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Independent Health reports net loss of $44 million in 2015

Independent Health on Friday reported a $49.3 million operating loss for 2015, driven primarily by a significant shortfall in its Medicare Advantage line of business.

The Amherst-based insurer had a net loss, after investments and taxes are taken into account, of $44 million, an improvement from its $60 million net loss in 2014, according to its annual financial statement filed with the state Department of Financial Services.

Independent Health’s revenues, primarily premiums from members, rose 13 percent, to $2.09 billion, last year. But expenses, primarily spending on members’ medical and hospital costs, rose 11.6 percent to $2.14 billion in 2015.

The insurer lost $65.5 million on $1.1 billion in its managed Medicare business. Independent Health has more than 54 percent of the local Medicare Advantage market and saw membership in its managed Medicare plans rise by 26 percent, to 94,668 members in 2015, according to the insurer. But reimbursements from the federal government didn’t keep pace with spending on members’ medical, hospital and prescription drug costs.

Overall, the company said it expects its losses to continue in 2016, but that would be the last of three years in a row of net losses dating back to 2014. Company officials said it takes time to right the finances at an institution of its size.

“This is a steamship as opposed to a speedboat,” said John Rodgers, Independent Health’s executive vice president and chief operating officer.

Independent Health files as two different entities, Independent Health Association and Independent Health Benefit Corporation, one at the beginning of March and one at the end of the month. The insurer reported both financial statements publicly on Friday.

The parent companies of the region’s other large insurers, BlueCross BlueShield of Western New York and Univera Healthcare, file their statements at the beginning of March. Both insurers reported net income for 2015.

Independent Health said the bulk of its lines of business remained profitable, including its large- and small-group offerings and its plans offered through the NY State of Health marketplace. Overall enrollment across all lines of business rose 8 percent from the end of 2014 to the end of 2015, to 404,688, according to Independent Health.

That includes a surge of 19,496 new Medicare Advantage members, but Rodgers said the new members presented a reimbursement challenge for the insurer. The federal government uses a risk-adjustment formula to determine how much it will reimburse for the care provided for Medicare patients. But patients need to receive the proper risk-adjustment coding from their physicians, and many of the new Medicare Advantage members hadn’t yet received the proper coding to be reimbursed at the correct rate, Rodgers said.

The insurer spent $14 million in 2015 on an enhanced annual visit program to pay for physicians to take the extra time with their Medicare patients to determine and enter the proper coding, he said.

“We’re going to yield the results of that as better payments in 2016,” he said.

Medicaid is another costly program for Independent Health. The insurer showed a net gain of $14.2 million on $373.9 million in Medicaid revenue, but that’s only because it set aside $24.5 million the previous year in anticipation of Medicaid losses in 2015, Rodgers said. Otherwise, the insurer would have shown a $10 million Medicaid loss, largely from its operations from the program that serves Niagara County, he said.

Independent Health last November announced that it no longer would offer Medicaid coverage in Niagara County, effective Jan. 1.

To make up for its losses, Independent Health again drew down on its reserves. The insurer took $47 million out of its reserve fund in 2015, which stood at $491.3 million at the end of 2014, leaving it with $444.3 million at the end of last year. Rodgers pointed out Independent Health’s reserves still stand at nearly 22 percent of premium revenues, above the state’s required minimum of 12.5 percent.

Independent Health’s filing also detailed payments to its top executives.

Compensation for Dr. Michael W. Cropp, the insurer’s president and CEO, rose from $1.6 million in 2014 to $2.2 million in 2015. The company said in a statement that Cropp’s compensation rose because of a long-term retention agreement that was funded over four years and paid out in 2015. The agreement was worth roughly $245,000 per year.

The next-highest-paid executive, Mark Johnson, an executive vice president and the chief financial officer, earned $872,590 in 2015.