And while the poem says that the race isn't always won by the swift, nor the battle always won by the strong, industry experts suggest that only the strongest--and well-capitalized--firms will survive the shakeout now beginning to hit the HMO industry.
Predicts Consolidation
"There is going to be a consolidation in this industry," said Edward Gomoll, director of research for Pacific Securities Inc. of San Francisco.
Because the competition is heating up, pressures on profit margins are rapidly intensifying, Gomoll said. As a result, smaller HMOs are in a disadvantaged position when competing with the large and well-heeled national hospital chains and insurance companies.
Moreover, HMOs which expand too rapidly, or go far afield of their geographic bases can be asking for trouble, Gomoll said. Because the regulatory environment for HMOs varies from state to state and successfully penetrating different markets often requires different operational approaches and lots of capital, new frontiers sometimes turn out to be wastelands.
"If you're in this business, you have to move quickly to get established in new markets," he said. "If you don't, you have a very tough job playing catch-up."
Although HealthCare USA plans to curtail its near-term growth, it still has to pay the bills for the rapid expansion of 1985, Loomas said. At the end of the last quarter, long-term debt totaled $80.8 million, while shareholders' equity was only $35.4 million. During the last quarter servicing that debt cost between $1.5 million and $2 million.
And after subtracting $103.8 million in intangible assets and good will from the latest balance sheet, the picture becomes even bleaker, one analyst noted, with shareholders' equity totaling a negative $68.4 million.
Could Be Profitable
Still, if HealthCare USA's retrenchment strategy is successful, it could be profitable within six to nine months, said Kenneth Abromowitz, who follows the company for Sanford C. Bernstein & Co. of New York. So far, he said, "it looks like they are moving on the right path."
However, said Randall Huyser, of Montgomery Securities of San Francisco, HealthCare USA lacks an adequate system for managing its growth and costs and, as a result, may not be able to get its expenses under control.
"The HMO business is very management-intensive and a tricky one to run," Huyser said. "I think that where HealthCare USA is stumbling is that they don't have the management and particularly the computer system to manage their growth as efficiently as say, a Maxicare (Health Plans Inc.)."
Lack of operating controls prevents an HMO from being able to zero in on problem areas, such as overutilization of hospital care and physician services, which, if poorly monitored, can send costs spiraling.
"Trying to solve control problems is like trying to patch a leaky inner tube. You patch one place, and it springs a leak someplace else," Huyser said. "Maybe for them it's a chronic problem."
And while no analyst regularly covering the company yet believes that the company is a candidate for bankruptcy, several have expressed doubts about Loomas' ability to bring about a recovery.
"He's never really impressed anyone on Wall Street with his management savvy," commented one West Coast analyst, who said that while Loomas is a capable promoter, his abilities as a chief executive leave something to be desired.
In addition, some members of the investment community complain that it is not easy to get information from Loomas, which in turn, they say, makes it tough to understand goings-on within the company.
"From an analyst's perspective, he's a very difficult person to deal with," said Jerry Treppel, who is with Merrill Lynch, Pierce, Fenner & Smith Inc. of New York. "You ask him a specific question and you get a very oblique answer, which doesn't help."
Loomas disagrees: "My track record as an operating officer is a damn good one."
Part of the problem with the analysts, Loomas said, was that for much of this year he avoided speaking to them on his lawyer's advice.
"I think the situation with analysts is that during the last quarter I was answering inquiries about acquisitions, and it started surfacing about the potential for an operating loss in the quarter," he said. "If you talk to one analyst you have to talk to them all. Our securities counsel said I couldn't talk to them."
Stock Soared
In September, HealthCare USA stock soared to more than $20 a share on rumors of a pending acquisition. And some analysts say the company has been "widely shopped" but could find no takers because it asked too much for its stock.
Loomas admits that the company has received some inquiries from "various interested parties" but denies that the company has been actively seeking a takeover.
In fact, as a precaution against a takeover, Loomas last July engineered a "poison pill" provision which effectively would force any company attempting to acquire HealthCare USA before the end of 1986 to pay $40 for each share of stock outstanding.
