Managed care's profits come from physician pockets

HMO stocks are going up in a down market, and doctors appear to be paying the price.

Editorial. Sept. 2, 2002.

It's a kick in the teeth to physicians to see how their investment returns have gone down in this volatile stock market. What's an additional punch in the gut is to see which stocks are bucking the trend -- managed care companies.

Wall Street is rewarding the plans, in part, for their efforts to keep medical costs -- including payments to physicians -- as low as possible.

As of Aug. 15, the Dow Jones Industrial Average was off 12% from the start of year, the Standard & Poor's 500 Index was down 19% and the already battered Nasdaq National Market had fallen 31%. Meanwhile, stocks of eight of the largest managed care companies were up a collective 19%. And that's after a decline from their June peak.

Right now, Wall Street is putting out warnings about how many companies' second-quarter earnings would suffer because of general economic trends and a greater scrutiny of profit-inflating accounting tricks. Meanwhile, managed care companies are reaping increasing profits and benefiting from a feeling that health care is a safe investment.

Wall Street analysts expected managed care companies to meet or beat their expectations for the second quarter; through mid-August, most reported large profit gains -- even Humana Inc., one of managed care's Wall Street laggards, announced a 19% jump in its second-quarter profits.

Usually the second quarter is an uncertain time for managed care companies because it's the first in which clear signs indicate whether premium revenue is going up. In Wall Street's eyes, it's become very apparent that the past few years' 10% to 40% premium increases -- depending on the managed care company and its payers -- are indeed pushing up premium revenues. [...]