U.S. managed-care companies are dipping their toes in overseas markets.
While the nature of their international deals may differ, a handful of the country's more established HMOs have been laying the groundwork to go global.
"It's a question of the industry maturing," said Jonathan Lewis, president of the Academy for International Health Studies in Davis, Calif. "I think that the major national HMOs will become multinational HMOs. The exceptions will be the HMOs serving specific niche markets in the U.S."
Certain conditions at home and abroad have brought U.S. HMOs to the brink of international expansion.
At home, pools of potential enrollees in major metropolitan areas have begun to dry up.
According to the 1995 National Directory of HMOs, published by the former Group Health Association of America-now the American Association of Health Plans-cities such as Albuquerque, N.M.; Buffalo, N.Y.; Los Angeles; Rochester, N.Y.; San Diego; and Tucson, Ariz., have more than 60% of their populations enrolled in HMOs.
By contrast, U.S. HMOs have less than 5% of the market share of a population of some 470 million in Canada, the European Union and Mexico combined, Lewis pointed out. And these consumers are looking for more healthcare options while their governments are scoping new ways to control rising healthcare costs.
According to the international academy, total healthcare spending in countries such as France, Germany and the Netherlands has almost doubled as a percentage of gross domestic product from 1970 to 1991, and hefty annual increases are expected to continue (See chart, p. 132).
Mickey Herbert, president of Trumbull, Conn.-based Physicians Health Services and incoming chairman of the AAHP, noted the opportunity during his remarks at the association's annual meeting in New Orleans last week.
"Other countries are crying out for help from our health plans," he said. "American companies have to skate to where the puck is going to be."
In recognition of the growing interest, the AAHP will co-sponsor with the international academy the first "Managed Care Leadership Summit on International Healthcare Trends" in Mexico City this September. Representatives from countries as far-ranging as Brazil, Israel, Korea, the Netherlands and Venezuela are scheduled to attend.
As companies begin exploring international markets, they need to look for strong overseas partners to share any financial risks and to help navigate the often uncertain regulatory channels of foreign governments, emphasized Peter Kennedy, director of emerging markets for Futures Group, based in Glastonbury, Conn.
Effective partners, Kennedy said, could be those with strong financial resources and technical or actuarial skills. They could be large employers, insurance companies, private hospitals or private investors with government ties.
"Companies should go in early so that they're not left with the less desirable partners," he advised.
The strengthening of international ties has become a major focus for several companies. Some of the nation's larger HMOs have gone so far as to put a financial stake in foreign soil. Others are getting their feet wet through consulting contracts or programs geared to expatriates or employees of U.S. multinational companies.
Last year, a three-way partnership in South Africa called Southern HealthCare Joint Venture was formed by United Healthcare Corp., Minneapolis; Anglo-American, one of the country's largest employers; and Southern Life, a South African life and property insurance company.
The for-profit venture is structured as an American-style managed-care organization that contracts with healthcare providers to offer services to consumers.
United has a 20% stake in the new company and is responsible for providing managed-care expertise, top management personnel and information system technology, explained Keith Hoffman, vice president for business development in United's international division.
Anglo-American and Southern Life have split the remaining 80%. They are providing industry and government contacts and are funneling their employees to the new company for healthcare coverage.
A team of six or seven United executives has been in South Africa since last fall setting up shop. Marketing already has begun, and the first enrollment period is scheduled for this summer in Johannesburg, South Africa.
Hoffman said he expects the spinoff to break even in the next two to three years and to enroll 1 million members within the first five years. He said his goal is to have the largest market share in the country, which has a population of about 42 million, according to the last census. Only about 7 million people currently carry some type of private insurance.
"United isn't expecting enormous profits in the short term," he said. "We plan to break even in the short term and expect to get the bulk of our returns over time."
Over the last three months, United also has been working to strike a deal with Bonn, Germany-based Allgemeine Orts Krankenkassen, a not-for-profit association of so-called "sickness funds" that provides coverage for 30% to 40% of the German population.
