Allan Baumgarten's Managed Care Reviews

MINNESOTA

Minnesota Health Market Review 2012 Part Two released:

Minnesota Health Systems Repeat Strong Profits,

Pursue Acquisition and Partnership Strategies

For Release April 30, 2013

Hospitals in Minnesota continued their strong profits in 2011, but inpatient days were flat or down again. Integration and consolidation continues, as health systems pursue a variety of strategies to gain market strength. Part Two of Minnesota Managed Care Review 2012, which is released this week, contains these and other findings. The new report analyzes Medicare cost report data for 30 hospitals in the Twin Cities area and 29 major hospitals in outstate Minnesota and neighboring states. Data on hospital finances and utilization are organized around the major systems, including Allina, Fairview and HealthEast in the Twin Cities and Mayo, Essentia and Sanford Health outstate.

Minnesota Health Market Review 2013, Part One, is scheduled for release in early June. That will be the 24th annual edition of my Minnesota market analysis. The Part One report will include 2012 data on the financial results for Minnesota health plans, including a detailed analysis of the finances of Medicaid HMOs.

The new report finds:

· Twin Cities hospitals reported net income of $350.7 million in 2011, or 4.4% of net patient revenues of $8 billion. As a group, they lost money on operations, but had nearly $500 million in other revenues. In 2010, they had stronger results: net income of $450.9 million, or 5.9% of net patient revenues. Allina hospitals had margins of 6%, including $132 million in other revenues, while the Fairview hospitals had margins of 3.2%.

· Inpatient hospital days were down slightly in 2011, after sharp decreases in 2010 and 2009. Twin Cities hospitals provided 1.4 million inpatient days in 2011, following a decrease of 4.2% in 2010 and 3.6% in 2009. Average inpatient occupancy dropped from 74% in 2008 to 69.5% in 2011.

· The major hospitals in outstate Minnesota reported higher net income in 2011. On average, these hospitals had margins of 12.1%, compared to 10.8% in 2010. The most profitable systems were the Mayo Clinic (average margin of 13.2%) and Sanford Health (17.9%). These two systems have made acquisitions of hospitals and clinics in recent years to increase their market strength and extend their geographic reach. Mayo Clinic has also pursued a strategy of partnerships with mid-market hospitals around the country, including Altru in Grand Forks.

· The state?s new contracts for Medicaid HMOs have shifted market share. UCare gained contracts in several counties and added 65,000 public plan enrollees in the first half of the year. HealthPartners also gained enrollees, while Medica and Blue Plus lost counties and members.

September 6, 2012

Minnesota Health Market Review 2012 finds:

Minnesota HMOs Post Excellent Profits on Employer Plans and Public Programs

(Minneapolis-St. Paul) Even though four HMOs returned $103 million in excess profits to the Medicaid program, they still enjoyed strong profits on public programs and employer group plans.

These results and other market trends are analyzed in Part One of Minnesota Health Market Review 2012. The report, released here this week, is Allan Baumgarten's 23rd annual report analyzing the Minnesota health care market. He is an Minnesota-based analyst and consultant who has published or co-authored reports analyzing health care markets in Minnesota and 11 other states: Arizona, California, Colorado, Florida, Illinois, Kentucky, Michigan, New York, Ohio, Texas and Wisconsin. Part Two of the Minnesota report, to be released later this year, will include an analysis of profitability and care utilization for hospitals in the state and updated information on HMOs.

Among the findings in the new report:

Minnesota HMOs reported a third consecutive year of strong profits in 2011. Minnesota HMOs reported net income of $230.4 million in 2011, including $158 million in operating income and $72.4 million in investment revenue. Their actual net income was even higher: because of concerns over HMO profits on Medicaid in 2010, four HMOs agreed to cap their underwriting income on Medicaid and MinnesotaCare at 1% of their premiums for 2011. Those HMOs returned to the Medicaid program $103 million in profits that exceeded the cap.

The report provides a detailed analysis of financial metrics for the HMOs on their state public programs, showing their results as reported and before the return of the excess surplus. By adding back the returned dollars and some other expenses, the report shows that Minnesota HMOs had net income on Medicaid (including investment income) of $165.8 million, or 8.5% of premiums. The HMOs also reported $60 million in underwriting income for Minnesota Senior Health Options, a relatively small program serving persons who are receiving both Medicaid and Medicare benefits. Those gains were partly offset by losses on two other state programs.

Led by HealthPartners, HMOs had strong profits on employer group plans. While premiums increased, average medical expenses went down, so the spread between group premiums and medical expenses, per member per month, increased from $48 in 2010 to $66 in 2011. HealthPartners boosted its underwriting income for groups to $72.8 million.

Enrollment in HMOs and county plans fell by 5.1% in 2011. Enrollment in employer group plans continues to decrease and has now fallen below 225,000. That was only partly offset by 30,000 new enrollees in Medicaid and other public plans. However, the prospects for profitable enrollment growth for HMOs serving Medicaid, Medicare and commercial enrollees are very good and enhanced by initiatives under the Affordable Care Act.

HMOs maintain capital that is a billion dollars more than the required minimum. Minnesota HMOs added almost $200 million to their capital in 2011, bringing the total to $1.743 billion. At the end the year, they were required to have capital of $773 million. On average, HMOs have enough capital that they could continue to pay claims and overhead for more than three months even if no revenues were coming in. That is up from 2.4 months in 2009.

Excerpts from the report, including the popular "Minnesota Health Plans at a Glance" page can be viewed at http://www.AllanBaumgarten.com. Subscriptions to Minnesota Health Market Review 2012 in interactive PDF format, including both Parts One and Two, can be ordered for $160.00 plus $5.00 shipping. Call 952/925-9121 or fax 952/925-9341. E-mail address: Baumg010@tc.umn.edu

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MINNESOTA