Allan Baumgarten's Managed Care Reviews

OHIO

February 2, 2010

Ohio Health Market Review 2009 finds:

Economic downturn drives down hospital and HMO profitability;

Medicaid HMOs add enrollees but suffer losses in 2008

Cincinnati/Columbus/Cleveland - The current economic downturn has hurt profitability and enrollment/utilization for both health insurers and hospitals in much of Ohio. Growing unemployment has affected insurance coverage and hospital utilization. While enrollment in Medicaid HMOs has doubled in the past few years, most of those HMOs lost money in 2008. With the significant exception of the Columbus area, many hospitals in the state have seen their profitability drop sharply, even at a time of ambitious new construction projects.

These findings and others are presented in Ohio Health Market Review 2009, Allan Baumgarten's 11th annual study of health care insurance and provider markets in Ohio. The report, released this week, presents a competitive analysis of health plans and hospital systems in the state. Baumgarten, a Minnesota-based independent analyst of health care markets, first published his Ohio market analysis in 1997. He has also published annual market studies in Arizona, California, Colorado, Florida, Illinois, Kentucky, Michigan, Minnesota, New York, Texas and Wisconsin. Reports for Arizona, California, Kentucky and New York were published with support from health care foundations in those states. PDF reports are available for free download by following links at http://www.AllanBaumgarten.com. Ohio Health Market Review 2009 benchmarks Ohio HMOs against their counterparts in other states on several key measures.

In the new report, Baumgarten finds:

Net income for hospitals in the Cincinnati and Cleveland areas dropped sharply in 2008, while Columbus hospitals continued relatively strong profits.

Based on Baumgarten's analysis of Medicare hospital cost reports for 2008 operations, Cincinnati area hospitals had combined net income of only $14.7 million in 2008, or 0.3% of net patient revenues of $4.592 billion. That compares to 2007 net income of $290.5 million (6.8% of net patient revenues). In the Cleveland area, hospitals recorded a 2008 loss of $154.3 million, or 1.7% of net patient revenues of $8.950 billion. That was down from 2007 net income of $809.9 million or 10.4% of net patient revenues. However, hospitals in the Columbus area recorded 2008 net income of $328.8 million, which was 6.3% of net patient revenues of $5.2 billion. That was down from 2007 net income of $341.3 million.

Ohio hospitals face significant challenges, even as they proceed with ambitious building plans.

While hospital made plans for new construction projecting growth in patients and revenues, they face downward pressure on hospital utilization. In Cincinnati, for example, inpatient hospital days dropped by almost 4% in 2008. Unemployment in the state (over 10% in November 2009) means that fewer people have health coverage. Those that are insured often have to satisfy high deductibles before their coverage kicks in, so they may delay elective procedures. Another reason for the financial downturn in the Cincinnati and Cleveland areas was a decline in revenues from sources like investments, philanthropy and government grants. Still, hospitals in the state are continuing with large construction projects, expanding and updating their current facilities and extending their geographic reach into nearby areas.

? After peaking at average margins of 3.1% in 2006, profitability for Ohio HMOs has also decreased.

Ohio HMOs had net income of $32.7 million, or 0.6% of underwriting revenues. That is down from 2006 net income of $171.1 million. However, two major health insurers in the state, Anthem Blue Cross Blue Shield and Medical Mutual of Ohio, reported strong results. HMO plans are a small part of the business for those companies and they had margins in 2008 of 12.2% and 3.8%, respectively. Anthem's profits have grown steadily in the past five years while Medical Mutual has maintained its profits during that time.

? HMOs in Ohio are now primarily in the Medicaid managed care business, which was unprofitable in 2008.

Between 2005 and 2008, enrollment in Medicaid HMOs more than doubled to 1.3 million. Medicaid plans now account for 60% of all HMO enrollment in the state, and employer group plans are about 26%. But Medicaid HMOs had underwriting losses of $52.9 million in 2008. Anthem ended its state Medicaid contract in 2008, and others may be considering their future plans at a time when the state's Medicaid accounts are under strong pressure.

Enrollment in HMO employer group plans has declined steadily, going from a peak of 2.4 million in 1998 to 563,000 in 2008. Employers, facing consecutive years of large premium increases left HMOs and sought other health benefit options, including plans with higher deductibles. In many cases, those employers moved from HMO plans to PPO offerings within companies like Medical Mutual, Humana and UnitedHealthcare.

Excerpts from the report, including the popular "Ohio HMOs at a Glance" exhibit can be viewed in the State Reports section of http://www.allanbaumgarten.com. Copies of Ohio Health Market Review 2009, published in interactive PDF format, can be ordered for $160.00 by calling Baumgarten at 952-925-9121. Fax: 952-925-9341, E-mail: Baumg010@tc.umn.edu

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OHIO