Healthcare Update
by Tim Meyer (TMF Attila)

OUR POLITICAL HEALTH

HAPPY DAYS ARE HERE AGAIN?

McLean, VA (May 5, 1997) -- Late Friday, the President and leaders of Congress announced they reached agreement on a balanced budget plan that includes a net $85 billion five-year tax cut ($135 billion in tax cuts offset by $50 billion in tax/fee increases mainly extending the 10% airline ticket tax), a capital-gains tax cut, and Medicare savings of $115 billion over five years. Few details are available since the agreement is a broad outline and the details will be worked out in the normal congressional appropriations process. Everybody who is happy over this deal, stand up. If you are a health care provider and you're standing, sit down.

Let's start with tax cuts. From the few details that have been released, there will be some kind of capital gains tax reduction, but it is not at all clear what form it will take. You will probably see some change in cap gains on the sale of a home (although there will be some limit on the sale price subject to the reduction - $500,000 for a couple, $250,000 for a single taxpayer). As far as reductions in capital-gains tax on the sale of securities, it appears there will be some reduction (from 28% to 21%-22%).

Unfortunately, it does not appear that indexing capital gains for inflation made the deal. Another downside is that it appears the administration's desire to require "average cost basis" calculations for sales is in the package. This could have a significant impact on your tax basis depending on how long you have held a security. There are "targeted" college tuition tax deductions and a child tax credit (about $35 billion of the tax cuts), but if they are similar to the President's original budget proposal, you probably won't qualify because your income is too high. Finally, there will be a change to the current $600,000 estate tax shield, but again the details aren't clear.

The Medicare deal will add some preventive services to Medicare coverage including colon cancer screening and mammography (at no extra cost to the beneficiaries). The Part A Hospital Trust Fund won't go broke in 2001 now, it will be "at least 2007," according to the White House Fact sheet. This was accomplished by shifting home health care expenses out of the Part A trust fund and into Part B (that smells like a gimmick to me - the White House calls it "long overdue structural reforms").

Part B premiums will go up by $4.50 per month by the year 2002 in conjunction with this shift but that doesn't come close to covering the cost this now puts in the Part B ledger (about $35 billion).

Skilled nursing facility and home health care reimbursements will be transitioned to a prospective payment system (fixed amount per person served) which should result in some savings but again, the details aren't clear as to how much. If you are thinking the above doesn't seem to add up to $115 billion in savings for Medicare, you are right on the money. The savings in Medicare will come almost entirely from reductions in payments to providers. In other words, the reduction in payments to health care providers is greater than the entire non-education tax cuts. Is anybody still standing?

MALPRACTICE REFORM AROUND THE CORNER?

The White House announced that Chelsea Clinton will attend Stanford in the fall and is interested in becoming a physician. I've seen no comment from the Trial Lawyers Association.

THANKS, BUT NO THANKS.

Last year, our friends at the Health Care Financing Administration (HCFA) attempted a demonstration project to put Medicare managed care risk contracts out for competitive bids in Maryland. The theory was that instead of establishing a per member per month rate to pay managed care companies to provide Medicare services, they would test the market by having companies bid for those contracts and possibly save the government money. Unfortunately, due the squeals and uproar generated by managed care companies in the test market area (Baltimore), the project was dropped.

HCFA decided to try again this year and Denver was selected as the test market. Guess what? Yep, the howls are now coming from Denver, including from Sen. Ben Nighthorse Campbell (R-Colo) and Governor Roy Romer. Bids are due to be submitted May 15. It will be interesting to see if the program gets off the ground this year.

HEALTHCARE STOCKS IN THE NEWS

COLUMBIA/HCA HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> got some good news this week. A federal judge in New York ruled in favor of Columbia/HCA by dismissing a lawsuit brought by Columbia University in New York regarding use of the name Columbia. For the week, Columbia/HCA was up $3 1/2 closing on Monday at $36 3/4.

FPA MEDICAL MANAGEMENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> signed a letter of intent with FOUNDATION HEALTH SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FHS)") else Response.Write("(NYSE: FHS)") end if %> to enter into long-term global capitation provider agreements with Foundation health plans nationwide. Terms were not disclosed. For the week, FPA was up $2 3/4 closing at $18 7/8, while Foundation was up $3 3/8 closing at $27 3/4.

MEDPARTNERS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %> and Aetna U.S. Healthcare, the health business unit of AETNA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AET)") else Response.Write("(NYSE: AET)") end if %> announced completion of the transaction in which MedPartners acquires Aetna Professional Management Corporation, Aetna U.S. Healthcare's physician practice management business, and most of the HealthWays Family Medical Centers and affiliated group practices located in seven metropolitan areas where MedPartners already has a presence. Terms were not disclosed. The markets include Atlanta, the Baltimore/D.C. and northern Virginia area, Philadelphia, Dallas, Akron, Chicago and southern California. For the week, MedPartners was up $1 5/8, closing at $19 5/8, while Aetna was up $6 3/4, closing at $90 5/8.

The Third Circuit Court of Appeals rejected the request of BEVERLY ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEV)") else Response.Write("(NYSE: BEV)") end if %> to stay the National Labor Relations Board (NLRB) injunction requiring reinstatement of all striking workers to their former positions. The NLRB had found that nearly 500 workers at Beverly facilities in Pennsylvania were illegally replaced following the largest nursing home workers strike in history. Accordingly, the replaced workers are due to return to work on May 5. For the week, Beverly was up $1 1/8, closing at $14 3/4.

