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NEWS RELEASE For Release on Thursday, June 27, 2019 Minnesota Health Market Review 2018, Part Two finds: Metro and Outstate Systems Continue Expansion, Consolidation Strategies Net Income for Twin Cities Hospitals Increases by 35% Minnesota Health Post Much Improved Profits, Small Enrollment Gains After a series of recent mergers and acquisitions, the three largest hospital systems in the Twin Cities now control 71% of the market. Although their operating losses grew in 2017, Twin Cities area hospitals increased their net income by 35%. Outstate hospitals also continued their strong profitability, posting an average margin of 10.9%. Minnesota HMOs added 35,000 enrollees and reported an average margin of 3% in the first nine months of 2018. Minneapolis-based analyst Allan Baumgarten presents these and other findings in Part Two of Minnesota Managed Care Review 2018, released this week. Using data from Medicare cost reports and other sources, he analyzed financial performance and inpatient utilization for 31 Twin Cities area hospitals (including four in western Wisconsin) and 50 hospitals serving communities in outstate Minnesota. His analysis focuses on the major integrated delivery systems in the region: Fairview, Allina and HealthPartners in the Twin Cities and Mayo, Essentia and Sanford Health in outstate Minnesota. In the new report, Baumgarten found: • Health systems continue to grow through new construction, mergers and acquisitions and addition of new convenient care sites, like urgent care and retail clinics or free-standing emergency rooms. The three largest systems in the Twin Cities – Fairview, Allina and HealthPartners, now control 70.7% of the market, up from 57.7% in 2012. The combined Fairview system has more than 30% of the Twin Cities market, the first time a system has reached that threshold. In western Wisconsin, the Gundersen and Marshfield Clinic systems plan to merge, creating a formidable competitor for systems like Mayo and HealthPartners. • Despite posting operating losses of $237 million, net income for Twin Cities-area hospitals increased by 35% in 2017. Twin Cities hospitals reported net income of $599.6 million (5.9% of net patient revenues) in 2017, up from $444 million in 2016 and $548 million in 2015. Their other revenues from investments, philanthropy and government grants increased sharply, more than offsetting their operating losses. Ten hospitals in the regions reported margins above 10%. The Fairview Health system, now including the four HealthEast hospitals, improved its net income from $138.2 million to $206.4 million, while the Allina hospitals in the Twin Cities improved their average margin from 3% to 7.4%. The HealthPartners hospitals, especially Methodist, enjoyed higher net income for the second straight year, growing from $102.1 million in 2016 to $136.1 million in 2017. • Inpatient hospital days decreased for Twin Cities hospitals, the sixth time in the past 10 years. They provided 1.46 million inpatient days, about 450 less than in 2016 and 65,000 less than in 2008. On average, 70.7% of beds were occupied in 2017, up from 69.2% in 2015, but less than 74.5% in 2008. Government programs - Medicare and Medicaid - now cover 68% of inpatient days for these hospitals. That has improved their revenues and reduced their uninsured patient admissions but makes them especially vulnerable to proposed reductions in government funding. • In outstate Minnesota, hospitals improved their net income from $1.013 billion in 2016 to $1.298 billion in 2017, and their average margins grew from 8.9%to 10.9%. The Mayo Clinic hospitals in the state improved their net income from $528.1 million in 2016 to $671.8million in 2017. The average margin for the Sanford hospitals declined from 12.5% in 2016 to 11%. CentraCare, which added Rice Memorial hospital in 2018, improved its net income from $14.2 million to $177.3 million. The average margin for the Essentia hospitals increased from 2.9% to 8.5%. • Many Minnesota provider systems participate in Accountable Care or shared savings arrangements with Medicare and Medicaid. However, some systems have struggled to succeed in those arrangements, and Allina and Fairview dropped out of the Medicare Next Generation ACO program. • Blue Plus was the most profitable HMO, with net income of $130.1 million and a margin of 7% in the first nine months of 2018. Medica Insurance Company, now selling individual, group or Medicare plans in 10 states, had net income of $272.4 million during that period and a margin of 10.3.% This is the 29th year that we have published Minnesota Health Market Review. Part One of the 2019 edition is scheduled for release in early July. The Part One report will analyze 2018 data on the enrollment trends and financial results of Minnesota health plans, including an extended analysis of trends in the individual market and the finances of Medicaid HMOs. Additional information can be found at www.AllanBaumgarten.com

