It’s no mystery that major parts of the health care sector took a significant hit to the bottom line this year as hospitals and other providers postponed elective procedures to make way for the influx of coronavirus patients. But one area of the health care sector — managed care organizations — has weathered the storm quite well.
Generally, many managed care organizations experience positive financial results in the first two quarters of the year as patients pay out of pocket to meet their annual deductibles.
When those typically strong quarters coincide with declining costs from delayed elective procedures, the result is a resilient financial performance by managed care organizations.
Source: Bloomberg Intelligence
Of the nine managed care organizations included in Bloomberg’s data, all of those companies’ margins improved for the second quarter of 2020 compared with the second quarter of 2019. This has led some companies like UnitedHealth to provide discounts to members.
Some managed care organizations have provided discounts for members.
Interestingly enough, Modern Healthcare accumulated data of the non-Anthem Blue Cross plans and found a wide range of results. For instance, Horizon Blue Cross and Blue Shield of New Jersey (BCBS NJ) had the lowest margin (negative 1.24%, which is nearly 15 percentage points lower than in 2019) of the 32 Blue Cross plans reviewed by Modern Healthcare. In contrast, Blue Cross and Blue Shield of Kansas’s margin surged to 27.85%.
Meanwhile, health systems are experiencing mixed results. Health consulting firm Kaufman Hall reported that the 800 hospitals it tracks had seen their year-to-date margins erode by about 50% compared with the same period a year earlier. The large publicly traded health systems have seen results more consistent with the health plans.
Source: Bloomberg Intelligence
The operating margins for the Kaufman Hall health systems and the data included in the chart above both account for the effects of receiving CARES Act funding. So what is driving the difference? Salary expenses for the health systems included in the Bloomberg data increased from 46.7% as a percentage of sales in the second quarter of 2019 to 49.5% in the second quarter of 2020. The Kaufman Hall peer group’s labor expense increased by 1.1% year over year for the second quarter of 2020.
One spot that did have some divergence was in the money spent on supplies. The Bloomberg peer group saw a decrease from 15.1% to 14.9%, while the Kaufman Hall peer group saw a year-over-year increase of 2.5%.
The takeaway
The effects of the coronavirus on health systems is profound. Currently, managed care organizations are seeing relief, although that relief could be subdued if the pent-up demand in use is released in the second half of the year or into 2021.
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