HMO "Blues": Why some successful, others failure

  1. From 1/18/02:

    Variations on a Theme

    Managed care these days can be a tough business, no matter where you're located. In recent years, HMOs have faced numerous challenges, including consumer demand for greater choice and flexibility; the rise of large, powerful healthcare provider organizations; increased state regulation; rapidly rising medical and pharmacy costs; pressures from competing health plans; and the difficulty of setting premium rates appropriately.

    Given these obstacles, it's no wonder that many managed-care companies-when they're profitable at all-achieve profit margins of only about 3 percent at most. But despite it all, it's also striking to note that in some regions, HMOs are doing much better than those just a few states away.

    In the aggregate, California's managed-care industry is far and away the most profitable. Of the 42 full-service HMOs operating in the state in 2000, all but 13 ended the year with positive net income, for total industrywide profits of more than $990 million. This positive trend continued into the first quarter of 2001 (the latest available figures), when 36 of the state's plans made a profit, posting cumulative net income of nearly $163 million for the quarter.

    Pennsylvania's managed-care industry has also seen good times in the recent past. In 2000, 13 of the state's 20 HMOs turned a profit, resulting in total net income of $168.6 million. That represents a huge increase over the prior year, when Pennsylvania plans reported just $5.8 million in net profits. For the first half of last year, 11 of the state's 16 HMOs reported profits, boosting statewide net profits to nearly twice the $45 million posted during the same period in 2000.

    Texas' recent experience stands in stark contrast. The state's managed-care industry saw steep losses in the last few years-the most of any state. Of the 46 health plans operating in Texas in 2000, for example, 26 had losses, with cumulative net losses totaling more than $562 million. Conditions didn't improve much in 2001; for the first six months of last year, 26 Texas HMOs lost money, and statewide cumulative net losses approached $186 million. Perhapseven more significantly, last year's second quarter was the 21st consecutive quarter in which Texas HMOs, as a group, suffered significant losses.

    North Carolina's managed-care industry has been struggling as well. In 2000, 11 of its 18 full-service HMOs suffered losses, posting aggregate losses of nearly $99 million for the year. For the first half of 2001, just five of the state's 17 HMOs made a profit and overall the HMO losses totaled nearly $49 million.

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