Confidence In For-Profits Is Eroding

Nosedives in the stock prices of such health companies as Oxford Health Plans, Aetna U.S. Healthcare and MedPartners have focused attention on the question: Does poor performance on Wall Street affect quality of medical care? While an answer to that question realistically cannot be known for years, falling health care stocks apparently have spooked the public about the role of profit-driven companies in medicine.

According to a Kaiser Family Foundation survey, a drop in public confidence in the care provided by for-profit health plans and hospitals followed last fall’s highly publicized financial fallouts. Further, investors may be scared away by the recent performance of many health care stocks. From 1987 through 1995, the average annual return for health services stocks was 21 percent, and was 32 percent for HMOs. From 1995 through 1997– boom years for the stock market–average returns for those same stocks were 3 percent and minus 7 percent, respectively.

Investors are an increasingly important source of capital for health plans. Market capitalization, or value of all stocks, of the HMO industry grew from $3 billion in 1987 to $39 billion in 1997, a 13-fold increase. During that period, the value of the market as a whole quadrupled.

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