PROVIDER NETWORKS: Crisis Threatens to Engulf Industry
Provider networks nationwide are teetering on the brink of a financial crisis that could jeopardize the care of millions of Americans, and state lawmakers are turning their attention from concerns about inadequate care to addressing the industry's growing financial instability, the Los Angeles Times reports. Twenty major HMOs, physician management firms and hospitals have gone bankrupt in the last year, and lenders have assumed control of dozens more (Hiltzik/Maharaj, 3/13). A Morgan Stanley Dean Witter & Co. index of 14 provider stocks, including MedPartners, PhyCor Inc. and Beverly Enterprises Inc., has plummeted 53% in the last 12 months (Peltz, Los Angeles Times, 3/13). The stunning failures of FPA Medical Management and MedPartners, which was seized last Thursday by California state regulators, have affected the care of about 1.7 million residents in the state. California's Senate Insurance Committee heard testimony last Thursday that up to 90% of the state's medical providers are experiencing financial difficulties.
The Times reports that groups of doctors that assume more risk from insurers but fail to accurately forecast the cost of providing care are often forced to accept ever-riskier deals just to stay afloat. In addition, many provider groups are undercapitalized and cannot endure delays in insurance payments, and have been stung by cuts in reimbursements. Finally, some provider groups racing to match the growing consolidation among insurers face difficulties in digesting their acquisitions. While HMOs commiserate with the providers' woes, they deny that they are failing to pass on the proceeds from premiums that have crept upward, and "argue that medical groups are suffering ... because their management systems are antiquated." Blue Cross of California President Ron Williams said, "If there's a crisis, it's a crisis of management" (Hiltzik/Maharaj, 3/13).