| BUSINESSWEEK ONLINE : JANUARY 10, 2000 ISSUE | ||||||||
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| INDUSTRY OUTLOOK 2000 -- LIFE SCIENCES
Health Care Psychiatrists examining the U.S. health-care system might make the following diagnosis: split personality or manic depression. In one corner, managed-care companies in 2000 will struggle to maintain earnings while net margins languish at just 2% to 3%, on average. In the other corner, Internet-based health concerns will be on a tear. More than 100 e-health-care companies were launched in 1999--and several are very healthy indeed. Sixteen high-profile initial public offerings and two successful secondary offerings have amassed more than $1 billion in new capital. In the sick corner, health-maintenance organization stocks lost an estimated 14% of their value in 1999. With enrollment in employer managed-care plans at almost 90% nationwide, untapped markets are scarce at best. ''Earlier in this decade, managed care was a growing industry and everyone could thrive,'' says H. Gregory Solomon, an analyst at J.P. Morgan Securities Inc. ''But the low-hanging fruit is gone.'' In addition to slowing growth, the industry is plagued by rising medical costs and an uncertain regulatory climate. In December, 1998, most companies confidently estimated medical cost increases of 3% to 5% for the coming year. But as the months waned, companies quietly began reporting upward trends of 5% to 6%--and in August, CIGNA Corp. (CI) reported 6.5% to 7%. One reason for the increases: the cost of prescription drugs, which rose 15% to 25% in 1999. Banc of America Securities analyst Todd B. Richter expects health-care costs will continue to increase. ''The debate will shift from how to control health-care costs to how to finance them,'' he says. Those efforts may be stymied by an ever more vocal public that is demanding greater access and flexibility in health-care plans. ''The only way to succeed is to assuage the customer,'' says Solomon. That, he says, is what inspired United Health Group's November decision to give doctors final authority over patient care. Whether it boosts the bottom line for United, the decision has been a public-relations coup, garnering lavish praise from Congress and the American Medical Assn. For now, the health-care industry is pinning its hopes on consolidation and premium hikes. Deals such as the recent Aetna Inc.-Prudential HealthCare Group Inc. merger allow organizations to trim costs, exploit economies of scale, and gain leverage with providers. Insurers have also started raising premiums. The average cost of employer-sponsored health plans jumped 7.3% in 1999--nearly three times the rate of general inflation, according to consultants William M. Mercer Cos. In 2000, price hikes may be still higher, topping 9%. But as Banc of America Securities' Richter points out, when medical costs skyrocket, ''premium increases stop being beneficial to insurers and become necessary to prevent profit losses.'' E-health may be just what the managed-care organizations ordered. According to Credit Suisse First Boston, at least 18 cents of every health-care dollar is eaten up by administration costs. A recent study by Northwest Healthcare Network shows how the Internet can streamline such inefficiencies: It found that electronic referrals cost health-care companies one-tenth as much as paper referrals. Many insurers, including Aetna (AET) and Oxford Health Plans (OXHP), are looking to beef up their Internet programs. Aetna already has two major Web initiatives: EZenroll, which allows consumers to sign up online, and E-pay, where physicians submit claims electronically and are guaranteed payment within 15 days. Such programs make life easy both for consumers and their physicians. Oxford, meanwhile, plans to use the Net to promote its disease management programs. E-health is still new and relatively untested in the minds of many physicians. But as managed-care companies continue to search for new ways to reduce expenses, the Internet may provide some of the medicine so badly needed by the health-care industry. By Ellen Licking in New York To read a letter to the editor about this story, click here. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Health Care ONLINE ORIGINAL: Can the Net Give Health Care New Vigor?  POSITIVES The Internet brings new efficiencies. Electronic health-care schemes such as Aetna's E-pay will let physicians submit claims online. Mergers may let companies trim costs and exploit economies of scale. NEGATIVES Medical costs are running ahead of premium hikes, so company margins will continue to be under pressure. Managed care has been hit hard by new legislation and fears of punitive damage awards. INTERACT E-Mail to Business Week Online | |||
