Unexpectedly high medical costs are slashing the once-vaunted profits of health maintenance organizations, prompting analysts to predict price increases and new restrictions on treatments and drugs.
United HealthCare Corp., an industry leader, on Thursday became the fourth HMO in a month to predict disappointing second-quarter earnings, accelerating a deep plunge in HMO stocks to levels not seen in almost a year."Unless we can get the industry as a whole to adopt some fairly demanding quality measurement systems, we're all in peril," said David Lansky, president of the Foundation for Accountability, an HMO watchdog group that is developing such systems. "The health-care organizations don't want to introduce changes that harm people, but they will have no way of knowing."
Many HMOs have kept their rates unchanged this year, anticipating stable costs and facing drastically increased competition in the fast-growing industry.
United, based in Minneapolis, said its costs have risen 3 percent to 4 percent so far this year because doctors are spending more money treating patients and prescribing drugs.
As a result, United said its second quarter earnings will fall to about 40 cents to 45 cents per share, down from 51 cents in the same quarter last year. Wall Street analysts had expected profits to rise to 65 cents.
United joins three other HMOs that have reported a similar financial squeeze - Humana Inc., based in Louisville, Ky., which serves the South and Midwest, Mid Atlantic Medical Services in Rockville, Md., and RightChoice Managed Care Inc., serving St. Louis.
United shares fell $13.25 to $31 on the New York Stock Exchange and others followed.
The Morgan Stanley Health Care Payer index, a listing of 12 managed-health-care companies, fell 6 percent to its lowest level in 11 months.
Robert Hoehn at Salomon Brothers in New York said United has already started raising its rates 4 percent to 5 percent and he expects others will raise rates too.