Health care firms hold the power

September 16, 2007|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Many families have learned the hard way that the best method for coping with problems in the health care system is to avoid getting sick.

Yet the economic power of the baby boom generation and government-sponsored plans provides the industry with significant investment potential.

Opportunities are so great that Wall Street is sometimes willing to overlook conduct if companies are positioned to enjoy financial gain, and their stock price is right.

Consider UnitedHealth Group Inc. and HealthSouth Corp., two high-profile companies that rate consensus "buy" recommendations from Wall Street analysts.

UnitedHealth provides health-care services to 70 million Americans through 520,000 physicians and other providers. HealthSouth has 978 U.S. ambulatory surgery and rehabilitative facilities.

But there have been problems.

The University of Missouri recently dropped UnitedHealth as its health plan administrator, noting "unacceptable service levels" and "concerns about the quality and reliability of customer service."

The school's plan, which includes 40,000 faculty, staff, retirees and dependents, will shift to Coventry Health Care Inc. It may be a financial drop in the bucket for UnitedHealth, but it's an image jolt.

UnitedHealth agreed to pay as much as $20 million in a settlement with 36 states to resolve problems with claims-paying.

There also was scandal in the executive suite: Former chief executive William W. McGuire left late last year after an investigation into backdating of stock options.

That list of problems is trifling compared with those for HealthSouth's founder.

In June, former CEO Richard M. Scrushy began a seven-year term for bribery. He also has had made a settlement on Securities and Exchange Commission civil claims of $77.5 million, plus a $3.5 million penalty. He received credit for $71.5 million paid in related cases.

Andrew Leckey writes for Tribune Media Services.

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