The troubled HMO industry: what's next?

Area of Science:

• Health Services Management
• Healthcare Economics

Background:

• The healthcare industry has seen significant fluctuations in Health Maintenance Organizations (HMOs) over the past 15 years.
• Federal legislation in 1973 and 1974 initially spurred rapid growth in HMOs.
• A subsequent period of slower growth was followed by a resurgence in 1983.

Purpose of the Study:

• To analyze the historical performance and market trends of Health Maintenance Organizations (HMOs).
• To identify key factors influencing HMO growth, profitability, and stock market performance.
• To assess the current state and future outlook of the HMO industry.

Main Methods:

• Historical analysis of HMO enrollment, revenue, and profit data.
• Examination of market factors including legislative changes, competition, and initial public offerings (IPOs).
• Review of stock market performance and investor sentiment regarding publicly traded HMO companies.

Main Results:

• HMOs experienced initial surges in growth post-1973/74 federal act, followed by a slowdown.
• A recovery was observed around 1983, coinciding with several for-profit HMOs going public.
• Sharp declines in earnings and stock prices occurred in 1986-87 due to intense price competition and management challenges.

Conclusions:

• The HMO industry has demonstrated volatile performance, marked by periods of rapid expansion and sharp contraction.
• Intense competition and managerial inexperience were critical factors in the downturn of HMO earnings and stock values.
• While some indicators suggest a potential industry recovery, investor confidence remains subdued, reflected in depressed stock prices.