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HMO stocks endure another tough day

Health maintenance organization stocks continued their collapse Wednesday in the wake of projected lower earnings by two companies, news of higher costs throughout the industry and new Medicaid rates in Florida.

Nearly every HMO stock has been hit during this most recent rout _ from industry leaders U.S. Healthcare Inc. and United Healthcare Corp. to regional powerhouses like Oxford Health Plans Inc. and smaller concerns like Wellcare Management Group Inc.

Wednesday's action was partly instigated by Smith Barney analyst Geoffrey Harris, who downgraded his investment opinion on 10 HMO stocks, including U.S. Healthcare, Oxford, Wellcare, Healthsource Inc. and Maxicare Health Plans Inc.

Another piece of news that may have put pressure on the industry was the announcement by health insurer Emphesys Financial Group Inc. late Tuesday that it will post lower earnings as a result of increased medical costs.

After more than a year of declining medical expenses, some HMOs say their members are visiting doctors more frequently and requiring more medical procedures. Recently, Coventry Corp. and Humana Inc. have projected disappointing earnings because of the higher costs.

Also, shares of Physician Corp. of America came under attack Friday and Monday because of lower Florida Medicaid HMO reimbursement rates, and that effect has spilled over to other stocks. Late last week the Florida Agency for Health Care Administration announced new rates that would cut the company's Medicaid premiums by 18 percent.

Eleanor Kerns, an analyst with Alex. Brown & Sons, said she believes the problems plaguing certain companies are exclusive to those companies and that the issues are not "global."

However, Robert Wasserman, an analyst with Southeast Research Partners Inc. in Boca Raton, was a little more skeptical in his outlook.

"You have to wonder whether they are all okay or whether it's regional," Wasserman said. "Or perhaps all the bad news has been digested and when the second quarter is actually announced there may be no stock movement."

Among the companies hit hardest Wednesday were Healthsource, whose stock fell $3.75, or 10 percent, to close at $33.12{ a share on the New York Stock Exchange; Emphesys Financial, which slipped $2.12{, or 8 percent, to $23.50 a share on the NYSE; and Oxford Health, which dropped $1.62{, or 3.4 percent, to close at $46.50 a share on the Nasdaq Stock Market.

_ Information from Bloomberg Business News was used in this report.