In Rochester, the Preferred Care HMO was an early success, capturing significant market share from Excellus. Soon Excellus added HMO plans to their own offerings.
In the late 1990s, however, both the Excellus’ HMO plans and Preferred Care experienced serious problems.
To make the capitated payments to doctors that Nash sees as a potentially liberating feature for clinicians, HMOs typically contracted with independent physician associations, called IPAs.
The Rochester HMOs’ contracts called for the insurers to pay doctors in their panels so much per patient per month, minus a 15 percent “withhold,” which the HMOs would fully or partially pay back at the end of each year, depending on how well doctors delivered on cost and quality measures. Both Preferred Care’s and Excellus’ relations with their IPAs went badly awry.
In the mid-1990s, Preferred Care miscalculated its per-patient, per-month payments, overpaying physicians enrolled in its IPA, the Rochester Independent Practice Association, by $20 million in a single year. The HMO’s then president John Urban decided to let the doctors keep the overpayment, saying it was “the right thing to do.” Roughly a decade later, a financially weakened Preferred Care was taken over by Schenectady-based MVP Healthcare.
Meanwhile, in 1997, doctors belonging to the Blues’ IPA, the Rochester Community Individual Practice Association, grew suspicious when the Blues abruptly stopped sending monthly statements detailing PMPM payments.
After failing to get satisfactory answers, RCIPA sued the Blues in 1999. They accused the insurance company of shortchanging them on capitated payments that the Blues agreed to in RCIPA’s 1997 and 1998 contracts.
After RCIPA won judgments totaling more than $20 million in what turned into a decade-long court battle, the Blues agreed to settle by paying another $29 million, bringing its total payout to some $52 million.
After RCIPA sued, the Blues cut ties with RCIPA. RIPA followed suit, cutting ties with Preferred Care and signing on as the Blues’ IPA. In 2006, Excellus unilaterally cut ties with RIPA, telling area doctors that they would henceforth ink contracts only with individual doctors or practice groups. RIPA ceased to exist. RCIPA continues to exist as a network for Aetna, which writes a small share of Rochester-area health coverage.