HMOS: PROFITABILITY INCREASES IN FIRST QUARTER
Rate increases of one percent to six percent at theThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
beginning of this year have led to increased profitability for
HMOs in the first quarter of 1997, Business Insurance reports.
Profitability is expected to improve as HMOs "are beginning to
emerge from the trough of the competitive pricing cycle."
Profitability is "expected to continue improving into next year."
According to Todd Richter, an analyst with Morgan Stanley & Co.,
"First quarter results were very good, obviously a lot better
than last year. The pricing trends are the real difference." In
addition, the "medical cost side still seems relatively under
control." This occurred "despite recent data that shows early
signs of upticks in medical cost inflation in different segments
of the system," which has also led to increasing profitability.
WINNERS AND LOSERS
Although many managed care companies reported gains, several
of the largest had decreases in net income. Individual results
for the first quarter included: WellPoint Health Networks Inc.,
which reported a net income of $50.8 million, down 15.6%; Humana
Inc., which also posted a decrease, down 26.4% to $39 million;
Foundation Health Systems, which reported net income of $58.5
million, a decrease of 6.1%; Oxford Health Plans Inc., whose net
income increased 85.7% to $34.4 million; and PacifiCare Health
Systems Inc., which reported a 36.5% increase in net earnings,
bringing its total to $43.5 million.
Mergers and acquisitions in the managed care industry are
also expected to continue, "despite a diminishing number of
acquisition candidates." According to Greg Baird of Blue Cross
of California, mergers will continue because the "economics that
can be achieved with those mergers are going to drive it." He
added, "Employers are still very demanding about cost structure
and value and quality, and you can do a lot more as a larger
company than you can do as a smaller company." Baird anticipates
mergers taking place "across the whole spectrum of the health
care industry" (Greenwald, 6/16 issue).