Byline: Guy Boulton
Jul. 29--Children's Hospital and Health System Inc. plans to set up its own health maintenance organization for families eligible for Medicaid and BadgerCare in southeastern Wisconsin.
The move will put the only pediatric hospital in the Milwaukee area in direct competition with Managed Health Services, a unit of Centene Corp., and AmeriChoice, a unit of UnitedHealth Group Inc.
Managed Health Services and AmeriChoice are the two largest Medicaid HMOs in the Milwaukee area and the state.
Thomas M. Gazzana , corporate vice president of Children's Hospital's corporate parent, said the health care system believes that it can do a better job in providing care than the Medicaid HMOs operating in the Milwaukee area.
'Our goal is to improve access and quality,' said Gazzana, who will be president of Children's Community Health Plan Inc., the for-profit entity that will run the HMO.
He mentioned mental health care and dental services as two areas in which Children's Hospital believes it can provide better access to care.
Children's Hospital won approval for its planned HMO from the state insurance commissioner last week and is now seeking approval from the Department of Health and Family Services. The HMO plans to operate in Milwaukee, Waukesha, Racine and Kenosha counties.
In a Medicaid HMO, the state pays a fixed amount each month to provide care to people who are eligible for Medicaid or BadgerCare.
As of this month, Wisconsin had 356,747 people, primarily children and their parents, enrolled in 13 Medicaid HMOs, said Mark Moody, director of the state's Medicaid program. About 75 percent percent of low-income families eligible for Medicaid or BadgerCare are enrolled in HMOs.
Roughly three-fourths of the Medicaid budget is spent on the elderly and the disabled.
The managed-cared plans generally have been given good marks for providing better care while saving states money. The number of people enrolled in Medicaid HMOs nationally has soared as states search for ways to slow the rising cost of the program.
Medicaid is the state-and-federal program that provides health care to poor families with children and people who are disabled or elderly and impoverished. BadgerCare is a state-and-federal program for working families who make too much money to qualify for Medicaid but whose income is too limited to afford health insurance.
Wisconsin was among the first states to enroll people in Medicaid HMOs. In the 1980s, Children's Hospital ran a Medicaid HMO that it later sold to the former PrimeCare Health Plan, now part of UnitedHealthcare of Wisconsin.
Hospitals have long owned their own health plans. The goal, though, often is to protect or increase market share by steering people to their hospitals and clinics.
Health plans in the Milwaukee area, however, essentially must include Children's Hospital in their network because it is the only pediatric hospital in the Milwaukee area.
'The reality is the bulk of what we provide, you can't get anywhere else,' said Gazzana, who is a former president of Managed Health Services and former president of Blue Cross Blue Shield of Wisconsin's first HMO.
In short, Children's Hospital probably won't get more patients by starting its own HMO. But the move could give it more leverage with the Medicaid HMOs in contract negotiations.
Children's Hospital will capitalize the new HMO with $3.7 million. Gazzana said the hospital's board was told the HMO would not break even until the second half of its third year, and not recoup its initial investment until the fifth year.
The hospital initially will contract with another company to handle back-office work such as processing claims. It will contract with other hospitals and doctors in the area to provide care for adults.
Children's Hospital and Health System's operations include Children's Hospital of Wisconsin in Milwaukee as well hospitals within hospitals in Kenosha and the Fox Valley. It also runs clinics that employ about 40 doctors, an ambulatory surgical center and other entities.
The hospitals and the system's foundation reported net income of $36.4 million on revenue of $342.7 million in 2004. Those figures do not include all of the system's operations.
The five largest companies that specialize in managed care for government health programs have seen explosive growth in recent years as states enrolled more people in managed care plans.
Centene's revenues, for instance, grew more than fourfold in five years, increasing from $221.3 million in 2000 to $1 billion last year. The company, now based in St. Louis, was founded in Wisconsin in 1993 as a holding company for a Medicaid HMO that had operated in the state since 1984. Legg Mason expects Centene's revenue to jump to $1.5 billion this year and to $2.2 billion in 2006.
It's a specialized and potentially profitable segment of the health insurance business. But it also can be a complex and tricky one.
'There is a very, very heavy social work component to this business,' said Nancy Weaver, an analyst with Stephens Inc. in Little Rock, Ark.
AmeriGroup Corp., for instance, will send someone to a pregnant woman's house to help ensure that she is getting good prenatal care. It also sends birthday cards to children with reminders that their mother should take them to see a doctor that year.
'You really have to manage the care,' Weaver said. But she expects enrollment in Medicaid HMOs to continue to increase. 'We still have a lot of growth ahead of us,' she said.
For its part, Children's Hospital sees the HMO as a natural evolution. Last year, it began running Childrens Service Society of Wisconsin, a statewide social services agency.
Children's Hospital of Wisconsin, Gazzana said, may be the first hospital of its kind to become involved in social services. Now the goal is to bring together health care and social services.
'That wraps the whole thing into one ball,' he said.
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