New America Health closing Doctors Health is retrenching

Both entities jolted after assuming risk of high cost of care

Managed care

September 30, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

In a sign of the difficulties besetting groups of doctors aligned to secure managed care contracts, one area entity has thrown in the towel while another has retrenched after losing business.

New American Health, the managed care contracting arm of the North Arundel Health System, is closing, with the loss of about 40 jobs. Doctors Health, of Owings Mills, laid off 52 of its 148 headquarters staff members this week after losing a major contract.

Doctors Health is the largest of the so-called equity model physician groups in the area. It bought hundreds of doctor practices, generally for stock in the company. It was founded by Dr. Scott Rifkin, who has since left his role as chairman to start a business providing health information on the World Wide Web.

New American did not own physician practices, but, like Doctors Health, sought contracts with HMOs for a flat fee per member per month.

Both, in effect, assumed the risk of the cost of care.

Doctors and hospitals were interested in risk-contracting because they felt that if they could manage care efficiently, costs would be less than the premium share, and they would profit. HMOs were interested because it shifted the risk to the care providers.

However, said Jay Levy, a vice president of North Arundel Health System, New American found "costs [of care] are rising faster than the revenue was coming in." He said he did not know how much New American had lost, but that the red ink was "not insubstantial."

The parent health system, he continued, decided "this was not ** an appropriate business to be in."

Stewart Gold, chief executive officer of Doctors Health, confirmed yesterday that the company had issued layoff notices Monday.

He said the laid-off employees were administrators and care managers who had been working on Doctors Health's largest contract, with NYLCare's Medicare HMO.

That contract is ending because Aetna U.S. Healthcare, which is buying NYLCare, announced earlier this month that it had decided to get out of the Medicare HMO business in Maryland and some other states.

Gold said the cutbacks would not affect care given by Doctors Health physicians. Patients seeing those doctors under the NYLCare HMO will have to chose a different Medicare HMO, which might require them to switch doctors, or get fee-for-service Medicare coverage.

"This is only one of our several network management contracts," Gold said.

"We look forward to a bright future based on our model of comprehensive, community-based care management."

Levy said New American has canceled all its managed care contracts and, once patients have completed a transition and claims are paid, will go out of business. The staff of New American, about 40 people, will be laid off over the next 90 to 120 days, Levy said.

New American contracted to provide care to about 12,000 Medicaid recipients and about 18,000 members of two commercial HMOs, FreeState Health Plan and United HealthCare.

FreeState and United members can continue to see the same doctors they saw under New American's contract, but the HMOs, rather than New American, will pay the doctors, process the claims and manage care.

Medicaid members of New American have until Oct. 21 to select new HMOs, and have been sent enrollment packets by the state health department, which administers the Medicaid program.

"It should be fairly seamless for the patient," Levy said.

North Arundel Health System includes North Arundel Hospital in Glen Burnie, Mount Washington Pediatric Hospital in Baltimore, physician practices and urgent care centers. The system is in the process of acquiring New Children's Hospital in Baltimore, as well.

National companies attempting to consolidate physician practices have also been having difficulties.

Shares dive

The two largest physician practice management companies, PhyCor Inc., based in Nashville, Tenn., and MedPartners, Inc., based in Birmingham, Ala., both have seen their stock prices plummet.

Shares of PhyCor closed yesterday at $4.8125, a new 52-week low, compared with a 52-week high of $33.35 last October.

MedPartners, which traded at $28.375 a share last October, closed yesterday at $1.625 a share.

Pub Date: 9/30/98

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