HMOs Thrive While Docs Feel the Pinch

Physician's Money DigestFebruary28 2005
Volume 12
Issue 4

The nation's HMOs enjoyed abanner year in 2003, earning$10.2 billion in profits, up 86%from 2002. While these giantmanaged care providers fatten their wallets,physicians everywhere are feeling abacklash from HMO success.

Double Doctor Duty

Physicians are feeling the pinch ofincreased practice fees and decliningincome. Everything from insurance tostaff salaries to rent, which can run tens ofthousands of dollars per month, arebecoming more and more expensive.According to a study from the Center ofStudying Health System Change, whenfactoring in inflation, physicians' salariesdeclined 5% between 1995 and 1999. Asa result, doctors must earn more to breakeven, meaning that their actual take-homepay is reduced significantly. Also, lest youforget, there are those medical schoolloans to pay back.

Boston Globe

According to a recent report, doctors are increasing their cashflow by providing expanded services.For example, they're purchasing diagnosticequipment and performing teststhemselves rather than sending patientsto a hospital. Also, physicians are openingambulatory surgery centers andenrolling patients in clinical trials,according to the article.

HMO Heyday


Meanwhile, HMO executives aremaking more money than ever, especiallywhen they leave a company. According toan article in , the severancepackages these executives receive whentheir company is acquired, known asgolden parachutes, could include cash,stock grants and options, pension bonuses,insurance benefits, and other perks.


Due to the enormity of these payouts,state regulators are inspecting dealsaggressively. According to ,advocates of merger bonuses say that theyenable executives to attempt mergers thatcould benefit the company, even if itmeans they'll have to leave when theacquisition happens. Challengers of mergerbonuses argue that when the payoutsbecome too huge, CEOs may acceptacquisitions for their own benefit, not forthe good of stockholders.

Data from the California Departmentof Managed Healthcare found that whenAnthem merged with WellPoint, Anthemintended to pay 293 executives atWellPoint between $502,000 and $1.2million in bonuses. The CaliforniaMedical Association called the executivepayout "the primary motivation behind[WellPoint's] decision to merge." It seemsodd that those who heal are making lessand less money, while those who ratchetup the cost of that care are making mountainsof cash.

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