Best for Corporation ≠ Best for Patient

A good article from the Wall Street Journal. This is clearly a case where corporations do well by skimping on the quality of health care. On a related note, have you ever wondered why physicians' salaries are so high? Read Medical Licensure by Milton Freedman. The basic premise is that the American Medical Association is in effect a trade union that constricts the supply of physicians available in the marketplace.

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PAGE ONE
Health Industry
In Medicaid, Private HMOs
Take a Big, and Profitable, Role
Managing Care for the Poor,
They Prosper by Cutting
Beleaguered States' Costs

Dr. Polack Seeks an Antibiotic

By BARBARA MARTINEZ
November 15, 2006; Page A1

Some 55 million poor and disabled Americans are covered by Medicaid. With an annual price tag topping $300 billion, it's among the biggest government programs around.

It's also a lucrative business for some private companies that act as middlemen between the government and patients. Instead of directly paying the bills when a Medicaid patient goes to the doctor, state governments increasingly outsource the job to private contractors. More than one in three Medicaid beneficiaries now receive care through a private insurer.

The potential gains are big. Four years ago, a private-equity fund in which George Soros was the largest investor took a 70% stake in WellCare Health Plans Inc., a leading Medicaid health-maintenance organization. The fund finished cashing out the stake this August, bringing in a total of $870 million for an investment that originally cost $220 million.

Four of the biggest Medicaid HMOs -- WellCare, Centene Corp., Molina Healthcare Inc. and Amerigroup Corp. -- have seen their shares surge on the New York Stock Exchange over the past few years, although prices of the latter three have been volatile. WellCare's stock price has tripled since it began trading in July 2004, bringing the value of stock and options held by its chief executive, Todd S. Farha, to $77 million.

The companies are growing fast. Centene boasts nearly 1.2 million members and posted $1.5 billion in revenue last year. That compares with 142,000 members and $200 million in revenue six years earlier.

With the growth has come criticism from some doctors and patients who accuse Medicaid HMOs of scrimping on care. Even as they restrict medical tests and use of prescription drugs, the companies spend the money they get from states on items that don't have an obvious connection to patients. Centene has funded a multimillion-dollar arts center in St. Louis and paid to put its name on stadiums in Montana and Missouri. The HMOs are also big donors to political campaigns.
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Read the full article here.

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