Syracuse Health Center sells Managed Care Plan, Total Care

NYAPRS Note: The post Standard in Syracuse reports below of the purchase of Total Care by Universal American Corporation. Total Care, finds itself unable to meet the State's financial reserves requirements due to mounting losses in the last few years. Today's Option of New York, the Universal American subsidiary buying Total Care, plans to maintain the same network of doctors and other providers so they are promising there will be no disruption of services to members and no staff layoffs as well. Total Care, owned by the nonprofit Syracuse Community Health Center is the Syracuse areas largest Medicaid managed care plan employing 56 people and serving almost 30,000 people.

Syracuse health center selling financially-troubled Medicaid business to Fortune 500 company

Syracuse, N.Y. -- A publicly traded Fortune 500 company is buying the Syracuse area's biggest Medicaid managed care plan that is mired in financial problems. Universal American Corp., a health insurer headquartered in Rye Brook, is buying Total Care from the Syracuse Community Health Center, a nonprofit that provides primary care to mostly poor and uninsured patients at 15 locations in the Syracuse area. The health center founded Total Care in 1987 and operates the plan out of its headquarters at 819 S. Salina St.

The sale is expected to close Dec. 1. Robert Waegelein, Universal's chief financial officer, said the purchase price will be less than $10 million. The health center is selling because Total Care has lost so much money in recent years it has been unable to meet the state's financial reserve requirements, said Dr. Ruben Cowart, president and CEO of the center and Total Care. More than 37,000 poor and disabled Central New Yorkers are enrolled in the plan. Total Care lost $7.5 million between 2008 and 2011, according to annual reports the nonprofit files with the Internal Revenue Service. Cowart said the center told state Health Department officials in 2010 it wanted to sell Total Care because of the mounting losses.

"We wanted to get out before we had to go bankrupt," he said. The center's goal was to get out of the business in a way that did not hurt Total Care members and employees or the health center, he said. "We decided we would stick with our core mission of primary health care," Cowart said. Cowart said Total Care's financial problems developed as the state cut payments to Medicaid managed care plans and required them to provide prescription drug benefits and other additional, costly services to patients. Total Care was unable to weather those financial pressures as well as big statewide Medicaid managed care plans with deeper pockets, he said. Total Care operates in Onondaga, Cortland and Tompkins counties.

Jeffrey Hammond, a state Health Department spokesman, said when the health center decided to sell Total Care, the department recommended it sell to a larger company. Cowart said Total Care worked closely with the state "... to stop the financial bleeding." Total Care will use about $5 million from the proceeds of the sale to Universal American to satisfy the state's reserve requirements. Today's Option of New York, the Universal American subsidiary buying Total Care, plans to maintain the same network of doctors and other providers so there should be no disruption of services to members, Waegelein said.

Total Care employs 56 people. No job losses are expected as a result of the sale, Cowart said. Medicaid, funded by the federal and state governments, pays for health care for people with low income and disabilities. Nearly all people on Medicaid in Central New York are enrolled in Medicaid managed care plans. The state, which administers Medicaid, contracts with private insurers to run these plans. They coordinate care for members who see doctors and other providers in their networks. The plans are paid a fixed amount per enrollee. There are more than 60,000 people in Onondaga County enrolled in Medicaid managed care; 24,369 of them are in the Total Care plan. Total Care also has 4,948 members in Tompkins County and 1,599 in Cortland County.

A state report shows Total Care has had some quality problems. The state monitors how well Medicaid managed care plans comply with quality standards. Plans that score high enough on quality of care, consumer satisfaction and other measures qualify for higher government payments. Total Care did not qualify for any incentive payments in 2009, 2010 or 2011 because of low scores, according to a Health Department review<> published in May. Cowart said Total Care did not qualify for the higher payments because it competes for those dollars against much larger, well-capitalized Medicaid managed care plans. Waegelein said Total Care's financial performance improved in 2012. "They have corrected the issues that generated the losses," he said. "We are comfortable with the performance of the company going forward." He said Universal American will improve Total Care. "We can support the plan with better technology, better information, corporate support and compliance than perhaps the health center had the budget to support," Waegelin said. "We have more capital than the health center."

Waegelein said the acquisition is a strategic step designed to strengthen his company's presence in upstate New York. The company's footprint is growing in Syracuse where it already sells Medicare Advantage insurance to senior citizens and health plans through the state's new health insurance exchange. The company also is a partner in an accountable care organization established in Syracuse last year to coordinate health care for people enrolled in Medicare. That organization was founded by FamilyCare Medical Group, a medical practice founded by Dr. David Page. Most of Universal American's insurance products are sold in New York, Texas and Florida. The company also provides a variety of healthcare services, including case management and care coordination, clinical quality and utilization review and behavioral health services to Medicaid agencies and other third parties.

To expand into the Medicaid business, Universal American bought APS Healthcare in 2012. That company provides services to state Medicaid programs across the country and in Puerto Rico. Universal American reported a $91.8 million loss on revenue of $534 million for the quarter ended June 30. It blamed the loss in part on a downturn in its Medicare Advantage business. Also during the quarter, it wrote off $92 million related to the $227.5 million acquisition of APS. Last month Universal American sued the private equity firm that sold it APS. In the suit, Universal contends the seller misled it about the finances of APS. Universal said APS' income evaporated within months after the acquisition. The seller denies the charges. Despite the problems with that acquisition, Universal American officials recently told analysts they remain enthusiastic about the Medicaid business. "One thing that I am absolutely sure of is that we made the right choice to go into Medicaid," Richard Barasch, chairman and CEO of Universal American, said in a conference call in August.

Waegelein said Total Care will probably increase employment in the future as it grows. Total Care will continue operating out of the health center's headquarters.

Cowart said Total Care became familiar with Universal American four years ago when the company began selling its Medicare Advantage insurance products through health centers. Cowart said acquisition talks began after

Universal American, which wanted to expand its Medicaid business, learned Total Care was looking to sell. "It was a ripe opportunity for them and us," Cowart said. Universal American's purchase of Total Care comes at the same time Excellus BlueCross BlueShield is getting out of Medicaid managed care. Excellus recently announced it is dropping out of Medicaid because it expects to lose about $100 million this year in that business.

The purchase also comes as the health center is preparing to build a new $14 million building in the 930 block of South Salina Street, a block away from its headquarters. The center will relocate most of its patient operations to that building. Construction is expected to begin early next year and be completed in 18 to 22 months. The state has agreed to provide $3.1 million in grants for that project. Cowart said the center will raise money and seek grants to pay for the project. Any money left over from the sale after Total Care meets the state's reserve requirements may also be used for the construction project, he said.

You can contact health writer James T. Mulder at jmulder at<mailto:jmulder at> or (315) 470-2245. Follow him on Twitter @JamesTMulder