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Cuts hit state's HMOs

The state's decision to cut the reimbursement rate for Medicaid patients starting July 1 roiled the ranks of Florida's Medicaid HMO operators on Friday.

Shares of Miami-based Physician Corp. of America, the largest Medicaid HMO operator in Florida, plunged 24.4 percent and hit a 52-week low after the company announced that the state's new rates would slice its premiums by about 18 percent.

Several other providers also saw stock declines, and Tampa-based Physicians Healthcare Plans announced layoffs affecting as many as 60 employees in Tampa and Orlando.

The company said it expects a 12 to 18 percent cut in state funding.

The new rates, which were put forward by the Florida Agency for Health Care Administration, come as part of Florida's decision to cut about $261-million from its state budget for Medicaid, the state and federal program for the poor.

Medicaid expenditure is being reduced to $6.7-billion from $6.9-billion, said administration spokeswoman Nina Bottcher.

The administration hasn't worked out the amount the rate cuts would affect each company, she said.

Instead of paying a flat rate for each patient, the state will pay a rate based on the patient's age and county. On average, the change will reduce payments to HMOs by about 10 percent because they have not enrolled many high-cost infants, said agency official Gary Crayton.

Some critics have said that Medicaid HMOs are paid too much for their services. At the program's inception, they received 95 percent of the average Medicaid recipient's costs. Private employers often save 15 percent in premium costs when they switch their health insurance to HMOs.

As the largest Medicaid HMO operator in Florida, Physician Corp. was hardest hit by the cut. Its shares dropped $4.75 to $14.75 in trading of 3.18-million shares, compared with a three-month daily average of 568,800 shares.

But other companies took hits, too. United Healthcare shares fell $1.62{ to $43; Foundation Health shares fell $1.25 to $30.62{; and Humana shares fell 50 cents to $19.37{.

Physician Corp. said the state's rate cut may cause it to close its Medicaid operations in unprofitable areas of Florida and focus on businesses where the reimbursement rate will enable it to operate profitably.

In announcing the layoffs at Physicians Healthcare, chief executive Michael B. Fernandez also sounded a warning.

"I believe this funding cut will severely compromise the quality of service delivered, lead to the insolvency of some Medicaid HMOs and create a return to fee-for-service Medicaid," he said in a statement.

_ Information from Dow Jones News Service and staff writer Sarah Cohen was used in this report.