Word: aetna
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Indeed, as patients clamor for every new drug that's advertised on TV and every test they learn about on the Net, the price of medicine is getting stiffer, jumping an estimated 10% this year. For the moment, Aetna and others are passing along that added expense to employers and consumers, one of the primary reasons the sector has rebounded a bit on Wall Street. But as Merrill Lynch senior analyst Roberta Goodman points out, "that's like running up the down escalator--the trend is against you." And even though Donaldson produced better-than-expected earnings of $184 million...
...Aetna may yet wring efficiencies from its acquisitions of the past few years, such as U.S. Healthcare and the money-losing Prudential operation, for which it overpaid. That's if Donaldson can find a management team with the talent and guts to run the troubled health-care division...
...wouldn't know that, of course, by looking at the company's balance sheet, which makes Donaldson's job all the more challenging. Last week, just as he was nursing a deal to sell Aetna's financial-services and international units to Dutch firm ING Group for as much as $9 billion, Aetna was being sued for taking its sweet time paying bills to a number of New York hospitals. (Aetna says it is hopeful they can resolve the issue through negotiations.) There are also restless shareholders, who watched the stock fall nearly 60% in the past year before...
Legal attacks are nothing new for Aetna. From a barrage of class actions to the patients' bill of rights making the rounds in Congress, the company has been caught in an angry offensive against the managed-care industry. "They deny a substantial amount of necessary care and then, to wear you down, make you play the paperwork game," says Dr. Joy Maxey, an Atlanta pediatrician and president of the Medical Association of Georgia, which has filed a suit against Aetna for violating the state's prompt-pay law. (Aetna denies the charges and says other suits are the political attacks...
Even if Donaldson can diffuse those issues, he doesn't possess a miracle cure for Aetna's woes. The company needs to increase its profits, but the public backlash against managed care has made it all but impossible to cut costs any more. HMO enrollment is slowing; medicare reimbursements are too low; and hospitals and doctors are fighting back against deep fee discounts--in some cases dropping out of networks altogether. More people are opting for flexible plans, choosing preferred-provider organizations over HMOs (see sidebar). Says Tom Ferguson, a health-care consultant at William M. Mercer: "There's less...