Patient Listed As Critical - Black Enterprise

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Black Enterprise Magazine July/August 2018 Issue

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Did someone call for life support? Shareholders of United American Healthcare couldn’t be blamed for dialing 911 late in September the minute management announced, for the second year running, that charges would drag 1997 results down to a 53-cents-ashare loss, following 1996’s 42-cents-ashare deficit. And with company management and major institutional holders selling shares by the bushel, it seemed that the Detroit-based HMO provider’s vital signs were fading.

It’s almost understating things to say United American has run into a bad streak. Health maintenance organizations–HMOs to you and me–have spent the last couple of years expanding customer base to increase profits. One way they’ve grown is through acquisitions. Another strategy to increase customer rolls involves taking Medicaid recipients off a state’s hands as a first step toward a commercial license. Once state officials have seen the kind of job the HMO does with Medicaid patients, it’s easier to get regulators to grant them a commercial license–and entree into a bigger and more lucrative market.

The company’s management has gone down the same path, too, but with disastrous results. Last year, it took a majority stake in Omnicare, a Tennessee HMO that marketed healthcare service for Medicaid recipients. The state, however, wasn’t too impressed with United American’s pleas to expand outside of Medicaid, and denied the company a license to sign commercial clients to its roster. Dr. Julius Combs, United American’s chairman and chief executive officer, says bankrolling lawyers fees in order to put up a fight in Tennessee helped sap company profits last year.

In Michigan and Florida, where the company operates HMOs, regulators have cut premiums an average of 15% and 10% respectively, for Medicaid beneficiaries, further eating into United American’s bottom line. Both states, meanwhile, have promised to mandate that all Medicaid beneficiaries enroll in managed care, but little has come in the way of legislation to date. In Ohio, United American backed out of a management agreement with a Cleveland HMO once premiums for Medicaid recipients there were slashed.

Today, United American is in a pinch. Combs says a settlement for a lawsuit, medical claims and a host of write-offs in 1997 will sink company earnings. With company stock mired at less than $ 5 a share, United American can’t use it for buyouts. And, since it lacks cash to enter new markets, the company has relied more on joint ventures. In August, for instance, it teamed with Fortis Benefits Insurance Co. to offer point-of-service healthcare, allowing customers to choose physicians outside an HMO’s prescribed list of doctors. And another option–the sale of a unit which designs healthcare plans for small business that pay for their employees healthcare–is slated to bring in $30 million, provided the buyer can come up with the money, says Combs.

All of which has frayed investors’ patience. Richard Sinise, a portfolio manager for the institutional investor, Kennedy Capital Management, has halved his stake in United American to 120,000 shares. Sinise says the company posted positive earnings for several years, but “the minute they expanded, they created a

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