but there is some difference between the Pharma and the HMO business (though it is subject to indvidual interpretation as to how similar/different they are) that MDF did. true, from loss perspective.. they both are sucking up the PSN profits.. which otherwise we would have seen more of those money back to the company (and shareholder)... they are different in several ways...:
1. The pharmacy business only bring small portion of revenue when they rack up huge losses (huge loss profit margin) 2. HMO bring steady revenue as they continue to increase HMO members (and economies of scale will kick in and MER will get better overall as the healthy will subsidize the sick people and also each clinic will support more patient as they get more members) 3. The pharmacy is much farter away (in term of competencies needed as well as the type of business/industry) from the PSN compare to HMO and PSN (you can say PSN is a subset of HMO, so a lot of the capability is overlapping)
we/I know when we added the new counties, the existing counties are not enough to reach the economies of scale (in addition to adding opportunities to grow faster), but I'm fine with the slow but sure approach. For these same reasons (losses) , the cash that they have is needed to stay where they are (as reserve, in case). but I will be very careful once they started going red (net loss) as a company overall on a calendar year.
As of for now, I will recommend all longs to still keep their faith, at least just for another year.
Stan PS: HUM probably leave these counties it's not because it's absolutely impossible to make money there. it's just they are so big that the profit that could be had from these counties is negligible to their overall result and they rather focus on the bigger things (they even let MDF manage 25,000 of their HMO members with the PSN)
1. Tha pharm business would have been huge if MDF had the capital to support it. They were dealing with a ten day million dollar bullet from Amerisource while waiting 120 days for the new contracts to turn a/r's. The stock was under .50 and the ability to raise money was difficult after 9/11. The benefet from the contracts that were available would have been HUGE but the board/shareholders/and ME politics decided to abandon this project to dive into another one that is riskier and requires even more capital with ZERO experience. They could have takent he same money and made the phar work and had bifgger returns. LOOK AT CAREMARK as a stock and you can see the potential of phar benefits. Bottom line is we are back to the same old story, take a profitable division and suck it dry to attempt to start a new business so MDF is not 100% relied on Humana. Sternberg was crucified for trying this and now it is deja vu. At what point does MDF realize that they will need a seasoned healthcare executive to lead this company for any chance of success to a HMO start up