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Analyst: Medicare Advantage Insurers to Raise Rates

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Health insurance companies such as Minnetonka, Minn.-based UnitedHealth Group Inc., which has sizable operations in Cypress, soon will cut benefits and raise premiums for their Medicare Advantage health maintenance organization members, according to an industry analyst.

The Centers for Medicare and Medicaid Services said earlier this month that their payment rate for Medicare Advantage HMOs would remain flat in 2011—a reversal of its earlier position, in which it said rates could increase by more than 1%. The freeze comes as part of the recently enacted healthcare reform legislation.

While the freeze is better for insurers than the rate cuts of 4% to 5% that were proposed this year, it will do little to help them keep up with rising costs, Oppenheimer & Co. analyst Carl McDonald said. This could force them to cut benefits and raise premiums.

Medicare Advantage is a privately run form of Medicare, the federal health plan for elderly and disabled Americans. The government subsidizes the plan, which offers basic Medicare coverage and some extras or premiums that are lower than standard Medicare rates.

UnitedHealth is one of the larger Medicare Advantage plan providers. It and competitor Humana Inc. of Louisville, Ky., together manage about 33% of the 11.5 million Medicare Advantage members nationwide, according to March numbers.

Separately, UnitedHealth got an upgrade from Leerink Swann & Co. analyst Jason Gurda, who said that the insurer had better-than-expected enrollment growth for Medicare Advantage and commercial plans, and that it had “stable to favorable” pricing and cost trends.

Gurda upped his rating on UnitedHealth to “outperform” from “market perform.”

Grubb Buys in Midwest

A healthcare real estate unit of Santa Ana-based Grubb & Ellis Co. has spent $17.4 million on medical offices in the Midwest.

Grubb & Ellis Healthcare REIT II recently paid $10.9 million for the Parkway Medical Center in Beachwood, Ohio, a Cleveland suburb. The fund bought the center from Parkway Medical Center LLC.

Parkway Medical Center has two buildings and 88,000 square feet of space.

The buildings are 87% leased to 35 tenants, including University Hospitals of Cleveland.

Earlier this month, the Grubb fund said it paid $6.5 million for two medical office buildings near St. Cloud, Minn.

The fund bought the Center for Neurosurgery and Spine, which is in Sartell, Minn. The center has two buildings and 36,600 square feet of space.

The Grubb & Ellis investment trust bought the buildings from Stingray Properties LLC, Crystal Blue Properties LLC, Sylvan Holdings LLC and Samuel Elghor, a physician.

The Center for Neurosurgery and Spine is within three miles of the 393-bed St. Cloud Hospital. It was built in 2006 and is full with five tenants.

Fitch Ratings

Debt rater Fitch Ratings Inc. said that healthcare reform won’t cause it to re-rate any for-profit hospital operators in the near future, predicting that, for now, the reform package will have a “neutral-to-slightly positive” effect on the hospital operators.

“Since the most impactful aspects of the reform legislation will not take effect until 2014, Fitch does not expect a significant effect on the for-profit hospitals’ operating performance in 2010,” Fitch said in a statement. “Rather, the pace and strength of economic recovery continues to be the most important variable influencing the industry in the near term.”

For-profit hospital operators include Dallas-based Tenet Healthcare Corp., owner of Fountain Valley Regional Hospital and Medical Center, Los Alamitos Medical Center and Placentia-Linda Community Hospital.

The ratings agency said for-profit hospitals’ credit profile strengthened in the past year, and the sector sustained strong operating performance in 2009’s fourth quarter.

Bits and Pieces:

NextGen Healthcare Information Systems Inc., a Horsham, Pa.-based subsidiary of Irvine’s Quality Systems Inc., said Mercy Health System of Conshohocken, Pa., signed contracts to use its electronic health record and health information exchange software. Mercy, which has four hospitals, a home healthcare organization and co-owns two managed care plans, has used NextGen’s practice management software for four years. Separately, Quality said it ranked 23rd in Forbes magazine’s annual “America’s 25 Fastest-Growing Tech Companies” that appeared on the publication’s Web site … StrataCare LLC, an Irvine maker of software that reviews workers’ compensation medical bills, said that it bought the MedBillPro division of CS Stars LLC, a unit of insurer Marsh Inc., for an undisclosed price. MedBillPro reviews medical bills for workers injured on the job … Avid Biosciences Inc., a contract manufacturing unit of Tustin drug developer Peregrine Pharmaceuticals Inc., said that it expanded its relationship with Halozyme Therapeutics, a San Diego drug developer.

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