Who's Afraid Of Health Reform?

Stephen F. Wiggins smiles at the mention of health-care reform. At a time when most industry executives are wincing at the potential impact of the Clinton Administration's plan to overhaul the health-care system, the 36-year-old chief executive at Oxford Health Plans Inc. is betting that reform will be good for business. "It's all coming our way," says Wiggins.

That's not just wishful thinking. Experts say the Clinton proposals to extend health-care coverage to everyone could mean more business for Oxford and many of the 550 other regional health-maintenance organizations and managed-care providers around the country. Many have excelled in a climate of managed-health-care competition.

Oxford, in particular, has thrived. Thanks to an emphasis on quality care, innovative products, and pricing flexibility, the Darien (Conn.) company has seen its membership rolls almost quadruple since 1989, to 140,000. "They're offering a cut above what New Yorkers think of as managed care," says Jim Buckley, benefits consultant at KPMG Peat Marwick. As a result, analyst Nancy Moyer at Ladenburg, Thalmann & Co. estimates that Oxford's 1993 operating earnings could rise 71%, to $13.7 million, while sales soar 87%, to $290 million. And at a time when most other health-care stocks are taking a beating, Oxford's stock price has jumped 45% in the last three months, to about 55.

Wiggins founded Oxford in 1984, when HMO programs were little-known and much-disdained in the greater New York market. But Wiggins, who previously headed a nonprofit facility for the physically disabled, soon hit on a receptive market: white-collar professionals at smaller law firms and ad agencies. Wiggins was able to woo them with a higher-quality network of doctors.

TRIED AND TRUE. Wiggins says quality care remains a big selling point. Unlike a conventional HMO, with its own salaried staff of physicians, Oxford has a network of doctors in independent practice. They get 65% or so of the normal office-visit fee but are assured a steady volume of patients. Nowadays, Oxford boasts a network of 6,000 physicians--91% of whom are board-certified in their specialties. At Prudential Insurance Co.'s managed-care plans, the ratio is 75%.

Oxford's quality costs a bit more than other managed-care programs in New York. On average, companies pay Oxford an annual premium of $3,500 per employee, $12 more than the average for other managed-care companies, according to health-benefits consultant Foster Higgins. But Oxford's premiums are 30% lower than traditional insurance. And its medical loss ratio--the percentage of premiums spent on patient care--stands at 78%, vs. an average of 86%.

Oxford's lower loss ratio reflects its sharp cost management. For example, the company recently noticed that many of its doctors were prescribing Theodur, a costly drug that Oxford claims was not proven to be effective in treating asthma. At Oxford's urging, they're now using more tried-and-true drugs at half Theodur's $40-a-month per-patient cost.

Still, Oxford faces stiff competition. With employees in the New York region learning to accept managed-health plans, big insurers are gearing up. "In the next six to eight months, Oxford will see that we're going to be a player here," says Eugene Marks Jr., vice-president of group insurance marketing at Metropolitan Life.

HEAD START. Wiggins hopes Oxford's nimbleness will help his company stay on top of the competition. He has had some success with a flexible-payment plan that few managed-care competitors have duplicated. Rather than paying an up-front premium, customers reimburse the insurer only as health-care costs are incurred. Oxford collects an administrative fee of $30 to $40 per employee each month.

That has meant a savings for some companies whose employees don't have huge medical costs. Len Tabs, senior vice-president of finance at Fortunoff Cos., says the jewelry-store chain has cut costs by 20%, or $1 million a year, by switching to the new plan. Later this year, Oxford will launch a plan in which customers receive a discount of 10% to 15% on their monthly premiums if they agree to use a smaller universe of doctors selected for their abilities to keep costs down.

Wiggins knows that big rivals are headed his way. But with the Administration planning to outline its health-care reform package in June, Oxford's CEO believes he has a crucial head start. "The big guys know how to pay out claims, but they still aren't experts at managing health-care costs," says Wiggins. "The biggest thing we've got to worry about is how to manage 50%-a-year growth." That's the kind of headache most health insurers wish they had.

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