Health Plans Financially Squeeze Providers

Posted on May 15, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

Patients Squeezed, Too!

Staff Reporters

As regular readers of the “Executive-Post” know, several leading health plans have taken a profitability beating over the last several months. The reasons for the economic decline include operational issues, rising medical costs and financial market losses. For example, WellPoint, missed Wall Street’s estimates by a wide margin making financial analysts more than a bit nervous.

Raising Premiums

Now, hoping to calm watchers on the Street, industry leaders like UnitedHealthGroup and WellPoint are assuring investors that they plan to raise premiums enough to stabilize income–even if it means losing some members. As reported in the AMNews, “We will not sacrifice profitability for membership,” WellPoint President and CEO Angela Braly recently told analysts during a conference call.

Diminishing Reimbursements

At the same time, the plans are promising to use their muscle to get better deals from provider networks. This vow isn’t surprising, given that both the plans and analysts see medical costs as a critical factor in sapping industry profits this year.

Assessment

However, it’s not clear that plans like UnitedHealth-already known for extremely aggressive negotiations-can cut physician reimbursements any further.

Conclusion

Your comments are appreciated. Is anyone surprised over the above posture?

Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Financial Planning: http://www.jbpub.com/catalog/0763745790

Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

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Filed under: Healthcare Finance, Managed Care | 1 Comment »

Using Option Derivatives

Posted on May 15, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

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Why Options Investing?

By William H. Mears; CPA, JD

Although options can be used to raise cash from a long stock position that is not salable, individual physician-investors should use options primarily as a hedging mechanism. Individuals and doctors may want to hedge their portfolios to gain peace of mind by purchasing portfolio insurance to guard against major market declines or unpredictable events.

Many Different Uses

Options can also be used by physician-investors or other individuals to lock in profits where a stock has performed well and the investor would like to capture current market value in a stock (without triggering a sale). If an individual investor has a negative outlook on a stock, because of either a short-term economic view or a sentiment about a long-term bear market cycle, the investor can protect his or her portfolio against market movements, both short-term and long-term.

Options can be useful to manage risk in a single stock portfolio. The price for the use of an options strategy can be significant or relatively minor, so it is important to understand the risks, limitations and benefits of options strategies; and to understand this information when these instruments are used.

Traditional Personality of Discomfort

Individual physicians and investors have traditionally been uncomfortable with investments in options. The risk in these instruments is a function in part of the short duration for which they are generally purchased (e.g., three months, nine months). It is difficult to determine the direction of a market for a short time period.

Time-Risk Management

However, one of many ways to hedge the time risk is to increase the duration of an instrument. As the duration of an instrument is extended (to two years, for example), it is possible to determine with greater confidence that the market is likely to move through various cycles.

Long-term Equity Appreciation Options provide the investor with an opportunity to invest in options for up to two and one-half years. During the period of the option, the investor can liquidate the option position at any time, through either an exercise or a sale of the option itself. If the option is not exercised or sold prior to the expiration at the end of the duration, it will expire worthless.

Assessment

The physician investor who understands the vagaries of the markets—and can afford to take the losses if they occur—is the right client for a sophisticated investment strategy involving options. While there are no specific rules that define the characteristics of an option investor, a broker transacting in options for a physician-client is required to make sure that the client is appropriately aware of the risks.

Conclusion

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Filed under: Investing, Op-Editorials, Portfolio Management | 1 Comment »