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HMOs welcome health reform as key to profit Industry investors meet in Baltimore


Investors may be worried about the direction of health care reform, but some of the nation's biggest managed care companies are not. From California to Maryland, they are plunging ahead to secure bigger shares of the national market in advance of what many believe will be a boon as state regulations crumble.

"The genie is out of the bottle," Alan Hoops, president and chief executive officer of PacifiCare Health Systems Inc., the 10th-largest health maintenance organization in the country, told audience of investors assembled in Baltimore for the annual Alex. Brown & Sons Inc. health care seminar.

"Critical to our success is our ability to grow and our ability to get the best practitioners," he said. The Cypress, Calif., company has reorganized, added companies and emerged as one of the nation's fastest-growing Medicare contractors. With a move into Houston, one of the largest U.S. markets, it expects to be No. 1

in Medicare revenues by the end of next year.

Managed care -- which seeks to control costs by such methods as steering patients to certain doctors, putting tighter controls on pharmacy products or reducing the number of tests -- could well be the fastest-growing industry in the country, with $17 billion in revenues. Growth could be enormous, with the uninsured, Medicare, and Medicaid populations totaling 100 million people, Mr. Hoops said.

The winners, according to executives of both leading and new managed care companies, will be the companies that offer the best product for the lowest price. The executives said their goal is to bring down prices and capture market share by aligning themselves with the best doctors and introducing new prod

ucts such as one-stop shopping to payers, those who pay the bills.

HMO membership is projected to grow to 52 million people in 1994, up from 12 million in 1983. The single biggest opportunity for growth may come from the government, which accounted for nearly half of all health care expenditures last year.

Growth also may depend on changes in state regulation, as is happening in New York and New Jersey, with the goal of opening up competition and reducing prices.

Health care costs in heavily regulated New York rose 14 percent last year, compared with a 6 percent rise on the West Coast, where HMOs are more popular, said Eleanor H. Kerns, an Alex. Brown analyst. "It's ironic," she said.

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This year, however, New York banned longtime insurance industry practices of accepting only the healthiest customers, leading regulators to impose hefty surcharges on companies that engaged in the practice and paving the way for upstart HMOs like Oxford Health Plans Inc. of Darien, Conn.

Oxford experienced what Alex. Brown called "torrid" growth by focusing on white-collar Manhattan. In a matter of months, it moved to No. 3, up from ninth, in metropolitan New York. Revenues and profits rose 75 percent in 1992 and are expected to climb 80 percent in the second quarter, company President Stephen F. Wiggins said. He predicted reve

nues of $300 million this year, up from $155 million last year.

Its strategies for growth include a joint venture with Chemical Bank, which gets a 1 percent premium reduction when its employees sign up for managed care.

Giants like U.S. Healthcare of Blue Bell, Pa., meanwhile, are moving into regulated states like Maryland with new products and strategies to undercut prices and increase share.

U.S. Healthcare, with 1.5 million members, is the third-largest HMO. It began enrolling Maryland customers in January. "It is now our intent to expand further into Maryland and go down into Washington, D.C.," Costas C. Nicolaides, executive vice president, told investors.

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