NU Online News Service, June 7, 12:23 p.m. – Goldman Sachs & Company, New York, has published a research report by Charles Boorady, one of its managed care industry analysts, predicting that managed care profit margins will continue to increase in 2003 as a result of rate hikes and better control over medical costs.
“The tipping point of the current up cycle is at least two years away,” Boorady writes in the report. “Despite high medical costs in a weak economy and despite hospitals exercising leverage, we think the industry remains firmly focused on the positive side of the underwriting cycle, which we expect will continue through 2004-2006.”
Although hospitals continue to lose money on Medicare patients, they are coming close to breaking even on their other patients, and that should help reduce the medical spending growth rate, Boorady says.
Boorady expects pharmacy cost increases to decelerate even faster, as heath plans promote over-the-counter antihistamines and give patients more incentives to switch to cheaper prescription drugs.
The average ratio of managed care share prices to expected earnings is close to the historical average, but price/earnings ratios for companies that look like winners are much higher than the ratios for companies that look like losers, Boorady says.