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 January 1, 1998

HMO rate increases expected to offset costs

Several Colorado health-care plans are trying to recoup their losses from the first half of this year by increasing premiums in 1998 and taking other steps to offset rising prescription drug costs and medical care.

Neil Westergaard, spokesman for HMO Colorado, the managed-care plan operated by

Blue Cross Blue Shield, said the company hasn’t reported its nine months financials yet, but there

have been no significant changes since it lost $4.5 million in the first six months of 1997,

“The underlying factors that caused the loss in the first place haven’t turned around,” he

said.

HMOs nationwide, he noted, have experienced poor financial results because of the

rising cost of health care and prescription drugs.

About 85 percent of HMO Colorado’s costs are determined by what the company pays

doctors, laboratories and pharmaceutical companies. “That has been the primary driver of the cost,” he said. “Pharmaceutical costs have jumped way up in the last year.”

In the coming year, employers will see some significant rate increases to offset the losses,

he said.

One of the problems in the last year was that HMO Colorado’s prices were below market

price. “We aggressively priced our products,” he said, noting that the company had anticipated it

could handle the lower rates due to large patient volumes.

Part of the business of an HMO is to anticipate medical costs in the coming year and

structure rates accordingly, he said. “We’re trying to negotiate the optimum contracts with providers,” he said. HMO Colorado covers 171,768 people in the state, with 14,797 enrollees in Boulder County, according to The Business Report survey for its list of HMOs (See list on Page ??.)

He said the company negotiates separate contracts with each group it covers rather than

offer a flat rate for all groups. Some employers that have older staff members and a high illness

rate pay higher rates, for example.

HMO Colorado represents the largest segment within Blue Cross Blue Shield and has seen tremendous growth recently, Westergaard said.

The company’s profits fell from nearly $10 million in 1993 to $2.7 million in 1996. During that same period, Kaiser Permanente saw its annual profits decrease from $30 million to $11.5 million.

Both plans were among 10 of the largest HMOs in the state to lose money in the first half

of 1997. Another managed-care plan, Rocky Mountain HMO, based in Grand Junction, lost $2.3

million in the first six months of this year. It lost $3.4 million in 1996.

Rocky Mountain HMO began implementing strategies to turn its finances around about a

year ago. “We expected it would take awhile for these new measures to show results,´ said

Deborah Dawes, a spokeswoman. “The plan is to be at the break-even point at the end of 1997.”

Dawes said the company remains on target with its financial goals for 1997. Third-quarter

results have not been released yet, she said.

Rocky Mountain HMO has 98,350 members statewide, with about 4,000 members in Boulder County.

As part of its action plan, Rocky Mountain HMO began using a Peer-A-Med physician

profiling system for some West Slope physician groups that takes a critical look at physician

practice patterns. The data indicates when physicians are using the procedures and medications

that are both medically and cost effective, the company said.

The program results in better coordination of care, better communication between doctors and participating hospitals and genuine efforts to decrease health care costs, it said.

Rocky Mountain HMO also has canceled its contract as an HMO option for Medicaid

recipients in Pitkin, Eagle, Garfield and Summit Counties following significant financial losses

serving Medicaid members in those four counties.

The company said it lost $600,000 in 1995 and $1.2 million in 1996 serving some 1,100

Medicaid recipients in the area.

“This decision was not made lightly,´ said Mike Weber, Rocky Mountain HMO executive director. “We have a 23-year history serving Medicaid recipients in Colorado, but given the disparity between the cost of delivering health care in this area and our reimbursement from the state, we can no longer continue to provide Medicaid service.”

Along with increased premiums in 1997, Rocky Mountain HMO also continues to work

for the most cost-effective provider contracts which guarantee quality care for its members, the

company said.

Several Colorado health-care plans are trying to recoup their losses from the first half of this year by increasing premiums in 1998 and taking other steps to offset rising prescription drug costs and medical care.

Neil Westergaard, spokesman for HMO Colorado, the managed-care plan operated by

Blue Cross Blue Shield, said the company hasn’t reported its nine months financials yet, but there

have been no significant changes since it lost $4.5 million in the first six months of 1997,

“The underlying factors that caused…

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