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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1120)	1/15/1999 10:48:00 AM
From: porcupine --''''>	Respond to of 1722

Rising Health Premiums Don't Mean Medical Inflation Is Back - NYTimes ECONOMIC SCENE -- December 31, 1998 By MICHAEL M. WEINSTEIN The most worrisome economic tiding for the new year is that health care premiums for employer-based coverage will rise by 10 percent or more in 1999. The startling figure, based on preliminary data from private employers and the program covering federal employees, is out of line with scant rate increases over the last four years. And it raises the question of whether managed care plans have returned to the days of double-digit rate increases, abandoning their promise to smother medical inflation. There are good reasons to believe the answer is no. The premium increases earlier in the decade were chronic, the symptom of a fee-for-service system lacking financial restraint. Next year's premium increases appear likely to be temporary. Health costs are rising, but not alarmingly so. It is too early to write off managed care as a fleeting has-been. The first task in sorting through the data is to distinguish premiums, which rise and fall in cycles like prices of other types of insurance, from the underlying costs of treating patients. "It is the long-term trend in medical costs, not recent movements in premiums, that ultimately rules the markets," says Paul Ginsburg of the Center for Studying Health System Change. A study by Ginsburg and Jon Gabel of KPMG Peat Marwick shows that while premiums have risen only by 1 percent to 2 percent a year over the last several years, medical costs have been rising by 2 percent to 3 percent. Ginsburg attributes the underpricing of insurance to a familiar strategy by insurers to price low during economic good times to expand their share of local markets. Insurers might also have misjudged how quickly medical costs would start to rise after the onslaught of managed care five years ago. But whatever the reason, the practice of raising premiums by less than costs had to end and will do so with a vengeance next year. Federal employees already know that their premiums will rise by an average of 12 percent or more. Ginsburg expects premiums for employer-based coverage to rise by more than 6 percent next year, about double this year's rise. But beyond the catch-up in premiums, medical costs are also rising. Hospital costs have risen by only 2 percent a year over the last few years but are expected to grow at twice that rate next year. Drug costs are rising by more than 10 percent a year, primarily because patients are taking advantage of a deluge of powerful new treatments. These changes are not necessarily temporary. Ginsburg, based on interviews with employers, attributes some of the cost increases to a backlash against restrictive types of managed care, like health maintenance organizations, that do the best job controlling costs. "Employers in tight labor markets are reluctant to impose a narrow network of approved specialists because of employee opposition," he said. There is a widely held belief that the managed care revolution has run its course. According to this argument, the inflation of medical costs has fallen only because employers are shifting workers from high-cost fee-for-service coverage into lower-cost managed care. But the savings will be one time, because managed care costs are rising at the same rate as those of fee for service. But the Ginsburg-Gabel study says otherwise. The cost increases of nearly every type of health plan have fallen drastically. Shifting among plans explains only part of the cost savings. Prof. Kenneth Thorpe of Tulane University, an architect of the Clinton administration's proposed health care plan, points out that where managed care plans have gained a substantial market presence -- in California, for example -- health costs are rising slowly. But where managed care remains nascent -- as in Louisiana -- health costs continue to soar. Competition, he argues, imposes a useful discipline. Yet, Thorpe suggests, managed care might have done about as much as possible to control costs through financial restrictions. He suggests that to knock more digits off of medical inflation will require other tactics. "Managed care needs to better monitor physician care, feeding back the results of studies that would tell doctors which treatments work, which do not," he said. Beyond that, Thorpe expects managed care to move into "life-style issues -- helping patients control smoking, drinking, obesity and cholesterol." Suppose Thorpe's vision becomes reality, managed care learns to do all the right things and medical costs creep up anyway. At that point, it might be time to relax. No one knows how much Americans should spend on health care. If well-informed consumers choose to spend money out of their own pockets for expensive insurance plans that provide easy access to a panoply of specialists, that should cause little second-guessing. The problem with the double-digit inflation of the early 1990s was that the fee-for-service system drove doctors and patients to excessively expensive and risky procedures, tests and drug regimes. It may turn out that even a disciplined system will prove increasingly expensive. Medical cost inflation has not been as low over the last few years as steady premiums seemed to indicate. Nor will medical costs be nearly as bad as next year's high-rising premiums might suggest. The mundane truth is that health care costs seemed destined to outstrip inflation by a percentage point or two for at least the next year or so. That news is not joyous. But neither is it frightening. Copyright 1998 The New York Times Company

To: porcupine --''''> who wrote (1120)	1/15/1999 11:09:00 AM
From: porcupine --''''>	Respond to of 1722

