giving new regions the flexibility and autonomy they needed to respond to local market conditions and advancing KP's corporate goals and maintaining consistent policies.
Some of KP's corporate decisions benefited the organization as a whole but constrained the region's ability to respond to start-up demands in a challenging market. For example, the company required the region to repay its start-up debt with interest, at rates that some former KP—Carolina managers described as above market. From the KP corporate point of view, the decision made sense given its experience in Texas, where the West Coast medical groups had been incensed about having to subsidize an operation that lost money for 15 years.
Moreover, it needed its investment repaid quickly, as its West Coast regions were clamoring for funds for information technology and facility upgrades. In our interviews, current and former KP corporate executives downplayed the significance of the debt service requirement in KP—Carolina's performance problems, but former KP—Carolina regional managers expressed a different point of view.
Similarly, in the early s, KP's corporate headquarters urged KP—Carolina and other regions to develop business plans for achieving and sustaining a 15 to 20 percent price differential from competitors. Faced with heated competition from network-model managed care plans, KP corporate headquarters jointly conducted a study with a major consulting firm and affirmed its commitment to the cost-leadership strategy.
The consulting firm encouraged KP to think about market share as an important success factor. The conventional wisdom was that with a good economic base, marketplace presence was a key factor.
At the time, KP—Carolina had just reported its first profitable year and had priced its product above the average for the market in order to reflect its true costs of operation including service on the start-up debt.
Again, the opinions on the wisdom of this corporate decision differed. As one CPMG leader stated:. We were encouraged, to use a mild word, to reduce our operating infrastructures enough to support a 15 to 20 percent lower price point. But we were unable to cover the cost of what we were doing. The solution was applied uniformly across the organization, which I think in retrospect everybody believes was a problem.
Current and former KP national executives disagreed, arguing that the problem was not the wisdom of the strategy but, rather, its poor execution by the medical group. Corporate executives cited the inability or unwillingness of regional leaders—especially in the CPMG—to build a sustainable business model based on tight cost control. These constraints were said to include limits on plan and benefit design as well as on advertising, sales, and marketing.
Interview participants disagreed about whether the failure to achieve the requisite operating efficiencies to sustain this corporate objective resulted from problems of ability, willingness, or circumstances.
The general business literature indicates, however, that simultaneously achieving revenue growth and cost control in a start-up is daunting even under ideal market circumstances e. Like many organizations, KP routinely transferred personnel laterally in order to shift needed expertise from one region to another and to enhance career development. Several interview participants reported, however, that this did not work well in the case of KP—Carolina. In particular, some suggested that KP staffed the North Carolina region with senior managers who had little start-up experience or entrepreneurial spirit: Not surprisingly, senior KP—Carolina managers disagreed, contending that the lack of entrepreneurship stemmed not from inexperienced management but from national corporate constraints on innovation.
The original leadership brought in to start this region was supposed to replicate, not innovate. The job was to replicate the KP model in North Carolina.
There was no room for entrepreneurship, nor would it have been welcomed. We were given binders of material that we were supposed to use—staffing ratios, financial reporting formats, marketing materials, benefit plans, graphic standards, staff training tools, even floor plans. They wanted us to stick to the recipe. It was the Oakland way—or no way. As the competition from less restrictive managed care products intensified, KP—Carolina tried to complement its group-model HMO with a point-of-service product and an IPA-model product.
Two problems immediately arose. First, KP—Carolina did not have the organizational capability to effectively manage an extensive network of contracted providers. Its business systems could not track members as they moved through a more open, networked delivery system, pay claims in a timely and accurate manner, or monitor utilization across loosely affiliated physicians and hospitals.
As one former CPMG employee noted:. We didn't know how to pay a claim. We hadn't had to pay very many claims. We had a lot of capitated and prepaid specialty arrangements and all of a sudden we started getting claims in, and I remember when 50,, you know, six months of claims went unpaid. Other KP—Carolina managers concurred: KP—Carolina managers and medical directors found it hard enough to build the familiar group-model delivery system from scratch under less than hospitable market conditions.
Simultaneously creating and managing a network model so far removed from KP's core competence proved impossible. As one KP—Carolina manager said: Moreover, by trying to straddle the gap between staff-model and network-model product markets, KP—Carolina diverted precious resources from its core product and its core constituencies. As one former KP—Carolina manager noted: The original group-health model concept did not get the attention that it needed and started to deteriorate.
This seemed a good way to build enrollment, increase volume, and counter the growth of competing products. Reflecting on KP's flirtation with network models in North Carolina and other regions, several interview participants commented that the flawed strategy nearly cost the company its soul. Perhaps this is the most important internal lesson that KP as an organization could learn from its North Carolina experience. It is easy for outside observers to be critical of a business strategy and outcome after the fact.
However, reflecting on our analysis of the North Carolina experience, David Lawrence, KP's CEO at the time, concluded that the regional failure was due to an internal corporate failure to understand how to expand:. KP expanded with a missionary zeal that substituted for careful, thoughtful planning and development of the core modules required to incrementally build a viable business.
We did not learn from other industries, follow established pathways for successful expansion that have occurred in other industries, etc. It is an important lesson for us. We operated with a California bias and had no real understanding of what was required to accomplish, execute a start-up, and to build a successful business. I do not think the model was wrong; rather, it was in the execution.
