Harvard Considers Bail Out Plans for HMO

When Harvard University considered becoming part of a team to bail out the failing health insurance company Harvard Pilgrim Health Care (HPHC) it may have been acting out of self- interest. The University's traditional ties to the unaffiliated insurance company means the administration has a vested interest in saving it from financial difficulties.

"[Harvard] is sitting at the table willing to consider involvement," said University Spokesperson Joe Wrinn. He said there is no established plan at the moment, but the University, the state of Massachusetts and the other participants in the negotiations are still throwing many different ideas around.

Although HPHC is an independent company that has no direct connection to the University, despite its name, its recent problems could impact the University in several ways, Wrinn said.

In 1999, HPHC incurred losses of $200 million--much larger than those expected. Then, on Jan. 4, it lost its independence and came under the receivership of Massachusetts, a process instituted by the state to aid insurance companies that have failed financially. The company currently insures 1.1 million members in Massachusetts alone and has operations in several other New England states.

Since the insurer has gone under state control, state officials have been seeking ways put the company back on its feet. They have expressed a strong preference for creating a plan to keep the HPHC as a nonprofit institution, instead of selling it to an already established for-profit insurer.

In these plans, Harvard and other nonprofit institutions, such as hospitals, could invest up to $225 million in HPHC to keep it running.

"The receivership team is looking at the available nonprofit alternatives prior to moving in the direction of for-profit sale," said Christopher J. Goetcheus, spokesperson for the Massachusetts Division of Insurance.

Wrinn said that regardless of the final plan, Harvard would not be the "principal investor" in any plan. He would not offer any estimate of the maximum portion of the $225 million needed by the insurer that Harvard would spend. And he declined to say where the money would come from, if Harvard does decide to invest.

The University has several ties to HPHC.

Many University employees are covered through HPHC, which is one of the four Health Maintenance Organization plans offered by the University's Office of Human Resources.

On the other end of the health care system, part of HPHC's financial difficulties is due to debt it owes several of Harvard's teaching hospitals. HPHC is $250 million in debt to health care providers at institutions across the state.

The University's teaching hospitals handle a major portion of HPHC's hospital workload statewide, because the bulk of HPHC's subscribers live in the eastern part of the state, according to Michael O'Connell, vice president of planning and marketing at Mt. Auburn Hospital

Harvard Medical School (HMS) students have a stake in HPHC's future since some are residents in a program run jointly by the insurer and Brigham and Women's Hospital, an HMS affiliate, according to the HMS website.

HPHC also has a historical tie to the University. In 1969 Robert H. Ebert, then dean of HMS, created Harvard Community Health Plan, one of the first three HMOs in the country and persuaded the University to give its name to the plan. Through various mergers, this group would later become HPHC.

The state has employed the investment firm Salomon Smith Barney to look at possible alternatives to keep the insurer afloat. The state has announced that it would release several reasonable and realistic options for taking HPHC out of state control by Friday.

Goetcheus said the state still aims to meet this timeline, although they will not present a final solution Friday.

Wrinn said the state brought Harvard into plans to help the insurer and did not initiate itself the idea to invest.

"Harvard was invited to the table through the [Massachusetts] Attorney General's office," said Wrinn.

Parties interested in the insurer's continued operation support Harvard's potential investment in the insurer.

"That one of the leading institutions in the world trying to partake [in the plan] is laudable," said Devin A. McManus, chair of the 280 member Physicians of Cape Cod. "I think for Harvard University to venture into helping Harvard Pilgrim is appropriate."