MEDICARE RISK: Marshall-El Dorado PHO Struggles Against ‘Multimillion-Dollar Deficit’
The financial challenges of Medicare risk have strained relations between El Dorado Medical Associates and Marshall Hospital of Placerville, putting at risk the physician-hospital organization (PHO) the two groups created four years ago. Cutbacks in reimbursement and spiraling drug costs have caused the medical group to spend more on care for its 4,000 Medicare HMO members, leaving it with a debt of $750,000 owed to Marshall. Meanwhile, the hospital is also in the red, as administrators predict a $2.2 million net loss for this year and estimate a total loss of up to $13 million on its Medicare business overall since it entered the market. Hospital administrators are threatening to dissolve the partnership if physicians fail to agree to reduce their debt by paying higher facility fees, reducing service utilization and accepting a less equitable split of Medicare's per member per month rate from the current 55%-45% in favor of the hospital to 65%-35%. A deal adopted by the medical group's board still requires support from the group's 70 physicians, something that may take time to obtain. Board Member Dr. Reginald Rice, Sr. said, "If they get really angry, they'll vote with their feet," speculating that the physicians may strike out on their own or refuse to accept managed care contracts.
Although the PHO signed a favorable contract with Western Health Advantage in the Spring, it continues negotiations with PacifiCare, which commands nearly 7,000 of the PHO's 9,100 members. In the midst of the financial strain between hospital and physician group, administrators are seeking "some significant changes" in their contract with PacifiCare, including relief of responsibility for managing drug costs. The PHO's future is uncertain. Shannon Terwedo, the PHO's executive director, commented on the difficulty the two groups have experienced in their effort to share risk for HMO enrollees: "We are still looking for the most equitable financing relationship that will incentivize the right behavior on both sides of the partnership. It's a function of coming up with a silver bullet -- and we haven't quite hit on it yet" (Robertson, Sacramento Business Journal, 9/7).