Despite the well-publicized financial stumbles of powerhouses Kaiser Permanente, United HealthCare Corp. and Oxford Health Plans, things are looking up for the managed-care industry.
That's because most HMOs have learned better cost-management strategies, according to credit-rating agency Standard & Poor's.
And that may be bad news for physicians who have contracts with HMOs.
Last month, New York-based S&P released its ratings of the financial strength of 101 U.S managed-care companies -- selected to represent various sizes and markets. It reported that 74 were in the secure range, rated BBB or above on a scale of A+ to C.
The other 27 -- rated BB or below -- are considered financially vulnerable. The four companies S&P ranked the lowest, Ochsner Health Plan of Louisiana, HealthAmerica Pennsylvania, Mohawk Valley Physicians Health Plan of New York and Harris Methodist Texas Health Plan, all received a CCC rating. S&P cited the companies' low levels of capitalization and weak operating performances in recent years.
Ratings varied widely from company to company, and also by region. Managed-care companies in the Midwest and South earned high marks, while those in the Northeast and West received weaker ratings.
For the past three years, enrollment in HMOs soared, but many managed-care companies engaged in competitive price wars to gain market share, so revenues fell behind. To make up for lagging revenues and try to cut costs, managed-care companies lowered reimbursement rates, slowed payments to physicians, increased copayments and tried to pass on risk to the provider community. Today, says S&P Director Arun Kumar, things are settling down and managed-care companies are less focused on growth. They have learned better pricing strategies as well as better medical-cost management.
Cost management means keeping expenditures low, and that doesn't translate into good news for physicians, Kumar says. "From a physician standpoint, there is the likelihood to see diminished reimbursement rates in some areas, but not in all. They could expect more risk sharing with HMOs and managed-care companies.
Physicians are more likely to see capitation arrangements and more likely to see companies moving toward risk sharing and joint venture arrangements," he says.
While that's not the news frustrated physicians may have hoped for, Kumar says the managed-care companies have no choice but to keep expenditures low.
"From a physician's perspective, it is important for them to know that the managed-care companies had to turn the financial performance around basically just to be around," he says. "It's important to look beyond just the reduction in reimbursement rates, because it's important for these companies to be financially strong in order to pay claims in a timely manner."
Prompt claims-payment efforts mean many HMOs are reducing the backlog of claims and paying new bills within 10 to 20 days of receiving them. "It gives them greater control over what their balance sheet will look like at any time," he says.
Physicians need to examine reimbursement rates and a variety of other financial factors when evaluating managed-care contracts and prior to entering long-term agreements, Kumar says.
"Has the company had successive years of losses? Are the enrollments in a given market declining? Is there any threat of any regulatory oversight over that HMO?
These are things that generally point to the financial strength of the company," he says. He advises physicians to reject any contract with a company that has a rating below BBB.