First quarter HMO underwriting trend mixed


    The first quarter financial picture for health maintenance organizations was slightly more upbeat compared to a tough 2008, according to reports filed with the Michigan Office of Financial and Insurance Regulation.

    Priority Health was in the black after a net loss in first quarter 2008. Grand Valley Health Plan, after absorbing high-cost cases last year, lost less money in the first part of 2009. At Blue Care Network, net income was depressed compared to the last comparable time period, thanks to increased prescription costs and a $2 million underwriting loss, CFO Sue Kluge said.

    The HMO of Priority Health, which is owned by Spectrum Health, pulled underwriting out of a dramatic $6.5 million funk in the first quarter of 2008 to a $731,359 move into positive territory for the first quarter of 2009.

    The HMO posted $4 million in net income for the first quarter of 2009, compared to a loss of $2.8 million in 2008. Investment gains dipped from $3.5 million to $2.9 million.

    CFO Greg Hawkins said he was pleased to see underwriting buoyed and said Priority Health has controlled administrative costs through careful management of hiring.

    “We’re encouraged with the improvement, but still, that is a percent of total premiums of two-tenths of a percent. That’s very close to breakeven on operations. We need to do better than that,” Hawkins said. “I am encouraged by improvement relative to our first quarter last year.”

    While financial information for non-HMO products is not included in the quarterly financial statements, Hawkins said Priority Health’s PPO side has seen enrollment growth recently, particularly in the nonprofit’s eastern Michigan operations. He also said Medicaid enrollment continues to increase in Priority Health Government Programs, a reflection of the continued economic woes in Michigan.

    PHGOP posted net income of $3.3 million for the first quarter of 2009, compared to $1.4 million in 2008. Membership grew 4.5 percent from first quarter to 2008 to first quarter 2009, to 57,619.

    Priority Health’s commercial HMO comprises the bulk of its business, with 361,491 members, up slightly from the first quarter of 2008. Priority Health contributes about half of Spectrum Health’s $3 billion revenue footprint for fiscal 2010.

    Manufacturers raised prices on brand-name medicines that face patent expirations this year, pushing up prescription drug spending for BCN, Kluge said. BCN, which is owned by Blue Cross Blue Shield of Michigan, posted net income of $8.2 million, compared to $10.3 million in positive territory in 2008’s first quarter. BCN absorbed an underwriting loss of $2 million during the first quarter, but investment gains grew to $10.4 million.

    “Our investment income is doing extremely well compared to a lot of other carriers, and that is helpful,” Kluge said. “The slight swing down compared to the gain a year ago is really being driven by pharmacy costs. We’re seeing an increase in costs that pharmacies are charging for branded drugs.”

    The HMO’s prescription drug costs rose by more than $7 million in the first quarter, compared to last year, to $77.7 million, despite having a strong program to promote the use of generics and a dip in membership of nearly 3 percent.

    “It’s the branded drugs, where there is no generic,” that have increased in price, Kluge said. “A lot of these are going off patent this year, so they’re giving an extra boost in price. We are at their mercy.”

    A May report on 2008 from Medco Health Solutions, a pharmacy benefit manager with a reach of 60 million lives, identified record increases in brand-name drugs. It also said that the use of generics and mail-order pharmacy services limited prescription spending growth to 3.3 percent in 2008, driven mostly by specialty drugs.

    Kluge also said BCN leadership is closely following the ripple effects of the bankruptcies of Chrysler and General Motors on suppliers and dealerships.

    Locally based Grand Valley Health Plan, the state’s only staff-model HMO, posted a loss of $164,268 for the first of quarter of this year, compared to a loss of $340,000 in the first quarter of 2008.

    President & CEO Ron Palmer said the small organization, with 7,901 members in the first quarter of 2009, also has seen branded drug prices pushing up. But the biggest price increases are coming from hospitals, which are looking to commercial insurers to offset budgets increasingly pressured by cuts in government payments and drops in volumes.

    “The biggest price increases we are seeing are coming out of the hospitals,” Palmer said. “That’s been continuous for three years. As an example, what we’re seeing in terms of hospital increases is that it’s basically double the increases we have had internally.

    “The real question here is, when are the hospitals going to have to address the question of operating a hospital within what the government is paying them?”

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