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KNOXVILLE, Tenn. — University of Tennessee Medical Center ended the 1994-95 fiscal year “in the black” on June 30, but at least one more major cost-cutting step is planned in a process that began early this year.

UT officials said that the Medical Center avoided a potential $25 million shortfall by cutting costs, reducing spending and streamlining operations.

The belt-tightening measures were made necessary in January by unanticipated reductions in TennCare revenues for graduate medical education and expense reimbursements for the Medical Center.

Dr. Charles Mercer, executive vice chancellor of the UT Medical Center, said that after five months operating with a deficit, the Medical Center finished with a small surplus in June and an overall positive balance for the fiscal year.

Now the Medical Center wants to continue the cost-cutting process by offering for sale the TennCare portion of the university’s health maintenance organization, UT Health Plan Inc., to Blue Cross and Blue Shield of Tennessee (BCBST), Mercer said.

This proposal would stop further Medical Center TennCare investments in the UT Health Plan, Mercer said.

UT Health Plan would continue to offer commercial small group insurance and self-funded products for employers throughout Knoxville and East Tennessee, Mercer added.

UT plans to seek authorization for the sale when the university’s Board of Trustees meets here Sept. 21-22.

Other cost-cutting steps taken at the Medical Center since January, when the revenue shortfall was predicted, included the following measures:

— Reduction of departmental budgets.

— Early retirement incentives for eligible employees.

— More stringent purchasing procedures.

— Stricter control of authorized personnel positions.

UT Health Plan was authorized by the Board of Trustees in 1993 to serve the Medical Center’s Medicaid patients who were being transferred to TennCare.

“State government was beginning to implement TennCare and we wanted the HMO to help protect our patient base,” UT President Joseph E. Johnson said. “We also wanted to do our part to help the state get TennCare going.”

Johnson said that while UT had solid reasons for wanting its own HMO, UT Health Plan had problems from the start.

“We anticipated 40,000 enrollees, but only 7,000 signed up,” Johnson said. “We also thought that the state would assign patients to our plan, but as more private HMOs started participating in TennCare, the state did not need to do that.”

The 7,000 enrollees that did join UT Health Plan posed another problem. Many of them had serious illnesses or injuries.

“Ideally, an HMO has a mix of patients, but because the Medical Center is a comprehensive facility with the staff and equipment to treat serious health problems, that is the sort of patient our plan tended to attract,” Mercer said.

The Medical Center spent approximately $3 million getting UT Health Plan started and another $2 million operating it over the past two years, the executive vice chancellor said.

“When it became clear the state would not assign patients to us, we decided it was not practical to solicit new enrollees by knocking on doors and stuffing mailboxes with applications,” Mercer said.

Johnson said UT will recommend to the Board of Trustees that the UT Health Plan be sold to BCBST for fair market value. The assets to be transferred would include the 7,000 existing enrollees and UTHP’s TennCare HMO license.

If approved, members of UT Health Plan’s TennCare program will continue receiving services throughout the remainder of 1995.

“We are not looking to make money on the sale,” Johnson said. “We have determined that our present managed care organization has no potential to break even and that the best thing to do is get out of it.”

“A final price has not been set, but Blue Cross appears willing to pay us fair market value,” Johnson said.

Contact: Dr. Charles Mercer(423-544-6404)