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Colorado Managed Care Review 2005 finds: HMO Consolidation Changes Landscape, Provider Relationships; Denver Hospitals Record Strong Net Income


Description: (Denver) Hospitals in Colorado maintained strong net income in 2004, even as they began to absorb the opening of five new hospitals. Colorado HMOs had their second straight year of strong profits. However, enrollment in HMOs continues to drop and may fall below 1 million by the end of 2005 if current trends continue.

These findings and others are contained in Colorado Managed Care Review 2005, the 12th edition of Allan Baumgarten's annual analysis of trends and issues in the Colorado market. The report was released here today. Baumgarten is an independent analyst and consultant on health policy and finance. He published his first Colorado market study in 1994. Baumgarten also publishes annual market reports in eight other states: California, Florida, Illinois, Michigan, Minnesota, Ohio, Texas and Wisconsin.

In his report, Baumgarten finds:

Acquisitions of key HMOs is changing the managed care landscape in the state.

Anthem Blue Cross Blue Shield, now part of WellPoint, Inc., has begun to introduce California innovations, such as pay for performance, where physicians can earn additional payments if they achieve certain clinical and administrative performance measures. Pending regulatory approval, UnitedHealthCare is acquiring PacifiCare, including its large Medicare plans in the state. According to interviews with physician group leaders, United is preparing to introduce a new methodology for identifying physicians that comply with best practice standards and will add benefit plans that encourage employers and employees to select networks made up of designated providers.

Hospital systems in the Denver area maintained strong net income in 2004, but are facing some problems with filling their new beds and getting health plan contracts.

According to Baumgarten's analysis of Medicare cost reports, the HealthOne/HCA hospitals had net income before taxes of $253.7 million in 2004, or 18.5% of net patient revenue. The Centura hospitals in the Denver area had net income of $56.6 million, or 7.3%, while the Exempla hospitals had net income of $74.4 million. Denver hospital systems have opened or are building five new hospitals. However, those new hospitals have not filled with paying patients as fast as planned and that may be helpful to physicians and health plans.

Colorado HMOs had net income of $107.5 million in 2004, or 3.1% of premium revenues.

That is less than 2003, when they had net income of $192.3 million, or 5.5% of premium revenues. In 2004, the HMOs had net underwriting income of $49.4 million on their commercial (employer groups) business, down from $124.4 million in 2003. Kaiser Permanente and PacifiCare together earned about $57.8 million, on their Medicare plans, less than in 2003. HMOs in the state broke even on their Medicaid managed care contracts, after several years of losses.

Premium revenues increased at a slower rate in 2004, after five years of double-digit increases.

In 2004, HMOs collected an average of $238.39 in premium revenue per commercial member per month. That is an increase of 8.1% from $220.50 in 2003. These sharp increases have caused employers to look for other health benefit options.


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