Coverage of Rural Areas Planned : Westworld Will Enter HMO Field
Westworld Community Healthcare Inc. said Tuesday that it will plunge into the rapidly growing field of health maintainance organizations in January when it begins offering prepaid health-care plans in the Crook County, Wyoming, area.
By the end of 1986, the Lake Forest-based company--which specializes in acquiring and operating small hospitals in rural areas--plans to offer HMO coverage in each of the 13 states in which it owns hospitals, said Peter Donald, Westworld’s president and chief operating officer.
Westworld will offer the prepaid health coverage only in those areas where it already provides the bulk of hospital-related services and has no plans to expand the plan into areas where it has no other hospital presence.
HMOs typically require patients to prepay for nearly unlimited hospital services, and Westworld wants to use such payments to improve its cash flow through its Westworld Community Healthplans Inc. subsidiary.
“When you’re running a hospital, revenues often take more than 60 to 120 days to collect, especially if you are waiting for the insurance company to pay you,” Donald said in an interview Tuesday. “With an HMO, you are gaining the insurance dollar at the front end rather than waiting for the reimbursement at the back end.”
Start-up costs for the HMOs are expected to total about $1 million while HMO contributions to Westworld’s 1986 revenues are estimated at $80 million to $120 million, Donald said. The company “anticipates no significant pre-tax gain” from the HMOs in 1986, but is projecting pre-tax earnings of approximately $5 million in 1987.
While Westworld has built a niche for itself as an operator of small, rural hospitals, HMOs represent a non-traditional approach to health care that may not be well received in rural areas where they are sometimes regarded as “commie medicine,” said Larry Selwitz of Bateman Eichler, Hill Richards in Los Angeles.
However, suggests Randall Huyser of Montgomery Securities of San Francisco, rural areas are virtually virgin markets for HMOs. Westworld’s prepaid plan, he said, may help it to maintain its market share in the areas in which it is established.
Westworld currently owns 34 acute-care hospitals and two alcohol-treatment centers in 13 western states and will expand to 42 by the end of 1986. By the end of the decade, Donald told an industry group meeting in San Diego Tuesday, Westworld will own 65 facilities.
As previously reported, Westworld earned $2.7 million during the first nine months of 1985, compared with earnings of $1.2 million a year earlier. The New York brokerage firm of Drexel Burnham Lambert Inc. currently is projecting year-end earnings of $3.5 million, compared with $1.8 million for the preceding year.
