CareFirst earnings down for quarter

FreeState HMO, Medicare, Medicaid divisions lost money

March 02, 2001|By M. William Salganik | M. William Salganik,SUN STAFF

With continued losses in Medicare, Medicaid and its FreeState HMO, CareFirst BlueCross BlueShield reported reduced earnings yesterday for the fourth quarter and flat earnings for the year.

The insurer has gotten out of Medicare and is completing a pullout from Medicaid, after booking $18.7 million in losses last year on the two government programs.

CareFirst is looking to restructure FreeState and will be seeking approval from regulators to combine FreeState with its successful CapitalCare HMO.

FOR THE RECORD - A headline in some editions of yesterday's Sun incorrectly characterized the financial performance of CareFirst BlueCross BlueShield. CareFirst had net earnings of $14.7 million for the quarter which ended Dec. 31. That was lower than the fourth quarter of 1999, not counting one-time charges, and was the third straight quarter in which CareFirst earnings were lower than the year-earlier period. The Sun regrets the error.

"Because of the difficult decisions we were obligated to make due to revenue shortfalls, CareFirst is now poised for a successful year in 2001," William L. Jews, CareFirst's president and chief executive officer, said in a statement accompanying the earnings release.

For the fourth quarter that ended Dec. 31, CareFirst posted net earnings of $14.7 million. In the fourth quarter of 1999, net earnings were $8.9 million, but that was after a $16.6 million charge related to a discontinued software contract.

This marks the third straight quarter in which earnings from operations were down from the corresponding quarter the previous year.

Net earnings for the year were $71.5 million. That compares with $68.9 million in 1999, after the $16.6 million charge.

Without the losses in Medicare and Medicaid, which CareFirst is now reporting as discontinued operations, net earnings for the year would have been $90.2 million, compared with $75.6 million the previous year.

Revenue for the year was just under $5 billion ($4.5 billion without Medicare and Medicaid). That was up 9.5 percent from $4.6 billion in 1999 ($4 billion without Medicare and Medicaid).

Contracts with doctors

The problems in FreeState's commercial business - which lost $4.7 million for the quarter and $18.3 million for the year - stemmed from problems in physician contracting, said G. Mark Chaney, executive vice president and chief financial officer.

In Medicare, Medicaid and FreeState's commercial business, CareFirst depended on flat-fee contracts with large physician groups.

That meant it was the doctors, not CareFirst, who bore the losses as medical costs rose faster than premiums. The doctor groups, however, stopped signing such contracts, or folded altogether, pushing the losses onto CareFirst's books.

"Despite the good efforts of a number of physician groups, some hospital-based and some not, they couldn't manage the risk as well as both of us thought they could," Chaney said.

In addition, he said, the old model directed patients to specialists who were in the same physician group as their primary care doctor, and patients are seeking "more flexibility, more open access."


Chaney said plans are still being developed for the merger of FreeState with CapitalCare. The new HMO would pay doctors on a fee-for-service basis, as CapitalCare has been doing

CapitalCare is both highly profitable - it posted $16.9 million in earnings for the year - and increasingly popular. Its enrollment at year-end, 117,000, was 25.8 percent higher than in 1999.

Overall, CareFirst membership grew 8.1 percent for the year, to 2.8 million.

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