Fuel for Healthcare Reformers

November 25, 2008

From the Journal of Economic Perspectices: “The U.S. health system has been described as the most competitive, heterogeneous, inefficient, fragmented, and advanced system of care in the world. In this paper, we consider two questions: First, is the U.S. healthcare system productively efficient relative to other wealthy countries, in the sense of producing better health for a given bundle of hospital beds, physicians, nurses, and other factor inputs? Second, is the United States allocatively efficient relative to other countries, in the sense of providing highly valued care to consumers? For both questions, the answer is most likely no. Although no country can claim to have eliminated inefficiency, the United States has high administrative costs, fragmented care, and stands out with regard to heterogeneity in treatment because of race, income, and geography. The U.S. healthcare system is also more likely to pay for diagnostic tests, treatments, and other forms of care before effectiveness is established and with little consideration of the value they provide. A number of proposed reforms that are designed to ameliorate shortcomings of the U.S. healthcare system, such as quality improvement initiatives and coverage expansions, are unlikely by themselves to reduce expenditures. Addressing allocative inefficiency is a far more difficult task but central to controlling costs.”


The Future of Medicare Advantage

November 17, 2008

With Obama heading for the White House, health plans are working overtime to understand what his Administration will mean for the lucrative Medicare Advantage market.  The concensus is reimbursements will be cut.  But that doesn’t necessarily mean Medicare plans can’t survive.  In this exclusive video interview (click here), we spoke with top Medicare consultant Nathan Goldstein of Gorman Health Group, who gives his take of the future of Medicare Advantage.

Outlook for Managed Care, 2009

November 17, 2008

It’s been a rough year for the managed care industry.  But at least one top analyst, Carl McDonald of Oppenheimer, is hopeful that 2009 will be a year of improvement.  Click here for our exclusive video interview with McDonald on the outlook for managed care.  McDonald also provides his assessment of the strengths and weaknesses of top publicly traded health plans.

Choice Words for WellPoint

November 6, 2008

It isn’t often you get fireworks at a Wall Street investor conference.  Everyone tends to make nice.  So our ears picked up during WellPoint’s presentation at the Oppenheimer healthcare conference this week when Lee Cooperman of Omega Advisors publicly told company officials: “There’s nothing in the record that suggests you know what you’re doing,” a statement followed by a round of applause by others in the crowd.

His complaint was that WellPoint had an aggressive stock buyback program when shares were trading at double what they are now, but has since slowed the buyback despite the lower share price.  Meanwhile, the company doesn’t pay a dividend.  Cooperman’s point was essentially, give investors the money or reassure investors why you’re keeping it.

WellPoint’s head of consumer business Brian Sassi, who represented the company at the conference, didn’t dispute the remarks.  Nor did any other WellPoint official in attendance.  One obvious answer, of course, is we don’t want to part with cash during a credit crunch.  Instead, officials basically verified that the buyback has slowed and noted that if the board does authorize a dividend it will be a big dividend.

We’re not going to get into a debate over capital management because it’s not our area of expertise.  Rather, we’re simply trying to gauge the level of investor frustration at the sagging fortunes of health plans—an by extension the level of frustration at some of the relatively new management teams therein.  High and rising seems an accurate assessment.

Managed Care 3Q08 Earnings Season: How Bad Was It?

November 6, 2008

Answer: Pretty damn bad.  Our tally of third-quarter 2008 results from 12 publicly traded managed care organizations shows net income fell 26%, while revenues rose 7% (almost entirely from rate increases as opposed to membership gains).  Basically, everything that could go wrong did go wrong.  There were (depending on the plan) investment losses, higher-than-expected costs, mispricing on premiums, losses from run-off operations, and lower-than-expected 2009 profit projections.  Shares fell hard on one disappointing earnings release after another.  Or as one investor said, “Basically, the entire sector blew up.”  On the upside, you could point to underlying strengths in the healthcare operations of several plans.  And there’s still hope that the underwriting cycle will turn favorable next year.  (Sorry, we forgot, there is no underwriting cycle; let’s just say, there’s hope that any mispricing gets less “missed” in 2009).

%d bloggers like this: