Good outlook for some HMOS; others may struggle
Good outlook for some HMOS; others may struggle
Large for-profits in good shape
After several years of generally lackluster performance, profits among for-profit managed care companies are estimated to jump 60% this year to more than $3 billion, predict analysts with the Corporate Research Group in New Rochelle, NY. On the downside, the study questions the ability of many smaller commercial and most not-for-profit HMOs to survey given the major losses they have had to absorb in recent years.
Prime examples of the problems facing the nonprofit sector include the financial troubles facing New England’s Harvard Pilgrim plan, with projected losses of $177 million, and Tufts Health Plan, which lost $45 million last year. Meanwhile, Kaiser Permanente, the nation’s largest not-for-profit health plan, only recently returned to profitability after two years in the red, note the analysts.
If plans like Harvard Pilgrim can’t be saved, "it would be enormously disruptive to a million patients and tens of thousands of doctors. It would be a big heartache and awfully disruptive," notes Steven Adelman, MD, a psychiatrist with Harvard Vanguard, a 550-doctor group that gets 90% of its patients from Harvard Pilgrim.
Losses triple at small HMOs
After a promising first quarter in 1999, most HMOs relinquished their profit gains in the second quarter, with earnings falling from $274 million to $97.5 million, according to Weiss Ratings, a research firm in Palm Beach Gardens, FL, that tracks the HMO industry.
"Even allowing for seasonal factors, these figures point to a bumpy recovery at best for the industry as a whole, and may even foreshadow a further slide," says Martin Weiss, the firm’s president.
For instance, losses at small HMOs (with fewer than than 100,000 members) tripled from $51 million in the first quarter of 1999 to $155 million in the second quarter, says Weiss. Meanwhile, the performance of medium-size HMOs (with 100,000 to 250,000 members) plummeted from a meager $2.5 million profit in the first quarter to a loss of $90 million in the second.
"This is a big disappointment," observes Weiss. "Many industry analysts are claiming that HMOs have turned the corner. But they’re looking almost entirely at the results of larger, publicly traded companies."
As a result, providers "should expect more HMO failures and premium increases among the surviving companies," he advises.
Illinois most profitable, Tennessee least
Among the states with 10 or more HMOs reviewed in the study, Illinois companies were the most consistently profitable, with 12 of 15 reporting profits during the second quarter of 1999. Other states with a majority of profitable plans include Michigan (13 of 20), California (26 of 38), and Virginia (nine of 14).
In contrast, 11 of Tennessee’s 14 HMOs lost money. Other states with a majority of unprofitable companies were North Carolina (11 of 16 lost money), Louisiana (nine of 14), and New Jersey (eight of 12). Of the 516 HMOs reviewed by Weiss, 25 received rating upgrades, while 79 were downgraded based on an analysis of second quarter 1999 data. Downgraded HMOs Weiss says providers should pay special attention to include:
• Kaiser Foundation Health Plan Mid-Atlantic States (MD) from B- to C+;
• Blue Care Network of Michigan, from B- to C+;
• Community Health Plan Inc. of New York, from B- to C.
Notable plan upgrades include:
• Physicians Health Services of New York Inc., from D+ to C-;
• Physicians Health Services of New Jersey Inc., from D+ to C-;
• Universal Care of California, from E+ to D.
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