Contact:      Allan Baumgarten, 952/925-9121
Cellular 952/212-8589
 
Minnesota Health Market Review 2018 finds:
Minnesota Health Plans Regain Profitability, Add Enrollees
New Competition Stirs for Medicare Health Plans
 
 
            (Minneapolis-St. Paul) Minnesota HMOs and health insurers returned to strong profitability in 2017, recovering from a year of large losses in 2016. Minnesota seniors are being offered a variety of new Medicare plans from old and new competitors.
            These findings are reported in Part One of Minnesota Health Market Review 2018, released this week by Allan Baumgarten. This is the 29th edition of the report, in which Baumgarten analyzes key trends and competitive strategies for organizations in Minnesota’s health care markets. Later this year, Part Two of the Minnesota report will analyze the state’s provider systems and their strategies, financial performance and inpatient utilization.
            The new report finds that:
•           Minnesota health plans, including HMOs, other insurers like Blue Cross Blue Shield, and County-Based Purchasing plans, posted profits of $296.1 million in 2017, or 1.7% of underwriting revenue. Large losses by two HMOs and Blue Cross Blue Shield in 2016 gave the industry overall losses of $523.2 million. In other words, health plans had a swing of $819.3 million to the good. To put their losses behind them, Blue Cross Blue Shield shed its money-losing individual plans, while Medica Health Plans terminated its major Medicaid contract.
•           Health plan enrollment grew in 2017, but not in all lines of business. Enrollment in Medicaid and other state programs grew by more than 54,000, or 6%, while enrollment in HMO commercial plans, individual and employer groups, grew by 61,000. However, many of the individual enrollees came to HMOs after Blue Cross Blue Shield ended its individual plans.
•           Enrollment in HMO and PPO individual plans dropped again in the first quarter of 2018. Individual enrollment peaked at about 311,000 at the beginning of 2015, but has dropped every year since, and dropped another 16.4% to 163,000 in the first quarter of 2018. Minnesota’s reinsurance program for individual plans enabled insurers to hold down or reduce premiums, but that program’s future funding is not assured.
•           Seniors have several new Medicare health plan options for 2018, and more are planned for 2019. Three of the largest Medicare plans in Minnesota – Blue Cross Blue Shield, Group Health and Medica – are Cost plans in which the health plan does not take risk for inpatient care. Those are going away, and those three companies introduced new full-risk Medicare Advantage plans for 2018. UCare already has a full-risk plan with 86,000 lives, and UnitedHealthcare is expected to market new senior plans here. About 60% of Medicare recipients here are in a health plan, among the highest rates in the country.
•           Another new Medicare plan is expected to be the new joint venture insurer, Allina-Aetna Health Insurance. The transition from Cost plans is creating opportunities for new entrants. The Allina-Aetna plan is a joint venture of the state’s largest hospital system and a national insurer. It is already marketing to employer groups and seeking approval to offer Medicare Advantage plans for 2019.
            Excerpts from the report, including the “Minnesota Health Plans at a Glance” page can be viewed at http://www.AllanBaumgarten.com. Subscriptions to Minnesota Health Market Review 2018 in interactive PDF format, including both Parts One and Two, can be ordered for $160.00 online at www.AllanBaumgarten.com. Phone: 952/925-9121. E-mail address: Baumg010@umn.edu
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HMOs at a Glance
Report Contents

