Healthcare providers that want to get into the direct contracting business with Medicare should take note of Oxford Health Plans' latest financial woes.
The Norwalk, Conn.-based managed-care company last week blamed losses in its Medicare business for a large portion of an anticipated $120 million loss for the fourth quarter of this year.
Oxford had posted a $78.2 million loss in the third quarter, prompting a nosedive in the company's stock price that continued with last week's news. Oxford shares closed on Dec. 11 at $16.56, meaning the company had lost more than 80% of its value since reaching a high of $89 a share in July.
In addition, last week the New York State Department of Insurance ordered Oxford to boost its reserves by $164 million to ensure the company will have adequate cash to pay claims.
Oxford attributed much of its poor showing in the fourth quarter to higher-than-expected losses on its Medicare business, which accounts for 21% of total revenues and 8% of its enrollees. Oxford has 1.9 million total enrollees, of which 157,000 are in Medicare. It also said it fared poorly on its Medicaid and non-group individual policies. The company wouldn't give specific figures on Medicare losses.
Despite predicting a huge overall loss, Oxford Chairman Stephen Wiggins said in a statement that the company's employer group business remains profitable. That business accounts for about 75% of revenues, according to Thomas Hodapp, managing director at Robertson Stephens & Co. in San Francisco.
And although Oxford's Medicare business in some counties where rates are inadequate is "costing them a fortune," Medicare operations in other counties are Oxford's most profitable business, Hodapp said.
Under heavy lobbying pressure from hospitals and physicians earlier this year, Congress included a provision in the balanced-budget law that allows providers to enter risk contracts directly with Medicare for care to beneficiaries. A government task force led by HCFA is now developing financial solvency requirements for provider-sponsored organizations (See related story, this page).
Hodapp, though, said he thought the New York insurance department overreacted with its demands on Oxford to increase the company's reserves.
Oxford, which blamed the third-quarter loss on computer problems that hid major cash flow troubles, now is paying claims faster than it has in several months and has a better idea of expected medical costs, so the reserve increase ordered by state regulators appears high, Hodapp said.
"The implicit assumptions behind this reserve are extremely conservative, given the improvement in the claims payment cycle and (claims) inventory that Oxford has experienced in the last couple of months," he said.
KPMG Peat Marwick, one of Oxford's auditing firms, said last week that the company was well reserved, according to an Oxford spokeswoman.