Patient Listed as Critical: For Investors in United American Healthcare, This HMO's Vital Signs Are Weak
Oestricher, Dwight, Black Enterprise
Did someone call for life support? Shareholders of United American Healthcare couldn't be blamed for dialing 911 late in September the minute management announced, for the second year running, that charges would drag 1997 results down to a 53-cents-a-share loss, following 1996's 42-cents-a-share deficit. And with company management and major institutional holders selling shares by the bushel, it seemed that the Detroit-based HMO provider's vital signs were fading.
It's almost understating things to say United American has run into a bad streak. Health maintenance organizations--HMOs to you and me--have spent the last couple of years expanding customer base to increase profits. One way they've grown is through acquisitions. Another strategy to increase customer rolls involves taking Medicaid recipients off a state's hands as a first step toward a commercial license. Once state officials have seen the kind of job the HMO does with Medicaid patients, it's easier to get regulators to grant them a commercial license--and entree into a bigger and more lucrative market.
The company's management has gone down the same path, too, but with disastrous results. Last Year. it took a majority stake in Omnicare, a Tennessee HMO that marketed healthcare service for Medicaid recipients. The state, however, wasn't too impressed with United American's pleas to expand outside of Medicaid, and denied the company a license to sign commercial clients to its roster. Dr. Julius Combs, United American's chairman and chief executive officer, says bankrolling lawyers fees in order to put up a fight in Tennessee helped sap company profits last year.
In Michigan and Florida, where the company operates HMOs, regulators have cut premiums an average of 15% and 10%, respectively, for Medicaid beneficiaries, further eating into United American's bottom line. …