EARNINGS REPORTS

HUMANA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> reported first quarter net income of $39.0 million, or $0.24 a share (a cent higher than estimates), on revenues of $1.8 billion, compared to 1996 first quarter net income of $53 million, or $0.32 a share, on revenues of $1.6 billion. For the week, Humana was up $1 1/4, closing Monday at $21 1/2.

Columbia/HCA Healthcare Corp. reported first quarter net income of $479 million, or $0.70 a share (meeting estimates), on revenues of $5.3 billion, compared to 1996 first quarter net income of $416 million, or $0.61 a share, on revenues of $5.0 billion. For the week, Columbia/HCA was up $3 1/2, closing Monday at $36 3/4.

PHARMACIA & UPJOHN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> reported first quarter net income in line with last week's earnings warning of $194 million, or $0.37 a share (two cents below estimates), on revenues of $1.6 billion, compared to 1996 first quarter net income of $229 million (excluding non-recurring items of $179 million), or $0.44 a share, on revenues of $1.7 billion. For the week, Pharmacia & Upjohn was up $2 7/8, closing Monday at $31 1/2.

PRIME MEDICAL SERVICES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMSI)") else Response.Write("(Nasdaq: PMSI)") end if %> reported first quarter net income of $2.9 million, or $0.15 a share (a cent higher than estimates), on revenues of $20.9 million, compared to 1996 first quarter net income of $1.9 million, or $0.12 a share, on revenues of $7.2 million. For the week, Prime was up $3/4, closing Monday at $10.

FPA MEDICAL MANAGEMENT, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> reported first quarter net income of $6.4 million (excluding non-recurring charges of $37 million), or $0.20 a share (two cents higher than estimates), on revenues of $222.8 million, compared to 1996 first quarter net income of $1.4 million, or $0.05 a share, on revenues of $104.0 million. For the week, FPA was up $2 3/4, closing Monday at $18 7/8.

APRIA HEALTHCARE GROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHG)") else Response.Write("(NYSE: AHG)") end if %> reported first quarter net income of $19.2 million, or $0.37 a share (a cent higher than estimates), on revenues of $313.9 million, compared to 1996 first quarter net income of $20.3 million, or $0.39 a share, on revenues of $295.3 million. For the week, Apria was up $2 7/8, closing Monday at $18 1/4.

SABRATEK CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBTK)") else Response.Write("(Nasdaq: SBTK)") end if %> reported first quarter net income of $1.0 million, or $0.11 a share (four cents higher than estimates), on revenues of $7.5 million, compared to a 1996 first quarter loss of $1.7 million (including a non-recurring charge), or $0.25 cents a share, on revenues of $2.9 million. For the week, Sabratek was down $2, closing Monday at $22 1/4.

COVENTRY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CVTY)") else Response.Write("(Nasdaq: CVTY)") end if %> reported a first quarter loss of $4.4 million (excluding a pre-tax gain of $6 million, related to the sale of HealthAmerica, or $0.10 a share), or $0.13 a share (two cents below estimates), on revenues of $299.3 million, compared to 1996 first quarter net income of $2.2 million (excluding non-recurring charges of $5.2 million), or $0.07 a share, on revenues of $236.9 million. For the week, Coventry was up $2 1/4, closing Monday at $13 1/2.

WELLPOINT HEALTH NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLP)") else Response.Write("(NYSE: WLP)") end if %> reported first quarter net income of $50.8 million (including non-recurring charges of $6.5 million, or $0.06 a share), or $0.76 a share (four cents higher than estimates), on revenues of $1.3 billion, compared to 1996 first quarter net income of $60.1 million, or $0.91 a share (which includes recapitalization adjustments - without recapitalization adjustments, net income would have been 44.9 million or $0.68 cents a share), on revenues of $817.6 million. For the week, Wellpoint was up $3, closing Monday at $43 5/8.

SUN HEALTHCARE GROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %> reported first quarter net income of $15.9 million, or $0.33 a share (meeting estimates), on revenues of $398.6 million, compared to 1996 first quarter net income of $15.3 million, or $0.31 a share, on revenues of $320.3 million. For the week, Sun was up $3/4, closing Monday at $14 3/4.

AMISYS MANAGED CARE SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMCS)") else Response.Write("(Nasdaq: AMCS)") end if %> reported first quarter net income of $1.0 million, or $0.12 a share (a cent higher than estimates), on revenues of $12.3 million, compared to 1996 first quarter net income of $737,000, or$0.09 a share, on revenues of $9.6 million. For the week, Amisys was up $2 3/8, closing Monday at $19 1/4.

PEDIATRIC SERVICES OF AMERICA, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSAI)") else Response.Write("(Nasdaq: PSAI)") end if %> reported second quarter net income of $1.7 million (excluding merger related charges of $1.2 million), or $0.27 a share (meeting estimates), on revenues of $49.7 million, compared to 1996 second quarter net income of $1.3 million, or $0.20 a share, on revenues of $40.2 million. For the week, Pediatric Services was down $1/2, closing Monday at $16 3/4.

That will wrap it up for this week. Please share any comments/suggestions on how to improve this feature via e-mail (TMF [email protected]). Also let me know if you would like the update forwarded to your email address. In the meantime, here is hoping your investments are healthy!

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