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A Doctor in the House?
Oxford's losses casts doubt on local provider relationships
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Business New Haven
8/24/1998
By: BNH
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As if the news in July was not foreboding enough, when Oxford Health Plans Inc. (NASDAQ: OXHP) indicated it would raise premiums and slash payments to doctors, the company announced on August 11 that it had incurred a staggering net loss.
Posted for the second quarter ending June 30 was a net loss of $507.6 million ($6.41 per share), compared to second quarter 1997 net income of $37.2 million (45 cents/share).
The quarter's results were negatively affected by restructuring and turnaround charges of $174 million and $112 million, respectively. Also, the net loss of $552.9 million ($7 per share) posted for the first half of 1998 compares unfavorably to the first half 1997 net income of $71.5 million (87 cents/share). Additionally, the company experienced a net loss of $291 million for its 1997 fiscal year. The Norwalk-based company subsequently finds itself in a deficit net-worth position.
Looking on the plus side, revenues increased to $1.19 billion for the second quarter, a 12-percent rise over second quarter 1997 revenues of $1.06 billion. For the half-year, the company enjoyed an 18-percent growth in revenues to $2.42 billion compared to $2.05 billion for the comparable 1997 period.
Prior to adjustments, the company recorded a positive cash flow from operations for the second quarter. Cash and marketable securities were recorded at more than $1.1 billion as of June 30. Membership grew to more than 2.0 million, compared to 1.8 million one year ago.
An Oxford spokeswoman explains that the June 30 results are not representative of Oxford's performance but reflect the company's plans to “clean the slate and move on to the future.” She says that Oxford 's real strength is in its strong franchise and that the company plans to focus on their core business of providing commercial insurance in New York, New Jersey, Pennsylvania and Connecticut. The company plan to sell businesses in New Hampshire, Illinois and Florida.
The spokeswoman also stresses that Oxford has a new management team that is determined to turn the company around, aiming for a return to profitability by the second half of calendar 1999.
CEO Norman Payson, himself a physician, is committed to having participating Oxford physicians involved in the decisions of the company. Plans include placing physician members on their board of directors.
William Gedge, senior vice president of payer relations for the Yale-New Haven Health System, sheds some light on the HMO industry by saying that what Oxford is experiencing is an “indication of the industry now.”
Gedge explains that HMOs and health-care providers “must wrestle on a day-to-day basis” to balance cost vs. treatment options in order to keep purchasers happy and treatments cost-effective. “The whole thing is a balancing act,” he explains.
Oxford's spokeswoman states that even during the turnaround, Oxford has “never lost focus” on the consumer or its own provider network.
This is “a defining moment for HMOs,” says Gedge, a time when purchasers of coverage are not willing to pay large increases in premiums but health plans cannot afford to take huge losses every quarter.
As a result, providers can get caught in the middle and will need to decide if they want to accept lower payments or drop out of the network. In Oxford's case, the company spokeswoman explains that “Oxford has always been a generous payer” to participating physicians, and that proposed fee reductions will serve mainly to bring Oxford's rates more in line with the industry.
Helayne Lightstone, director of public relations for New Haven's Hospital of Saint Raphael, says her hospital has “active and ongoing contractual relationships” with Oxford for both commercial and Medicare products. She notes that the hospital does understand that Oxford is having difficulties.
The Oxford spokeswoman indicates that over the next few months Oxford will negotiate with member hospitals to develop more “workable arrangements.”
Presently trading in the $7 range, Oxford's stock price is now only at about ten percent of the $70-$80 range in which it traded a year ago. It took a huge dive in October 1997 after the company announced losses due to underestimated costs and delays in billing.
The stock since has not recovered. On August 11, the date on which Oxford's June quarterly results were announced, the stock closed at 7 1/4, up 11/16.
Oxford Health Plans has established an aggressive turnaround plan from which it hopes to return to profitability by the second half of next year. Besides fee negotiations with providers and hospitals, plans include paring administrative expenses, conducting utilization reviews, increasing premiums, as well as improving service, claims payments and their computer systems.
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