Health plan a huge problem for Jackson Health System

Jul 21, 2011

The following article was published in the Miami Herald on July 21, 2011:

Health plan a huge problem for Jackson Health System

By John Dorschner 

The JMH Health Plan, the insurance wing of the Jackson Health System, has become a huge money-loser that must be fixed quickly, board members were told Thursday.

So far this year, the plan has lost $30.4 million — almost half of the $71.7 million that Jackson Health System has lost for the entire fiscal year.

“We have to fix this no matter what,” Chief Executive Carlos Migoya told the Financial Recovery Board. “Even if we decide we don’t want to be in the health plan business, we need to fix it in order to sell it.”

Previous administrations had counted on the health plan as a major money-maker to compensate for all the uninsured patients. But with $337 million in system losses the past two years, deficits in the insurance plan seem an unconscionable drain, board members concluded.

“If it works, fix it. If it doesn’t — goodbye,” said Marcos Lapciuc, board chairman.

Chief Strategy Officer Donn Szaro said the plan’s problems are a “microcosm” of Jackson’s woes. The system has a hard time determining its costs in many areas, making it hard to know how much to charge for services.

JMH Health Plan is a general health insurance, with 120,000 members in commercial, Medicare and Medicaid plans. Its biggest provider is Jackson itself, but patients also use the services of many other places, including the University of Miami and Baptist hospitals.

Lapciuc said he had thought the insurance plan was breaking even or close to it. But the Ernst & Young annual audit given to the board Wednesday showed a loss of $8.3 million for the year that ended Dec. 31. The auditors reported the plan “was not accurately estimating the accrual for unpaid claims,” a key statistic for insurance companies. This year, with a loss already of $30 million, the plan is on the track for a much worse performance. The auditors concluded the health plan had a “material weakness” in tracking its finances — an accounting term signifying a major problem. Jackson responded it was seeking a new chief financial officer for the plan.

The health plan’s leader, Mike Brady, was not at the board’s Wednesday and Thursday sessions to explain what had gone wrong.

Last fall, Jackson decided to boost the plan’s revenue by making it the only insurance alternative for its 11,000 employees as of Jan. 1. The move backfired — increasing deficits. “The more people it gets, the more it loses,” said Lapciuc.

The plan lost $6.1 million in May and $7.3 million in June.

Jackson Chief Financial Officer Mark Knight said the system had to transfer $20 million to the plan in the last three months just to meet state solvency requirements to make sure insurance companies can meet their obligations.

Migoya, who started May 1, said he wasn’t aware of the plan’s problems when he took over, “but the more we started looking at it, the more things turned up.”

Board member Joe Arriola said Jackson needs to move quickly. “We have 90 very critical days ahead of us… We don’t know if it’s going to survive or not. This has incredible potential, but right now, this is going nowhere the way we operate. ‘We’re losing money, but don’t worry, we’re getting more business.’ ”

Outsiders have long questioned why Jackson runs an insurance operation. “Jackson management can’t handle their core business,” health insurance veteran Mike Fernandez told The Herald in February. He lambasted the health plan for “draining cash from the hospital.”

Stephen Dresnick, a longtime physician-entrepreneur, said last spring: “I would strongly advise selling the plan.” On Thursday, after hearing the latest losses, he emailed a response: “They should have sold this pig two years ago or get someone in who knows how to run it.”

On Thursday, Szaro said the plan wasn’t properly calculating how much it needed to charge in premiums and how much it needed to pay for medical services — the two key elements of insurance.

Knight reported that Jackson lost $4.5 million in June — meaning the system would have had a surplus of $2.8 million if it hadn’t been for the plan. Increased sales tax revenue and better collecting on bills continue to be bright spots, but patient admissions remain 10 percent below budget. The system had 22.4 days of cash on hand as of June 30. Knight projects cash to be down to 10.4 days in August.

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