Analysts cool toward managed care stocks

One report predicts lower health plan profits and a slowdown in merger activity. But no one knows yet exactly how physicians will be affected.

By Jonathan G. Bethely, AMNews staff. Feb. 6, 2006.

Financial analysts are downgrading managed care stocks after investment firm Goldman Sachs lowered its outlook on the industry.

Goldman Sachs analyst Matthew Borsch, in a report released in January, wrote that "both [stock price] valuations and profit margins appear to be at peak levels."

It is not yet known how a reduced profit outlook for health plans might affect reimbursement of physicians, who have pointed out frequently that plans have suppressed reimbursement even when finances were strong.

Charles Y. Thomason III, president of Medical Management Associates, an Atlanta-based practice management consulting firm for physicians, said health plans shouldn't look to physicians to maintain profit levels.

"We have more and more doctors who are dropping out of their practices earlier," Thomason said. "From a pricing standpoint, physicians' fees have been driven to levels that threaten their viability, especially smaller practices. As fees decrease, doctors are having to work harder and harder to make the same amount of money."

Borsch's report also predicts an end to plans "squeezing the lemon" through large-scale mergers. He wrote the industry is reaching the limit for large-scale acquisitions based on the potential for antitrust challenges because of high market concentration and outcries from the medical establishment. The AMA and state medical societies have spoken out against such mergers, saying ever-larger health plans have too much market power over physicians and patients.