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April 30, 2007
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MHMR April 30, 2007: Volume 15, Number 8
HIP, GHI to go for-profit…’06 MCO executive pay jumps…United 1Q07 marred…Coventry, Mutual of Omaha deal…Sierra chose United over another…WellPoint cites MCR concerns…Aetna posts solid 1Q07 results…Humana shares hammered…Health Net on a rollercoaster…Medicaid HMO stocks struggle…Coventry affirms ’07 outlook…MCOs pull back on stock options…HMO stocks fall 4%...Services stocks rise 3.7%...and more…
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HIP, GHI FILE FOR-PROFIT CONVERSION PLAN
HIP Health Plan of New York and Group Health Inc., two leading managed care companies in New York, filed on April 16 a conversion plan with the New York State Dept. of Insurance that requests approval for the companies to merge into one for-profit company, MHMR has learned.
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’06 MCO EXECUTIVE PAY JUMPS 24%, EXCLUDING OPTIONS
Managed care executive pay jumped 24% in 2006, with 13 chairmen, chief executives and healthcare division presidents at 10 publicly traded managed care companies receiving total compensation (excluding stock option awards, which were down considerably in 2006; see separate story, this issue) of $81.1 million in 2006.
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UNITED 1Q07 MARRED BY SLOPPY FORECAST
An otherwise solid quarter for UnitedHealth Group (Minnetonka, MN) was marred by sloppy forecasting of medical costs, resulting in $100 million in unfavorable claims development and an increase in medical cost ratio.
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COVENTRY TO BUY CERTAIN MUTUAL OF OMAHA GROUP LINES
Coventry Health Care Inc. (Bethesda, MD) announced a definitive agreement to acquire Mutual of Omaha’s commercial employer group health business in Nebraska and Iowa as well as the company’s Federal Employees Health Benefits ASO business for $120 million in cash.
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SIERRA CHOSE UNITED OVER ANOTHER BIDDER
Sierra Health Services (Las Vegas, NV) said that both UnitedHealth Group (Minnetonka, MN) and another bidder offered the same purchase price for the company—$43.50 per share—but the company went with UnitedHealth in part because United offered to pay a $25 million break-up fee is the deal fell apart.
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WELLPOINT CITES CONCERNS OVER MEDICAL COST RATIO
WellPoint Inc. (Indianapolis, IN) reported that first-quarter 2007 medical cost ratio rose a higher-than-expected 180 basis points to 83.1% compared to a year earlier, which the company attributed to cost increases largely in Medicare and Medicaid products but also in its commercial business.
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HUMANA SHARES HAMMERED AS 1Q07 MCR RISES
Shares in Humana Inc. (Louisville, KY) fell 2.6% to $63.24 on April 30, after the company reported a 310 basis point increase in first quarter 2007 medical cost ratio to 86.8%.
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HEALTH NET SHARES ON ROLLERCOASTER
Health Net (Woodland Hills, CA) saw its shares fall 5% on April 30 to $54.06 and then bounce back somewhat the next day as investors tried to make sense of the company’s prospects after it reported solid but hardly spectacular first-quarter results.
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MEDICAID HMO STOCKS STRUGGLE
Shares in Medicaid HMOs Amerigroup Corp. (Virginia Beach, VA), Centene Corp. (St. Louis), and Molina Healthcare Inc. (Long Beach, CA)—three top pure-play Medicaid HMOs—have struggled over the past couple of weeks in part on concerns that reimbursement levels may be lagging cost increases. A complete report will appear in the next issue of MHMR.
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COVENTRY REAFFIRMS 2007 PROFIT OUTLOOK
Coventry Health Care (Bethesda, MD) said it had confirmed its 2007 earnings outlook of $3.92 to $3.98 per share ($619 million to $629 million based on 158 million diluted shares).
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MCOs SCALE BACK STOCK OPTIONS DRAMATICALLY
In the wake of the stock options scandel that embarrased corporate America and took down UnitedHealth chairman William McGuire, M.D., managed care organizations dramatically scaled back stock option awards to executives in 2006.
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