3 state HMOs seeing red in 2nd Q; Fallon, HMO Blue, Harvard post losses.

Byline: Bob Kievra

Three of the state's four largest health maintenance organizations yesterday reported operating losses in the second quarter, as rising medical costs cut into their bottom lines.

Fallon Community Health Plan, HMO Blue Inc. and Harvard Pilgrim Health Care posted operating losses for the quarter ended June 30. Tufts Health Plan said it had operating income of $29.7 million.

Operating losses have been prevalent this year for the state's largest HMOs. In the first quarter, Tufts, Harvard Pilgrim and HMO Blue all incurred operating losses.

HMOs, which operate as nonprofits, depend on investment income to offset the operating losses but officials said they are still striving to manage their costs in hopes of achieving operational profits in the third and fourth quarters.

Worcester-based Fallon Community Health Plan posted a net loss of $1.2 million on $230 million in revenues. The loss included an operating loss of $3.2 million offset by $2 million in investment income. For the same period last year, Fallon had net income of $2.9 million on $211 million in revenues. Net income for the same period last year included investment income of $1.6 million. Membership was 189,655, slightly up from 188,245 in the first quarter.

Fallon spokeswoman Christine L. Cassidy said higher utilization rates for medical care, increased prescription drug costs and rising inpatient hospital expenses were factors in the HMO's second-quarter performance.

Fallon is managing the rising medical costs by making infrastructure investments that should improve administrative efficiencies while expanding its service area and provider network, Ms. Cassidy said.

Blue Cross and Blue Shield of Massachusetts HMO Blue Inc., the state's largest HMO, posted net income of $13.9 million, including an operating loss of $9.2 million. Investment income of $23.1 million enabled the HMO to post net income for the quarter. Revenues and claims both rose compared to the same period a year earlier. HMO Blue, which has approximately 1 million members, had revenues of $1.1 billion and claims of $1 billion in the second quarter. For the same period last year, HMO Blue had $1 billion in revenues and $939.5 million in medical claims.

Wellesley-based Harvard Pilgrim said it had $700,000 in net income on revenues of $622 million. Net income includes an operating loss of $7.6 million and investment income of $8.3 million.

For the same period last year, Harvard Pilgrim had net income of $6.8 million on revenues of $612 million.

President and Chief Executive Charles D. Baker said Harvard Pilgrim will tightly manage expenditures and expects to post an operational profit in the second half of 2007. Membership was slightly over 1 million at the end of the quarter, largely unchanged from the first quarter.

Watertown-based Tufts Health Plan had second quarter net income of $51.2 million on revenues of $538 million. Net income included operating income of $29.7 million and investment income of $21.6 million.

For the same period last year, Tufts had net income of $18 million on revenues of $455.6 million. Membership was 645,174 on June 30, up from 635,000 on March 31.