Over the past few years, a number of managed-care plans slashed prices to grab market share but ended up hemorrhaging red ink.
Some still bear the scars of those price wars. But one of the nation's top credit-rating agencies says the financial health of the nation's managed-care plans is perking up-just when many hospital owners want out of the managed-care business (See related stories, this page and p. 10).
After three straight years in which downgrades outpaced upgrades, Standard & Poor's predicts increased stability as HMOs and insurance companies post stronger operating earnings in the second half of 1998 and in 1999. Instead of whittling prices to build market share, managers are beginning to employ "more prudent pricing" strategies that take into account their own need to make a profit, the agency said.
The agency's report comes one week after another report noted that managed-care plans posted their first annual collective loss-nearly $800 million-last year (Sept. 7, p. 24).
Norwalk, Conn.-based Oxford Health Plans is an extreme example of the financial havoc wrought by price wars during the period from 1995 to 1997, but others have suffered too, said Arun Kumar, a director at Standard & Poor's. Falling stock prices "jarred" managed-care plans into trying new strategies, he said. "Price increases are probably the most obvious tactic they're trying."
It's one reason Standard &Poor's outlook for the industry over the next 18 months is positive. Better management of medical costs also is fueling the agency's optimism.
The Sept. 9 issue of Standard & Poor's CreditWeek examines the ratings of 101 U.S.-based HMOs and managed-care companies and offers an in-depth analysis of industry trends. Twenty-seven, or nearly a third, of the ratings, fall into the riskier, junk bond category of BB and lower.
At the bottom of the heap, with speculative ratings of CCC, are Ochsner Health Plan, Metairie, La.; Mohawk Valley Physicians Health Plan, Schenectady, N.Y.; HealthAmerica of Pennsylvania, Pittsburgh; and Harris Methodist Texas Health Plan, Fort Worth. Nationally, ratings vary widely by region, with more weaker credits in the Northeast and West, the agency said.
Among large managed-care companies, results differ, too.
Aetna U.S. Healthcare, Cigna Health Plans, PacifiCare Health Systems and Humana have shown strong or improved results in the first half of 1998, the agency said, while others like United HealthCare Corp., Kaiser Foundation Health Plans and Oxford have done poorly, Standard & Poor's said.