Managed Care Organizations Expected to Post Third-Quarter Profits
Managed care organizations are expected to report higher profits in this year's third-quarter financial results than they did in 2000, the Wall Street Journal reports. Medical costs are usually lower in the third-quarter, because the flu virus is "on hiatus" and patients are away on vacation and delaying elective surgeries. Also, the Sept. 11 attacks on the World Trade Center and the Pentagon are not expected to impact most of the publicly traded companies in the industry. Ed Kroll, an analyst with SG Cowen Securities, said, "Seasonally, we have gotten through the hardest quarter, and that is the second quarter. The companies that did well during the second quarter will continue to do well in the third quarter."
Analysts expect the following health plans to post gains.
- WellPoint Health Networks: Based in Thousand Oaks, Calif., WellPoint is one of the "healthiest players" and is expected to report a profit growth of 15%.
- Trigon Healthcare: Based in Richmond, Va., Trigon is also expected to report 15% profit growth.
- UnitedHealth Group: Based in Minnetonka, Minn., the insurer is expected to report 30% growth.
- Humana Inc.: Although the firm is in a financial "turnaround plan," it is expected to top Wall Street earning expectations of 18 cents a share.
- Health Net Inc.: After earning 36 cents a share last year, the company is now nearing the end of its "recovery effort," which includes exiting "unprofitable" HMO markets. Health Net is expected to report earnings of 42 cents per share.
- Oxford Health Plans: Last year, the firm earned 64 cents per share and analysts expect "strong" earnings growth to push profits up to 80 cents a share this year. However, Oxford is the largest insurer in the New York City area and some analysts think third quarter earnings will be "hurt" by the Sept. 11 attacks.
While industry overall is expected to post higher profits, Wall Street analysts "have concerns" about Aetna Inc., PacifiCare Health Systems and Cigna Corp., the Journal reports. At Aetna, analysts expect management to report a loss of 53 cents per share as the Hartford, Conn. insurer's bottom line "has been driven into the red." While the firm is "struggling" to reverse course, management has not outlined a corrective strategy, except to say it plans to post a profit in 2002. Aetna, along with PacifiCare, failed to "accurately" predict medical costs, which led to "disappointing financial results." As the nation's largest Medicare HMO, PacifiCare has been impacted by the "switch" in reimbursement practices from capitation to fee-for-service contracts with doctors and hospitals. However, analysts expect the Santa Ana, Calif.-based insurer to show a profit of 34 cents a share, up four cents from last year. Cigna Corp., however, warned that profits could drop about $25 million due to life insurance claims from the Sept. 11 attacks. The Journal reports that the stock market's slide after the attacks "punished" the firm's retirement benefit business. The Journal reports that insurers with "strong" health plans are beginning to take market share away from "weaker players" in the industry. Goldman Sachs analyst Charles Boorady said, "Part of the reason that companies like United are doing so well is that companies like Aetna are not" (Bennett, Wall Street Journal, 10/9).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.