Because the healthcare industry is still heavily regulated in Germany, United is not planning to set up a separate for-profit company.
Rather, it wants to form a strategic alliance with the national organization that will allow it to provide managed-care management techniques and systems on a contractual basis.
For example, Hoffman said, AOK is interested in such managed-care products as utilization review, case management, quality assurance and credentialing programs.
Though negotiations are in the early stages, Hoffman said, the goal for United is to establish a long-term relationship with AOK and to tap into its 30 million covered lives.
"We've been asked to come in and help them develop plans to introduce certain managed-care techniques," Hoffman said. "Contracting and licensing our services are constructive ways to market our technologies and techniques."
United's efforts in Germany are typical of the HMO industry as a whole.
"These consulting arrangements are generally viewed as part of a larger vision to get connected with the community and learn about the market," Lewis said.
Not-for-profit Community Health Plan, based in Latham, N.Y., focuses on educational and cultural exchanges in which it provides training in managed-care management techniques or in certain clinical areas to foreign administrators and physicians.
In Tula, Russia, CHP and Albany (N.Y.) Medical College representatives provided advice during the launch of the first Russian HMO. CHP also trained Romanian physicians in various child-care techniques and plans to advise health officials in Poland on how to develop an HMO.
"CHP is just as interested in expanding its market share as any for-profit," said Warren Paley, the company's founder and chairman of the board. "The more we learn about the culture and the system, the better we'll be able to make a decision about future investments."
U.S. Healthcare also has gotten its passport stamped.
Jacob Getson, who's in charge of international activities, said the Blue Bell, Pa.-based company has been securing reciprocity agreements and consulting contracts from private insurers since 1990. Hong Kong, Israel, Spain and the United Kingdom are among places where U.S. Healthcare has done business.
"We're doing it because our customers are going to need the ability to solve problems on an international basis," Getson explained. "The capacity to manage the healthcare of our covered lives in whatever setting or country is an important skill that we want to master."
Under reciprocity agreements, participants in U.S. Healthcare plans can receive certain benefits when they are abroad, and participants in the international partner's plan can receive services in the United States.
In addition, U.S. Healthcare has received payment for services such as strategic development, data system installation and consulting.
"We waited to see who came to us asking how to apply managed-care techniques," he said.
Getson said U.S. Healthcare is not yet ready to bear risk or make major financial investments in these arrangements.
"The tension has always been the drive to build a domestic marketplace, which is much more tangible," Getson said. "Our strategy has been to step through the relationships on an incremental basis to understand the environment, the cultural differences and the differences in healthcare delivery."
Aetna's planned $8.9 billion acquisition of U.S. Healthcare has the potential to broaden the companies' boundaries even farther.
Aetna International, an Aetna subsidiary, provides health benefit plans to 2.2 million foreign residents in Canada and nine countries in Asia and Latin America.
Aetna typically has a 50% to 80% ownership stake in the foreign affiliates that manage the benefit plans, explained Charles Bell, senior vice president for healthcare at Aetna International. In 1995, Bell said, Aetna's international business lines brought in $88.7 million in net operating income.
Given U.S. Healthcare's overseas managed-care experience and Aetna's established risk relationships and distribution systems, "it's a natural fit between the two strategies," Getson noted. "There's the potential of saving years of development time by connecting the two. Aetna is 10 to 15 years ahead of us."
Even so, Getson doesn't expect the international market to mature for several more years.
"There are no quick magic bullets in looking at international business opportunities," he said. "You're on a three-to-10-year cycle in getting the roots planted before the fruit is borne."
Doug Sherlock, a healthcare analyst based in Gwynedd, Pa., agreed. While international efforts may as yet represent a "peanut" of the companies' overall budgets, he noted, the expansions likely will pay off in the long run.
"Healthcare cost trends are declining here but increasing overseas," he said. "These skills that these companies are bringing will doubtlessly help provide more cost-effective care."