Md. Blue Cross profit falls Membership, revenue both rise, but so do medical costs

March 01, 1997|By M. William Salganik | M. William Salganik,SUN STAFF

Squeezed between flat premiums and rising medical costs, Blue Cross Blue Shield of Maryland said yesterday its 1996 earnings fell about a third, to $29.6 million from $44.3 million the year before, despite increases in membership and revenues.

Membership grew by 64,000, or 5 percent, to 1.35 million, with almost all of the growth coming in the second half of the year. Largest areas of growth were Blue Cross HMO for senior citizens, MediCareFirst and the small employer market.

While premiums stayed flat, the growth in membership pushed revenue to $1.96 billion, up 4.2 percent from $1.88 billion in 1995. But medical costs grew faster, by 5.6 percent to $1.75 billion. That represented 89.2 percent of revenue, up from 88.0 percent in the previous year.

The Blue Cross results were typical of the industry, said Douglas B. Sherlock, senior health care analyst at the Sherlock Co. in Gwynedd, Pa. "It's been tough all over," he said.

His firm tracks publicly traded managed care companies and Blue Cross plans. Of the 20 publicly traded companies his firm follows, Sherlock said, eight posted losses in the most recent reporting period, the worst performance in the decade.

Compared with commercial HMOs, which have more ability to control use of medical care, "Blues tend to have indemnity lines, which makes them a little more vulnerable to pricing squeezes," he said.

More than a million people enrolled in Blue Cross Maryland are in indemnity or point-of-service plans, where access to health care is not limited; about 350,000 are in HMOs owned by Blue Cross.

Despite the drop in earnings, Blue Cross did add to its statutory surplus, bringing that amount to $252 million, up 21 percent during the year. Its liquid reserves, under a formula used by the national Blue Cross Blue Shield Association, now equal 4.6 months of claims, up from 4.4 months a year ago. As recently as 1992, its reserves were measured not in months but in days.

"We think we're in good shape, with a strong revenue stream, increasing membership and cost controls in place," said Gary C. Baker, Blue Cross controller. After a rockier first half of the year -- earnings were down 38 percent in the first quarter and 59 percent in the second, compared with the corresponding periods in 1995 -- the company moved to tighten medical spending.

Baker said the major cost-control initiatives came in prescription benefits, with clinical staff reviewing the list of approved drugs to find lower-cost substitutes, and in review of inpatient hospital use. "We've been trying to increase our use of subacute and rehabilitation beds in lieu of more expensive hospital beds," he said. "We've seen some shifting from more expensive to less expensive bed types."

He said particularly aggressive cost-control measures were being applied at Columbia Medical Plan, an HMO owned by Blue Cross, which posted a $7.9 million loss for the year. The Blues' other HMOs -- FreeState, CareFirst, Delmarva and Potomac -- were all profitable.

Baker said Columbia Medical Plan needs to reduce costs of care by about $10 per member per month. This would be accomplished, he said, by contracting for radiology services instead of using staff doctors, which would save $2.50 to $3 per member month, and by "downsizing clinical and administrative staff."

Pub Date: 3/01/97

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