While competitors grumble, Mid Atlantic Medical grows

LOW PROFILE, HIGH GROWTH

November 11, 1991|By Blair S. Walker | Blair S. Walker,Maryland Health Care Coalition Inc./SUN GRAPHICS

Mid Atlantic Medical Services Inc. is a managed health care company competitors love to hate.

They accuse it of undercutting rivals by pricing its products artificially low, including premiums for Maryland's largest health maintenance organization, M.D.-IPA. They whisper that MAMSI's financial reserves are inadequate. And they point to an unexpected drop in the company's stock price as proof that something's amiss.

But state regulators and stock analysts discount such observations as rivals' wishful thinking.

And MAMSI responds by quietly, inexorably, grinding its

competition into the dust. A low-profile business that only does billboard advertising, Rockville-based MAMSI prefers to let its financial results do the talking. They tell of a company that went from a $3.6 million loss in 1987 to spectacular growth in earnings, revenues, membership and return on shareholder equity.

"We're really not pretentious," MAMSI Chairman George T. Jochum says. "We see no reason to wake up the giants. We'll just chip away at them."

Today, MAMSI has about 450 employees, more than 9,000 physicians and roughly 360,000 HMO members in its orbit. Seventy percent of the firm's business is done in Maryland, 20 percent in Northern Virginia and 10 percent in Washington.

It has several managed care products, including two HMOs -- M.D.-IPA and Optimum Choice Inc. -- as well as two preferred provider organizations that have more than 200,000 customers.

HMOs and preferred provider organizations offer low health care rates by restricting medical services to a specific group of doctors.

After a slight performance bobble in its second quarter, MAMSI regained its Midas touch in the third quarter.

On Sept. 30, the company had generated $248.8 million in operating revenues for the first three quarters of 1991, compared with $150.1 million for the first three quarters of 1990. Net income for the first three quarters of this year was $6.4 million, compared with $5.1 million last year. Earnings per share were 45 cents, up from 37 cents in the same period last year.

To put that in perspective, MAMSI had a record-setting 1990, as operating revenues rose 86 percent and net income increased 147 percent.

"Basically, we relate that to the fact that we're giving markets what they want," Mr. Jochum says. "In other words, you can't sell a market what they need, you have to sell them what they want."

2-pronged strategy

MAMSI has demonstrated that what the Baltimore-Washington market wants is managed health care products that are flexible and well-priced.

"I can easily imagine why the competition would be rather jealous," says Michael Meek, an associate analyst with Ferris Baker, Watts Inc. in Washington. "I think in pricing their [managed care] plans, they have been rather aggressive -- probably more aggressive than their competition."

MAMSI's management team is using a two-pronged strategy to attract business: Not only do they charge less for premiums, but they reimburse doctors at a higher rate than their competitors, Mr. Meek says.

"The key to Mid Atlantic's growth has been the provider system," he says. "They were really smart to do what they did.

"They have so many doctors that the odds are that your doctor already belongs" to the system. "The system has become so big now, I've had some doctors tell me they had to join, because they had so many patients that were covered by Mid Atlantic."

When physicians are paid 89 cents out of every dollar, compared with a 82-cent national average for managed care businesses, something has to give. At MAMSI, the emphasis is placed on having low administrative costs and working with a lower profit margin than everyone else.

MAMSI is a health delivery middleman -- it has no clinics and their attendant overhead because patients are seen in physicians' private offices. That, and the existence of an efficient computer system that keeps tabs on customer accounts, help the company keep administrative costs down, Mr. Jochum says.

Mr. Jochum has a comment for critics who say his company underprices its products. "If our income was going down while our members were going up, you could say: 'Ah, ha! They're buying market share.' But we really don't try to do that."

Less easily explained: an unexpected drop in the price of MAMSI's over-the-counter stock in June. Opening the year at just over $9, it went as high as $17 before dipping from $14 to $9 the last week of June

Rumors

In preceding weeks, rumormongers had a field day at MAMSI's expense, according to Mr. Meek. "I had a call from someone that told me that before the day was over, the entire provider system was going to resign en masse. I don't know how you could ever get 9,000 doctors to agree on anything, much less resigning from Mid Atlantic."

William R. Boyles, who publishes Health Market Survey, a national HMO industry newsletter, also fielded scuttlebutt about MAMSI before its stock dropped.

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