Feds Censure Accountancy Foxes for Auditing Chicken Coops - NYTimes U.S. Censures a Major Firm on Its Auditing By MELODY PETERSEN - January 15, 1999 Federal regulators censured PricewaterhouseCoopers, the world's largest accounting firm, Thursday for violating a basic rule that all auditors must follow to be independent from the companies they audit. The Securities and Exchange Commission's lawyers said they had discovered 70 instances where the accounting firm's partners, employees or pension fund had invested in companies that the firm audits. Under federal securities laws, auditors cannot own any interest in companies that they audit. The rule is necessary because an auditor's job is to help protect investors by giving an unbiased opinion on whether a company's financial statements are fair and accurate. As a result of the improper investments, PricewaterhouseCoopers' auditors were not independent when they audited the financial statements of 70 companies, and the companies did not receive the independent audit required by securities laws. The firm has contacted all of the companies involved. Regulators did not disclose the companies' names, but said that only four cases involved accountants investing in a company where they personally worked on the company's audit or performed other services. In the other cases, the accountants did not actually work on the audits of the companies they had invested in. Or, the firm's pension plan had invested in companies the firm audits. Richard H. Walker, director of the SEC's enforcement division, said that regulators had not discovered problems in any of the 70 companies' financial statements and did not plan to ask the companies to have their financial statements audited again by another accounting firm. "We are really looking at the issuers as the victims in this case," Walker said, "because they did not know their auditors were not independent." But the regulators' censure must have been disconcerting to many of the firm's partners, who have been grappling with smoothing day-to-day operations since July, when the accounting giant was created by the merger of Price Waterhouse and Coopers & Lybrand. "We abhor and regret these deviations from firm standards," the accounting firm said in a statement. "While we and our predecessor firms have always had stringent policies, procedures and controls intended to insure full compliance with the independence rules, we and our clients will benefit from the additional measures we will take to make sure this does not happen again." In recent years, the ethical lines for auditors have grown murky because the independence rules were written many years ago and no longer cover potential conflicts of interests created as the firms have grown larger by offering a multitude of new consulting services to their audit clients. But to even the newest recruit at the accounting firms, one rule has always been clear: auditors cannot own even one share of stock in companies they audit. "This is rule number one that you learn when you walk in the door," Walker said. Said Paul R. Brown, an accounting professor at New York University, "It makes me wonder how such a basic independence rule could have been breached." "If you own even the smallest interest in an audit client," he said, "the perception might be that you are not independent." In its statement, the accounting firm said the problems came about "because a few individuals in Coopers & Lybrand's Tampa office circumvented the firm's controls by withholding information." And, in the case of the pension fund investments, it said that "required procedures were not followed." According to the regulators' complaint, in December 1997, the regional heads of the firm's tax and human resources departments received an anonymous letter charging that a tax associate in the firm's Tampa office had reportedly purchased the stock of three audit clients. The SEC's investigation found that the associate did own stock in companies that he had performed services for. In one case, the associate had worked on the company's audit at the time he owned the company's stock. In the other two cases, he did not own the stock at the same time that he was working on those companies' matters. The regulators also found that another tax associate in the Tampa office had owned stock in another company while working on that company's audit and other matters. The SEC also found that from 1996 to 1998, five Coopers partners had owned investments in 31 publicly traded companies that the firm audited. The partners did not work on the audits of those companies. In addition, the firm's pension plan had invested in dozens of companies that were the firm's audit clients. Some of those conflicts developed after Price Waterhouse and Coopers had merged. While the firm's pension fund was managed by an independent employee, the firm had failed to adequately monitor and control the investments that were made, the regulators said. In settling the complaint, PricewaterhouseCoopers agreed to hire an outside consultant to investigate whether there were any more instances where the firm's professionals improperly owned investments in audit clients. The firm also agreed to promptly notify the chairman of a company's audit committee if an improper investment was discovered. The accounting firm must also adopt new procedures and controls including the creation of a new database to record and track the personal investment portfolios of all partners and managers. And, it has agreed to pay $2.5 million into a fund that will be used to educate the nation's auditors on the independence rules. Copyright 1999 The New York Times Company

To: porcupine --''''> who wrote (1120)	1/23/1999 12:32:00 AM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

AT&T CORP is reportedly deciding whether to sell its phone-based online service to cable Internet access provider AT HOME CORP, but Ma Bell would still maintain control. So why do the deal? It's simple, actually. AT&T would remove a fairly sizable expense from its balance sheet -- making its bottom line look better -- and at the same time benefit from the large valuations ascribed in the stock market to Internet-based enterprises. Under the proposed deal, first reported in the Wall Street Journal, AT&T would sell its WorldNet internet service to At Home for $1 bln in the cable internet company's stock. Both companies have declined to comment. At Home would then fold WorldNet's 1.3 mln subscribers into its customer base of 330,000, with the goal of converting the AT&T users to its much faster, cable-based service. AT&T, however, essentially would retain control of its online service because it's about to acquire voting control over At Home with its pending $41 bln purchase of the second largest U.S. cable TV operator, TELE-COMMUNICATIONS INC. TCI owns a 58% voting stake in At Home and 28% of its common shares. (CBS Market Watch)