HMOs serving the Detroit area continued an earnings tailspin in the first quarter, despite modest price hikes to customers.
For many of the companies, the losses were expected. Farmington Hills, Mich.-based Care Choices HMO posted a quarterly net loss of $1.2 million, while the Wellness Plan of Detroit and CareAmerica Michigan in Southfield continued their money-losing ways.
One company, Total Health Care, Detroit, is unaccustomed to quarterly losses. Yet it posted a net loss of $1.6 million in the first quarter on revenues of $20.5 million, according to regulatory filings with the state.
"We're not looking at a banner year," said Gene Farnum, executive director of the Michigan Association of Health Plans, a Lansing-based trade group representing 23 health plans in Michigan.
Farnum said earnings for HMOs could get worse before they get better.
Modest HMO price increases of less than 5% went into effect in January. But those won't start hitting the bottom lines of health plans until the third and fourth quarters of this year, as contracts with employer groups come due, he said.
"The fourth quarter is the one to watch," Farnum said. "We'll have a better idea then whether things are starting to come back."
Even the HMOs that made a profit in the first quarter tended to see their earnings narrow. Detroit-based Health Alliance Plan, for example, posted net income of $3.2 million in the first quarter of 1998, compared with net income of $4.4 million in the year-ago quarter.
One company that improved its performance was Southfield-based Great Lakes Health Plan. Great Lakes has emerged from a start-up phase a year ago to post first-quarter net income of $572,236, according to the state financial filings.
The HMO industry continues to be plagued by rising pharmaceutical costs, struggles with Medicaid price cuts and the high costs of launching Medicare HMOs, said Thomas Summerill, president of Mercy Health Plans, the Farmington Hills-based parent of Care Choices HMO.
Care Choices raised its prices for commercial customers between 3% and 5% in January, Summerill said. While that helped, it wasn't enough to boost Care Choices back into the black.
Care Choices posted a net loss of $1.2 million in the first quarter, compared with a net loss of $323,114 in the same quarter a year earlier. Revenues rose to $69.1 million vs. $66.3 million in the first quarter of 1997.
Summerill said HMOs are having a hard time keeping up with skyrocketing pharmaceutical costs. Drugs are rising from a rate of 10% annually on the low end to as much as 18% annually on the high end, he said.
Some HMOs might seek additional price hikes to customers in light of the close financial scrutiny being given to HMO by state regulators, he said.