Part One
Introduction    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . .
 . . 3
Market Structure      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 

Health Plan Companies     .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . . . . . . . . .4
Network Arrangements and Provider Systems     .  .                                    .  .  .  .  .  .  . . . . . . 7
Trend Review       . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 
Health Plan Enrollment   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . .  . . . . . . . 8
Individual Markets and MNsure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
State Healthcare Programs .  .  .  .  .  .  .  ..  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   .  . . . . . . . . . . 11
Medicare Health Plans  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   .  .  ..  . 13
Health Plan Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . 14
Financial Results by Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Administrative Expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .       21
Health Plan Capital. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23
A Look Ahead             . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25



Part Two
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 

Hospitals and Provider Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 

Twin Cities Area Hospitals and Systems............................................................9
Revenues and Net Income .  .  .  .  .  ..  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . . . 10
Occupancy and Payer Mix .  .  .  ..  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . . . .12
Performance Bonuses and Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Outstate Systems and Hospitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .  14
Revenues and Net Income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Occupancy and Payer Mix .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . .    .  .  .  . . . . ..17
Performance Bonuses and Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Health Plan Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . 21
 Enrollment by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
Utilization and Effectiveness of Care and Enrollee Satisfaction .  .  .  .  .  .  .  .  . . . . . .23
A Look Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . .  . . 27

Media Coverage/Presentations
Minnesota Health Market Review 2018, Part One, released June 8: "Minnesota Health Plans Regain Profitability, Add Enrollees; New Competition Stirs for Medicare Health Plans"
  • Christopher Snowbeck wrote in the Minneapolis StarTribune: "Health Insurers Return to Profitability in Minnesota" Click here to view
  • Paul Demko wrote in Politico: "Massive financial improvement for Minnesota health plans last year." Click here to view.
  • Chistopher Snowbeck wrote in the Minneapolis StarTribune: "Health plans lost less on Medicaid last year." Click here to view
Minnesota Health Market Review 2017, Part Two, released March 27: "Net Income for Twin Cities Hospitals Drops by 19%; Health Systems Continue Growth, Consolidation and Partnership Strategies; Minnesota HMOs Regain Profits and Increase Enrollment by 8% in 2017"
  • Christopher Snowbeck wrote in the Minneapolis StarTribune: "Study: Big hospitals outside Twin Cities grow profits." 
  • David Montgomery wrote about the 2015 report in the St. Paul Pioneer Press: "Metro hospital profits fell in 2014, while outstate earnings rose"
  • Dan Diamond wrote about the 2015 report in Poiltico Pulse: "The Mayo Clinic had a nearly 18 percent profit margin"
Minnesota Health Market Review 2017, Part One, released June 9: "Minnesota Health Plans Go From Record Profits to Large Losses; Health Systems Push Ahead With Health Plan Strategies"
  • Christopher Snowbeck wrote in the Minneapolis StarTribune: "Operating Losses Swamp Investment Gains at Health Plans in Minnesota" Click here to view​​
Minnesota Health Market Review 2016, Part Two, released April 10: "Outstate Health Systems Increase Profits by 15%; Medicaid Covers More Hospital Days"
  • Christopher Snowbeck wrote in the Minneapolis StarTribune: "Study: Big hospitals outside Twin Cities grow profits." 
  • David Montgomery wrote about the 2015 report in the St. Paul Pioneer Press: "Metro hospital profits fell in 2014, while outstate earnings rose"
  • Dan Diamond wrote about the 2015 report in Poiltico Pulse: "The Mayo Clinic had a nearly 18 percent profit margin"

Minnesota Health Market Review 2016, Part One, released May 25: "HMO Profits for Public Programs Surpass $230 Million; Medicaid Enrollment Grows But Individual Market Remains Volatile; Hospitals Double Down on Health Plan Strategy"

  • Christopher Snowbeck wrote in the Minneapolis StarTribune: "Record HMO profits from state programs." Click here to view