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Home > Coronavirus > Managed care organizations weather the coronavirus storm

Managed care organizations weather the coronavirus storm

Sep. 25, 2020 by Rick Kes

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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.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.

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Filed Under: Coronavirus, Health Care Tagged With: coronavirus, Covid-19, managed care

About Rick Kes

@HealthCare_CPA

Rick has over a decade of experience providing audit and consultative services predominately to organizations in the health care industry. He has served a wide variety services for organizations ranging from large organizations with more than $12 billion in annual revenue to small, standalone entities with less than $1 million in annual revenue. Rick has served clients across the health care continuum including integrated health systems, physician groups, safety-net hospitals, health insurance clients, and other various health care related entities. Rick has experience in governmental, not for profit, and statutory accounting standards.

Rick has played a role on several due diligence engagements as a dedicated health care professional resource. In 2018, he was selected as a senior analyst in RSM’s cutting edge Industry Eminence Program, which positions its senior analysts to understand, forecast and communicate economic, business and technology trends shaping the industries RSM serves. These senior analysts advise clients on conditions impacting middle market leaders.

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