News in brief - March 22/29, 2004

Hospital spending set to increase - WebMD posts 4th quarter profit - HMO profits rise - Pay-for-performance program grows

Hospital spending set to increase

Hospitals expect to increase capital spending by an average of 14% over the next five years, according to a new survey, though experts said some hospitals may struggle to afford the expenditures.

Driving the trend were plans to increase capacity, upgrade technology and stay ahead of asset deterioration, according to the Healthcare Financial Management Assn., which surveyed 460 chief financial officers at hospitals and health systems nationwide and found that nearly 75% of them planned to boost capital spending.

The projected growth is a stark departure from the period between 1997 and 2001, when hospitals increased capital spending by an average of just 1%, the report said.

Richard L. Clarke, HFMA president and chief executive, said the report confirms that plans to significantly increase capital spending may be achievable for hospitals with strong financial performances.

"Financing the Future," was the third in a series of six reports on capital spending in health care. Previous reports examined access to capital and capital investments to keep ahead of asset depreciation.

WebMD posts 4th quarter profit

WebMD Corp. reported net income of $10.5 million for the fourth quarter of 2003, compared with a net loss of $2.4 million a year ago.

Revenue increased 13% to $258.4 million from $229.5 million, helped in part by the Elmwood Park, N.J.-based company's acquisition of Advanced Business Fulfillment in July 2003.

For the year ended Dec. 31, 2003, WebMD narrowed its net loss to $17 million compared with a loss of $49.7 million in 2002. Annual revenue rose 10.6% to $964 million, up from $871.7 million in 2002.

Separately, WebMD sold $100 million of convertible preferred stock to PCG Corporate Partners Fund, a private-equity fund managed by the Pacific Corporate Group and principally backed by the California Public Employees' Retirement System, the nation's largest public pension fund.

WebMD, which sells medical transaction processing services and software to physicians, said it will use the money for general corporate purposes, which may include acquisitions.

HMO profits rise

A study of 463 HMOs' financial performance during the second quarter of 2003 found that profits at the health plans rose 73.3% over the same period in 2002.

Jupiter, Fla.-based Weiss Ratings Inc. found that the collective profits of the health plans was $4.3 billion compared with $2.5 billion a year earlier. Weiss is an independent provider of ratings and analysis of financial services companies, mutual funds and stocks.

The hefty increase in net income is attributable to increased premiums, streamlined operations and the elimination of unprofitable business lines, said Melissa Gannon, vice president of the ratings company.

The capital reserves of the HMOs also have risen, indicating the companies are financially stronger. Aggregate net worth of the HMO industry rose 70%, from about $23 billion at year-end 1998 to $39 billion in June 2003.

Pay-for-performance program grows

The Integrated Healthcare Assn., the engine behind the ambitious "Pay for Performance" initiative in California, has announced changes to measurements for the program's second year.

Changes include three new clinical measurements: Chlamydia screening, appropriate treatment of children with upper respiratory infection, and antidepressant medication management.

Other measurements, including diabetes and cholesterol screening, have been expanded to include measuring a physician's ability to control the condition.

The way medical groups will be evaluated has been altered as well. Patient satisfaction and clinical measures each will account for 35% of the total, while technological capabilities will account for 20%, up from 10% last year. There also will be a 10% component that looks at whether a group has a program that measures individual physician performance.

More details about the program are available at the association's Web site (www.iha.org).