Report: HMO profits fell 60% in 1996. In the second year of eroding profits after six years of earnings growth, HMOs suffered a 60% decline in profits during 1996, to $700 million from $1.8 billion in 1995, according to Weiss Ratings of Palm Beach Gardens, Fla. Medical-loss ratios increased to 88.8% from 88.1% in 1995 and 86.0% in 1994. Combined with administrative expenses, medical expenses exceeded premium income for the industry. As a result, companies tapped capital resources, resulting in a 5.8% decline in capital last year, Weiss said. To avoid further profit declines, HMOs are under pressure to raise rates, cut medical services or both, Weiss said. Weiss analyzed 344 HMOs, representing 95% of HMO enrollees. In its ratings of HMOs' financial security based on capitalization, liquidity, profitability and stability, Weiss downgraded 97 health plans and upgraded 34.
N.C. hospitals, FTC discuss merger proposal. Wesley Long Community Hospital and Moses Cone Health System, both of Greensboro, N.C., still are discussing their proposed merger with the Federal Trade Commission, after filing for antitrust clearance June 29. Tim Clontz, executive vice president for Wesley Long, said the hospitals' talks with the FTC have exceeded the standard 30-day waiting period. Together, Wesley Long and Moses Cone, which agreed to merge last fall, would control more than 70% of the staffed beds in Guilford County. Clontz said the FTC has asked the hospitals to "work out an agreement" with the state attorney general's office before proceeding with the merger. He declined to comment on the FTC's specific concerns. Moses Cone operates 547-bed Moses H. Cone Memorial Hospital and a 115-bed women's hospital. Wesley Long is a 199-bed acute-care hospital.
Ga. nursing home group sues state over Medicaid. The Georgia Nursing Home Association has filed suit against the state and its Department of Medical Assistance in an attempt to free up frozen Medicaid dollars. The association wants Gov. Zell Miller to reconsider his April veto of the Legislature's $4.1 million increase in Medicaid payments to nursing homes. The veto effectively froze rates July 1. Association President Fred Watson said the group, representing 355 nursing homes, filed suit July 30 in U.S. District Court in Atlanta after talks with the governor's office failed. Watson said the association hopes the suit will spur the governor to change his mind. But a spokesman for Miller said the governor doesn't plan to reconsider his decision. A court hearing is expected within 90 days. Some 80% of the state's 40,000 nursing home residents now receive Medicaid benefits at an average daily reimbursement rate of $75, compared with the national average of $82.
Aetna earnings decline; healthcare unit strong. While Aetna's stock fell 12% early last week on news of a decline in second-quarter operating earnings in the company's health risk business and higher managed-care costs, its Aetna U.S. Healthcare division fared well on the whole. The division's net income for the quarter ended June 30 soared 140% to $139.2 million from $57.6 million a year ago. The parent company's net income for the quarter fell 20% to $230 million from $288 million in the year-ago quarter. Operating earnings in health risk fell 6% to $120 million from $127 million. The decline appeared even worse because $13.9 million in reserves was applied to the health risk business, a spokeswoman said. Operating income for the company's nonrisk health business grew 118% to $106.8 million from $49 million a year ago, she said. Meanwhile, Salomon Brothers upgraded Aetna's stock to buy from hold, saying problems should be reversed in the next six months as Aetna begins to implement rate increases.
Sweeney to step down as Coram chairman. Coram Healthcare Corp. said its chairman of the board, James Sweeney, will not stand for re-election at the Denver-based home-care company's annual stockholders' meeting on Sept. 16. Sweeney, 54, said he is stepping down to focus on other business and personal responsibilities now that he is comfortable with the company's financial performance and its efforts to address past difficulties. Coram also announced that Arne Alsin will replace former board member Gail Wilensky, 53, who resigned last month. Alsin, 39, is president of Alsin Capital Management of Eugene, Ore. The company did not name a replacement for Sweeney.