Managed-care companies, feeling trapped in a pressure cooker over a relentless fire, will feel the heat turned up again in 1998.
HMOs continue to tackle a public-perception crisis fueled in part by disgruntled providers and legislators jumping on the managed-care reform bandwagon.
Companies also are struggling with losses and slumping earnings.
Profits are eroding because of difficulties in digesting acquisitions, computer snafus and rising medical costs-especially for pharmaceuticals.
Managed-care companies will be glad to close the books on the old year.
Kaiser Permanente said it will post its first loss in about 50 years for 1997, and analysts predict that 1997 will mark PacifiCare Health Systems' first annual loss as well.
After jettisoning thousands of experienced staff, Aetna U.S. Healthcare suffered a claims backlog that led to a special charge and a third-quarter 1997 profit plunge of 96%.
In the new year, Oxford Health Plans will struggle to recover from its disastrous 1997 third quarter, when computer woes masked unexpected costs, resulting in a $78.2 million loss. An unforgiving stock market slashed Oxford's value by 62%. Oxford said it would lose $120 million in the fourth quarter and post a loss for the year.
Meanwhile, lawmakers at the federal and state levels will continue to issue mandates restricting the managed-care techniques-such as shorter hospital stays-that HMOs have used to keep costs in check.
Legislators will craft mandates based on the recommendations of groups such as President Clinton's Advisory Commission on Consumer Protection and California Gov. Pete Wilson's task force on managed-care improvement.
The liability shield provided to health plans by the federal Employee Retirement Income Security Act will be under heated attack following the passage of laws in 1997 in Texas and Missouri that allow consumers to sue managed-care plans.
Despite the headaches that mergers and acquisitions have caused, HMOs will continue to combine to try to build strength in a consolidating market.
A prime candidate for acquisition or merger is Prudential HealthCare, a troubled division of giant Prudential Insurance Co. But smaller plans can be expected to choose partners to solidify their market presence and to expand.
The federal balanced-budget law has allowed provider-sponsored organizations to enter direct contracts to serve the Medicare population. These groups will provide unwelcome competition to the fragile new Medicare programs started by commercial HMOs like Oxford.
According to Thomas Hodapp, managing partner at BancAmerica Robertson Stephens in San Francisco, most HMOs are struggling with their new Medicare programs.
Meanwhile, a rift has widened between not-for-profit HMOs such as Kaiser Permanente and the for-profit, investor-owned plans. Kaiser and several not-for-profit plans are pushing for federal regulation of HMOs to counter the consumer backlash.
Kaiser boasts that it spends more of the premium dollar on healthcare than do the investor-owned plans. It wants plans' medical-loss ratio to be uniformly calculated and revealed to the public. But the for-profits, who support voluntary standards, argue that Kaiser's medical-loss ratio is artificially high because it passes administrative costs on to its providers.