Analyst predicts future for hospitals, HMOs

Hospitals and HMOs should prepare for a year of turnarounds and transitions, according to managed care analyst Mary Jane Foster of Medical Data International, Irvine, CA.

In the MDI White Paper, "Top Ten Predictions for Healthcare Business in 1998," Foster predicted that the rush for non-profit hospitals to convert to for-profit status will slow in 1998. One reason for the change in pace, she wrote, is that there are simply fewer non-profit hospitals left to acquire after the vigorous purchasing done by Columbia/HCA in recent years. Another reason is that non-profit hospitals are learning from the successes of for-profit hospitals: They are cutting costs in more sophisticated ways, standardizing products, joining contracting networks, consolidating redundant services and collaborating with other non-profit hospitals and companies.

She also noted that many HMOs will be bought in the year ahead. Trying to operate managed care insurance plans with fee-for-service thinking has landed the majority of hospital-owned HMOs in debt. As insurers have expanded into new markets, many providers have realized that they can't negotiate from both sides of a capitated contract. Hence, Foster summarized, some HMOs are destined for the auction block.

After a long period of stable rates or decreases, Foster estimated that HMO premiums will rise this year. HMOs may be gaining membership with low rates, but they're not making money, meaning it's recovery time for many. Despite the change, however, Foster predicted that HMO net incomes will remain the same or continue to drop.

In addition, providers will regain some of the control they surrendered when managed care first entered the health care scene. According to Foster, physicians control 80% of medical costs, including referrals, diagnostic testing and procedures, chronic disease management and pharmaceutical usage. If HMOs want to control costs, they will need to find ways to work more with physicians.

Also, Foster noted, the face of HMOs will change even further as more providers join an already crowded market. Several have already incorporated alternative care professionals into their plans, and others have offered greater access to specialists.

Finally, Foster named Catholic health systems as the dark horses of the 1998 health care provider market. They have operated conservatively and consistently during the last several years. As a result, they have avoided excessive debt and have begun to collaborate with one another. Their caution, according to Foster, will position them for a fiscally healthy future. PR