HMO stocks dropped sharply in heavy trading last week amid industry protests that investors are overreacting to two company reports of expected lower earnings. The across-the-board drop-16% and 12% in two days for U.S. Healthcare-came after the Blue Bell, Pa.-based HMO said it may cut rates and squeeze profits to gain market share. United Wisconsin Services, Milwaukee, said it expected 50% lower first-quarter earnings. "Wall Street has not yet reached the phase where they distinguish individual companies within the HMO group," said a spokesman for Woodland Hills, Calif.-based Health Systems International, whose stock fell 9%. "What U.S. Healthcare is doing (is a) strategy we've been pursuing profitably in California for the last several years," he said. A spokesman for Cypress-based PacifiCare of California, whose stock fell about 10%, said the HMO has been successful "competing on price for quite some time" because it has been able to manage utilization. "It's a ridiculous overreaction," said Doug Sherlock, an HMO analyst based in Gwynedd, Pa. U.S. Healthcare's position "is not extrapolatable to anyone else. They're doing something different (from many HMOs)."
Five New England hospitals have at least temporarily shelved plans to merge under a single holding company. Cheshire Medical Center in Keene, N.H.; Mary Hitchcock Memorial Hospital in Lebanon, N.H.; Wentworth-Douglass Hospital in Dover, N.H.; Cooley Dickinson Hospital in Northampton, Mass.; and Capital Region Health Care Corp., which operates Concord (N.H.) Hospital, announced last week that the merger plan is off. Southern New Hampshire Regional Medical Center in Nashua previously pulled out of the proposed alliance. "While the organizations agree on a common vision, they have not agreed upon an organizational structure," their statement read. "Given this situation, the group has postponed for now further consideration of integration under a common holding company." The company would have overseen about 6,000 employees, more than 1,000 hospital beds and an estimated $500 million in revenues.-Associated Press
Ohio's certificate-of-need law will be nearly abolished by May 1, 1997, under legislation signed into law last week by Gov. George Voinovich. Only long-term-care facilities, which account for a high portion of state Medicaid spending, will continue to require CON after that date. The current CON law expires May 1. A House bill would have eliminated the program immediately, but state lawmakers approved compromise legislation to phase it out and allow the state's health department director to develop quality standards in its place. Mary Yost, senior director of public affairs for the Ohio Hospital Association, said hospitals were divided on the issue of eliminating CON, but the law does even the rules for hospitals and physician groups. Hospitals need CON approval for an ambulatory surgery facility, while physicians are exempt. She said increasing price competition among providers made legislators comfortable removing the law.
Despite last week's rejection by city commissioners, officials of Helen Ellis Memorial Hospital in Tarpon Springs, Fla., were trying to revive a joint venture with Columbia/HCA Healthcare Corp. The City Commission voted 4-1 not to set a referendum to vote on leasing the city-owned hospital to Columbia and instructed the hospital board to look for other partners "with community-based missions." However, Helen Ellis' administrator, Joseph Kiefer, said a deal with Columbia is not dead. "Both parties are still interested in coming up with a proposal," Kiefer said. The letter of intent with Columbia expires April 30, and the hospital board was scheduled to decide this week whether to alter the proposal.-Associated Press
Beverly Enterprises, a Fort Smith, Ark.-based nursing home chain, purchased 10 of its leased facilities from Health Care Property Investors for $43 million. HCPI said it recorded a $24 million gain on the transaction and made $8 million in net cash proceeds. The Los Angeles-based real estate investment trust is providing $35 million in financing to Beverly with a 15-year, first mortgage lien. Beverly also renewed existing leases on five other facilities with the REIT for an additional five-year period through 2003.