As HMOs struggle to regain profitability, they frequently see their increased premium revenue eaten up by increases in their health care costs. The cost of outpatient prescription drugs is frequently identified as a major driver of cost increases. The increase comes from the introduction of new, often expensive, drugs and overall growth in prescriptions.
In preparing Part Two of Michigan Managed Care Review 2000, we used HEDIS reports prepared by the HMOs to track increases in outpatient drug expenses. In Michigan, all HMOs are required to submit full HEDIS reports to state regulators. In 1999, HMOs spent $606.3 million on outpatient prescription drugs for their commercial members. That translates into an average cost of $27.77 per member per month. The average HMO collects $137.09 in premium revenue per commercial member per month, so prescription drugs account for 20 cents of every premium dollar. Spending increased by 13.9 percent over 1998, when the average cost was $24.37 per member per month.
The figure below compares the largest plans on their drug costs in 1998 and 1999.
In addition, the average number of prescriptions per member also increased, from 8.28 to 8.82.
Here are some of the other key findings from Michigan Managed Care Review 2000, Part Two.
Enrollment in HMOs fell slightly in the first nine months of 2000. As in several other states, enrollment in Michigan HMOs dropped from January to September of 2000. Commercial enrollment has been flat and a few HMOs have dropped out of the states Medicaid program.
HMOs posted modest profits for the first three quarters of 2000. After three straight years of losses, the states 27 HMOs had $40.2 million in profit, or about one percent of total revenues. Health Alliance Plan gained $22.8 million while Blue Care Network lost $13.5 million.
Profits for Detroit-area hospitals declined in 1999. On average, those hospitals had profits of 0.1 percent of revenues, down from 1.5 percent in 1998. Revenues from investment, philanthropy and other sources have become increasing important, since most hospitals in the area lose money on patient care operations. However, the Beaumont hospitals had profits of $51.7 million, and six large hospitals in other parts of the state had profit margins of greater than 10 percent.
Some hospitals have sought to refocus on patient care. While hospitals continue to operate large HMOs, several have exited that business, including the hospitals that owned SelectCare and others that had started new health plans for Medicaid.