Turn for the Worse: HMOs' Woes Reflect Conflicting Demands Of American Public --- Many Expect Lower Costs But Special Treatment; The Street Turns Sour --- Lack of Realism All Around
OAKLAND, Calif. -- Kaiser Permanente Chairman David Lawrence has had a productive year in managed care: He has negotiated three major mergers, increased his health plan's membership 15% to almost nine million people and led a high-profile industry coalition to improve consumer safeguards.</br></br>But asked whether he is having fun, Dr. Lawrence has a one-word answer: "No."</br></br>Kaiser, the industry's giant, now expects a loss of $50 million or more this year. Credit-rating agencies are downgrading its debt. Big employers are annoyed with its plans to raise rates next year. In Texas, it paid a $1 million penalty to settle charges of skimping on coverage. And in the biggest personal jolt, Dr. Lawrence says, Kaiser's nurses have picketed his home in a campaign to fight job cuts, "harassing my wife and frightening my daughter."</br></br>The honchos at other health-maintenance organizations aren't having much fun, either. Just when HMOs seemed to offer an answer to the intractable problems of soaring health-care costs, the bottom fell out. Some of the industry's biggest names are racking up losses, grappling with unexpected rises in medical bills, struggling to absorb costly mergers and squirming under a backlash from consumers, doctors and politicians. Wall Street is fearful and unhappy.</br></br>On Thursday, shares of Aetna Inc. tumbled more than 10% after the chief financial officer of its core unit suddenly resigned amid problems in digesting the $8.9 billion acquisition of an HMO giant, U.S. Healthcare. Oxford Health Plans Inc. has lost more than 75% of its stock-market value since late October, and its operating losses in the past six months could top $200 million. PacifiCare Health Systems Inc., a big California HMO, is taking a pretax charge of $145 million related to losses on an acquisition; its stock is down more than 20% since Thanksgiving. Cigna Corp. and Prudential Insurance Co. are having HMO problems, too.