HMOs are back, by focusing on Medicare, Medicaid

It's likely that Texas HMOs will top 3.5 million members by year's end, the first time membership has been that high since 2002, according to Texas Health Market Review, produced by Allan Baumgarten. And with proposals to expand managed care into Medicaid, the state-federal health program for the poor, HMO membership will grow, he said.

"This state and others are moving more to Medicaid HMOs, with Texas extending them into rural counties in the next few years," Baumgarten said this week. He expects 2 million to 3 million Texans to become eligible for Medicaid under provisions of last year's healthcare overhaul, so for Medicaid HMOs, "the business opportunities are huge."

Serving the Medicaid and Medicare HMO markets has been profitable. According to Baumgarten's analysis, Texas HMOs in 2010 reported $404 million in net profit on $12.4 billion in total revenue. Medicare Advantage plans accounted for about three-fourths of those earnings.

Baumgarten's study also looked at hospital performance in 2009, and both for-profit and nonprofit organizations were doing well financially, although active expansion could be getting ahead of patient growth, he said.

North Texas hospitals had a total of $1.3 billion in net profit in 2009, or 9.1 percent of their net patient revenue, Baumgarten calculates. That margin is about the same as in 2008 and is down from 10 percent in 2007, but both figures are "near the top" of what hospitals generally earn.

Those earnings, or surpluses at nonprofit hospitals, have supported considerable expansion. Baumgarten said North Texas hospitals added enough new beds in 2005-09 to accommodate 12.1 percent more patients, compared with 6.9 growth in the Houston area in that time.

But new capacity outstripped demand in both markets. Baumgarten said inpatient days -- the number of days spent in the hospital by patients admitted for at least 24 hours -- grew by 9.6 percent in North Texas and 4.9 percent in Houston, where inpatient days actually declined in 2009.

"I think there's a risk of overbuilding," Baumgarten said. "New construction has a cost, and somebody's got to pay for that."

While hospitals anticipate steady growth in population and reimbursements to pay for expansion, there are some risks. The recession reduced consumers' use of medical benefits, and high-deductible insurance plans, which employers increasingly offer, "really change patient behavior," he said.

Source: http://www.star-telegram.com/2011/10/27/3479626/hmos-are-back-by-focusing-on-medicare.html#ixzz1c5cu4d37