Vicki Perry, the longtime CEO of Advantage Health Solutions Inc., has been replaced after a financial review found “significant unreported losses” at the Indianapolis-based health insurer.
Those losses totaled $56.3 million during the first nine months of the year, according to a press release from Advantage issued late Friday afternoon. That figure is far higher than the $9.2 million in losses Advantage reported on its second-quarter financial statements, which were issued just three months ago.
The difference stems from what Advantage described as a “full review of the firm’s financials,” which was ordered by Advantage’s board of directors in July.
“In light of these losses, Advantage has engaged an independent auditor to review the firm’s financial and accounting procedures,” stated the Advantage press release.
Advantage’s board of directors also hired L. Michael Hone as acting CEO. Hone has led turnaround efforts at numerous firms, including a stint at the helm of Carmel-based Conseco Insurance Group from 2001 to 2005, when its parent company was entering and exiting bankruptcy reorganization.
Advantage was also placed under supervision by the Indiana Department of Insurance on Friday, two days after the company decided to exit the Medicare Advantage market for seniors.
“The Advantage team worked diligently to build a firm to serve the health and wellness needs of its customers. But it is now clear that our Medicare Advantage business is no longer financially viable,” said Bob Brody, chairman of the Advantage board of directors, in a prepared statement.
Advantage has not said whether it will also exit the employer insurance market, where it covers more than 40,000 Hoosiers and provides services to some employers that insure themselves.
“We are also committed to standing behind our commercial lines of business,” Hone said in a prepared statement on Friday.
Advantage is owned by four Catholic hospital systems. Franciscan Alliance and St. Vincent Health each owns 34.5 percent of the company. Ancilla Systems Inc. and St. Joseph Regional Medical Center each owns 15.5 percent.
Between the two of them, Franciscan and St. Vincent have contributed $33 million to Advantage so far this year to help cover its losses, according to the insurance department. And even after those payments, Advantage’s capital levels remain at critically low levels.
Brody, the former CEO of the Franciscan hospitals in Indianapolis, has served on Advantage’s seven-member board for several years. The rest of the Advantage board includes Jay Brehm, the senior vice president of strategic planning at Franciscan Alliance in Mishawaka, Indiana; Jonathan Nalli, the CEO of Indianapolis-based St. Vincent Health; Cheryl Harmon, St. Vincent’s chief financial officer; Fred Arand, the vice president of finance at Ancilla in Hobart, Indiana; and Janice Dunn, CFO of the St. Joseph hospital system in South Bend.
Perry, who had been CEO of Advantage since its founding in 2000, was also a member of the Advantage board.
It is not clear exactly when Perry was replaced as CEO. An Advantage spokeswoman declined to provide more details. And Perry, reached by phone on Monday morning, declined to comment for this story.
Before leading Advantage, Perry was president of Maxicare Indiana Inc. It was seized by Indiana insurance regulators and shut down in 2001.
Advantage has lost some large employer clients in the past year, including the Indianapolis Colts and the Indianapolis Public Schools.
But through the second quarter of this year, its employer business remained profitable. Advantage collected $213.2 million in premiums during the first half of the year from employers and paid medical bills totaling $200.3 million.
Advantage was trying to grow using its Medicare Advantage plan, which provides private insurance to seniors and receives payments from the federal Medicare agency. Through the first half of the year, Advantage collected premiums of $101.3 million and paid out medical bills of $100.6 million, earning a tiny profit.
Advantage had losses, however, because it had to pay out more than $26.2 million in commissions and other fees, and had a small amount of investment losses during the first half of the year.
Advantage's unpaid medical bills also jumped up. They stood at $33.4 million on June 30, compared with $24.3 million at the mid-point of 2014. That's a 37 percent increase.
Perry, in a July interview with IBJ, explained that growing the Medicare Advantage business involved losing money for a year or two before the federal Medicare program would increase payments to reflect the true cost of patients’ care.
Stephen Robertson, Indiana’s insurance commissioner, said Friday that Advantage’s problems were simply business decisions that didn’t work out.
“We have no knowledge of anything illegal,” he said.