HMO profits should rebound

There’s no question that HMO profits have declined during the last few years. What remains to be seen is how much of a hit physician practices may take in order to help HMOs regain ground.

After two years of declining revenues, HMO profits should rebound in 1997 as the industry attempts its first significant price increase since 1994, according to a forecast issued by Corporate Research Group of New Rochelle, NY. The report predicts HMO revenues will grow nearly 15% this year, compared to a 10% decline in 1996 and a 20% drop in 1995.

The report, The Outlook for Managed Care, projects enrollment growth slightly below the 14% achieved in 1996. Medicare risk HMOs offer the greatest potential for membership growth.

States offering the best potential for HMO growth include Texas, Florida, Pennsylvania, Ohio, North Carolina, Missouri, and Virginia, according to the report.

In the meantime, some physician practices with capitation contracts may see declining per-member-per-month (PMPM) rates until profits rebound, according to a study of nearly 500 HMOs nationwide conducted by Milliman & Robertson, Seattle. Flat or decreasing premium rates and competitive managed care markets mean many physicians will feel pressured to do more with less.

"In my discussions with other groups around the country, I’m finding that there is greater pressure on physicians to be more efficient," says Robert Yood, MD, acting medical director at Fallon Clinic in Worcester, MA. "Physicians are being forced to find ways to deliver the same amount of care to the same population for less."

A concrete example of how provider PMPM reimbursement rates have declined can be seen in California. Average PMPM rates employers paid to HMOs fell 0.09% from July 1995 to July 1996, with a corresponding decline in provider reimbursement rates.