HMO PROFITS: Here Comes the Sun
The financial health of the nation's large HMOs may be looking up in the wake of an apparent decision to "start pleasing shareholders" after years of sacrificing profits "to add members." In a bid to reverse dismal finances, HMOs in recent months have raised premiums, renegotiated contracts with doctors and providers and jettisoned unprofitable Medicare customers. Joel Ray, an analyst with Wheat First Union in Richmond, VA, said, "This is the year where we finally are seeing a recovery in the managed care field. What's driving it is very simple: We finally have premium increases outpacing medical inflation." HMOs have increased premiums by 5% to 10% on average in recent months, while health costs rose only about 5%. The translation to positive cash flow is reflected in recent fourth-quarter earnings statements by PacifiCare Health Systems, Coventry Health Care and Humana Inc., all of which matched or exceeded analysts' predictions. "HMOs have culled back and walked away from unprofitable business, they've gone back to the basics," said Ray (AP/Florida Times- Union, 2/26). The shift does not, however, necessarily sit well with consumer advocates. "Congress needs to act so HMOs are accountable to the bottom line and to the public at large," said Gail Shearer, director of health policy at Consumers Union (Galewitz, AP/Philadelphia Inquirer, 2/26).
And the Beat Goes On
Demonstrating the current trend, two more large HMOs yesterday reported improving financial health:
- Oxford Health Plans Inc.: Oxford announced much narrower losses for the fourth quarter than for one year ago, the Wall Street Journal reports. Net losses were $7.9 million -- $18.8 million including preferred stock dividends -- a dramatic drop from the company's $284.7 million losses one year ago. Revenue was down 1% to $1.13 billion. Overall operating losses were $33.8 million, or 42 cents per share, far better than First Call Corp.'s estimate of 78 cents per share. CEO Norman Payson said, "[T]he big news is the pretty rapid turn in the company's economic picture" (Winslow, 2/26).
- Mid Atlantic Medical Services Inc.: MAMSI of Rockville, MD, announced earnings of $5.5 million for the quarter, down 11.3% from $6.2 million in the same period in 1997. Revenue, however, was up 10.3 % to $304.6 million. The company blamed the slim profit margins on higher-than-expected medical expenses. Chair Mark Groban said, "We are pleased with these results, which we believe are the beginning of improved financial performance" (Salganik, Baltimore Sun, 2/26).