News and Commentary

2001 Could Be Good Year For Managed Care Industry

Median earnings for managed care organizations are expected to grow 17 percent this year, according to a forecast by Merrill Lynch. The report, "Managed Care: Let the Good Times Roll," suggests that while enrollment increases will remain tepid, well-positioned companies will benefit from increased market share. Further, better management of overhead and debt will offset increases in medical costs.

Long term, MCOs could feel the sting of sustained medical inflation — as, Merrill Lynch analyst Roberta Goodman notes, they will be hard-pressed to get away with double-digit premium hikes year after year.

Helping matters, the political and legal environments for managed care are thought to be better this year. A centrist patient-rights bill, if passed, would do little to upset industry operations as a whole, Goodman says. In the courts, the worst of the existing liability cases cleared out last year.

Two groups that track the industry independently confirm some of Goodman's observations — as well as her message that the strong are getting stronger. Weiss Ratings reports that in 2000, HMO failures fell — for the first time in five years — to 18 mostly small HMOs. Interstudy Publications notes that HMO enrollment in metropolitan areas increased 1.3 percent, but membership dropped in rural areas, which tend to be the domain of smaller HMOs.

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