Stated differently, I do not believe we have tested whether or not the model can be successful yet. We thus conclude that the KP experience in North Carolina illustrates in microcosm the complex interdependencies that determined the fate of a KP expansion effort, not to mention similar efforts by other PGPs around the country.
The demise of several KP regional expansions reinforces the importance of the numerous interlocking pieces that are necessary to foster a market in which a prepaid group practice can exercise its competitive advantage. It is clear that in North Carolina none of the important factors was pointing in the right direction. However, while KP used to be able to charge less for more comprehensive benefits than others were charging for less comprehensive benefits, KP now has a smaller price advantage.
KP's historical business model attempts to build efficient-scale operations and vigorously pursue cost control while maintaining acceptable levels of quality and service.
Achieving low overall costs requires enough enrollees to support the internalization of most specialties into the medical group as well as access to production inputs e. By achieving low overall costs through efficient, high-volume operations, KP can offer low premiums and low out-of-pocket expenses as well as more comprehensive benefits.
Furthermore, in its fully perfected version, the Kaiser model would offer more coordinated care delivery through a group-practice culture and internal coordination among medical and hospital service providers in exchange for a more restricted choice and, sometimes, less convenient access. The historical business model clearly did not succeed in North Carolina.
Where KP has been successful in entering markets, an important factor has been strong backing from influential local organizations e. Local sponsors such as unions have provided an enrollee base and lent important political support. On the West Coast and in Colorado, Kaiser had strong backing from the AFL-CIO, which liked its emphasis on comprehensive benefits and preventive medicine and demanded that employers offer Kaiser as an alternative to traditional insurance.
Regional expansions have also been successful in Georgia with more than , members and in the Washington, D. While there were widespread losses in the competitive Atlanta market, KP's ability to consolidate allowed it to reach a critical mass of enrollees. Kaiser has also continued to grow steadily in Colorado, Hawaii, and on the West Coast. It was able to build on the West Coast from the s through the s, when the managed care industry was young, and independent competing medical groups were scarce.
It achieved a network scale and scope that would be difficult to replicate today, when the industry is mature and competitors abound. When Kaiser expanded outside its core markets in the s, as was the case in North Carolina, the industry was maturing, and sophisticated competitors were plentiful.
The North Carolina case illustrates the difficulties of replicating the vertically integrated model in new geographic markets under these circumstances. Kaiser Permanente maintains a dominant position on the West Coast, and hybrid entities that embody some but not all the elements of prepaid group practice can be found in many metropolitan areas. In its most recent report, Kaiser Permanente's national membership in nine states and the District of Columbia remained flat at 8.
But the trend in the health care marketplace generally is toward broad-network insurance products divorced from provider systems, retrospective rather than prospective payment, a purchasing framework that emphasizes copayments at the time of service rather than a cost-conscious choice at the time of insurance enrollment, and an institutional framework hostile to the principles and practices of managed competition.
In six of the eight geographic regions that Kaiser Permanente serves, the two largest customer groups are state and federal employees. In the other two, the largest enrollee groups are federal employees and a public school system. In the FEHBP, the benefits are not as standardized, but the Office of Personnel Management has required that the benefit packages offered be fairly comprehensive.
However, not all is perfect even in the ideal purchasing environment. In the CalPERS program, Kaiser is concentrated in urban areas in California, where health plan competition still works, which means that with a statewide premium, the PGPs enjoy the luxury of not having to operate in rural areas that are costly because of local provider monopolies but where the self-funded PPOs do operate.
It is likely that certain markets, such as most rural or commuter areas, may not have the geographic conditions to sustain a profitable private-sector PGP, even when these conditions are met. What can private employer and public policymakers do to make market environments more hospitable to the PGP model of care delivery?
The essential insight of managed competition, as a reform, is to divide the provider community into competing economic units and then to offer employees a responsible choice with premiums that reflect the differences in per capita cost, in order to give them an incentive to choose the efficient providers Enthoven If a critical mass of employers were able to do this in any market area, managed competition advocates still claim, they would create the environmental conditions in which efficient delivery systems could enter, market their superior value for the money, and achieve economies of scale.
The following elements must be present if a PGP is to have access to the employee not just employer market: Recent research has shown wide variations among providers in the resources used to treat the same conditions and produce the same outcomes Fisher et al. Employers might offer employees a price-sensitive choice among existing HMOs and encourage HMOs to develop selective networks to improve their performance.
The all-inclusive network favored by employers in the single-source model is sure to be ineffective. Alternatively, under the protection of the Employee Retirement Income Security Act, employers might develop several selective PPOs, each of which would offer the preferred services of a different network of providers. If there are effective IPAs in a market, employers might build their choices on them or even share the gains created by the most efficient providers by offering them bonuses for achieving performance goals.
The focal points for these networks would likely be different hospitals and their staffs. The idea is to be sure that those employees who choose efficient providers realize the savings generated by their choices. Despite the high expectations, PGPs have fared poorly in the market in recent decades. Group- and staff-model HMOs have survived only where they constitute a large portion of the local market, offer an adequate choice of physicians, and gain from economies of scale similar to those of nonintegrated competitors Hurley et al.
PGPs have had a great impact on the American health care system and continue to offer high-quality, cost-effective care to millions of patients in particular regions and communities.
Another Kansas hospital run by troubled North KC-based firm can’t pay its employees
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