Financial Analysis of Alternative Health Care Firms Class 7, 22102

1
Financial Analysis of Alternative Health Care
Firms Class 7, 2/21/02

• Long-Term-Care Facilities and Nursing Homes
• Medical Groups
• Health Plans

2
Long-Term-Care Facilities and Nursing Homes

• In 1997 there were 16,700 Nursing Homes in the US
  reporting revenues of 82.8 billion, 38 paid by
  private individuals or insurers, 62 paid by
  either the federal or state governments.
• Size of the industry heavily regulated by states
• Dependent on government policy governing payments
  for long-term-care.
• 55 are members of national chains, 45
  independent.

3
Notable characteristics of LTC Financials

• 55 of expenditures are for wages, salaries and
  benefits paid to employees.
• How depreciation is listed under other expenses.
• Accounting for the contributions to Entrance fee
  funds that are required for membership in a
  CCRC.
• Illustrating the accounting and profitability of
  CCRCs.

4
Medical Groups

• In 1997, medical practices reported revenues of
  217.6 billion 66 paid by private sources and
  34 by governments.
• Tendency for physicians to join larger medical
  groups.
• Physician contacts per person are increasing at
  all age categories.
• Population aging contributes to increased
  utilization of physician services.

5
Alignment of Medical Groups

• With other medical groups
• By joining or forming an IPA
• By merging with other Medical Groups
• With hospitals
• By participating in a hospital-sponsored PHO
• By selling medical practice to a MSO
• With health plans
• By contracting directly with a HMO health plan
• With physician practice management firms
• By selling medical practice to a for-profit PPM
  firm.

6
Notable characteristics of Medical Group
Financials

• The separation of expenses into two categories
  Operating expenses and physician expenses.
• The likelihood that net profits of a hospital
  owned Medical Group - perhaps a MSO- would expect
  to run at a loss.
• The implications of large negative balance in a
  medical groups Retained Earnings accounts.

7
Health Plans

• Variety of incorporated firms licensed to offer
  health insurance plans.
• Commercial
• Public service corporations
• Corporations licensed by feds to offer self
  insure health plans they offer to employees
• Kinds of Health plans governments license these
  firms to sell.
• Indemnity
• Managed Care
• Self-insured

8
Trends in Health Plans

• Increase in the cost of health insurance plans
• Increase in the population not covered by health
  insurance
• Increase in health plans that offer POS option
• Increase in the popularity of health plans built
  around PPO as opposed to HMO arrangements.

9
Hospital owned HMO Plan (Health Central or Health
Guard)

• 75 of assets are current assets
• 8 of assets are property and equipment.
• Importance of managing cash.
• Incurred but not reported claims (IBNR)
• Reported to be the major accounting challenge
  faced by managed care plans. Considered a major
  factor in the bankruptcy of Harvard Pilgrim
  Health Care Plan.