DR. SCOTT'S MEDICINE.

• Author: Finotti, John
• Position: Steven M. Scott, health-plan success - Interview - Statistical Data Included

A North Carolina physician/businessman says he knows the best prescription for health-plan success in Florida.

Florida's huge-but-turbulent health-care insurance market came to fascinate entrepreneur Steven M. Scott, a North Carolina obstetrician-gynecologist who left the delivery room 17 years ago for the boardroom. Among other things, Scott observed that the nation's fourth-largest and fastest-growing state didn't have a homegrown, for-profit HMO powerhouse. He also saw that most big out-of-state HMO companies hadn't been doing particularly well. After eyeing Florida's HMOs for several years. Scott concluded that to succeed, a managed-care plan had to be large, based in Florida and locally managed.

Last year, Scott, a burly 53-year-old who looks like a young Boris Yeltsin, the former Russian president, placed his bets. In rapid-fire succession, he has spent more than $130 million buying and capitalizing three money-losing HMOs in south Florida and a small HMO in Tallahassee. A deal is pending for a fifth HMO. "My wife's a little nervous about it," he says.

She should be. Florida's managed-care insurers have had a difficult few years. Medical costs have been rising faster than premium increases, and the government has cut Medicare reimbursements. HMOs have been taking a drubbing in the public-relations war with providers and face an onslaught of class-action lawsuits from trial attorneys alleging that they've deceived their customers and providers. Meanwhile, enrollment in Florida HMOs has dropped as consumers, angry at being denied certain medical procedures, have switched to other forms of health insurance. Preferred-provider organizations, for example, cost more but offer more options. "People want choice," says Kim Streit, who follows the managed-care industry for the Orlando-based Florida Hospital Association. "They want flexibility."

Last year, only seven of 26 operating Florida HMOs were profitable. In the last three years, 10 health-maintenance organizations in Florida have closed. Most recently, a Mayo Clinic HMO in Jacksonville shut its doors after suffering losses of $3 million in 1999 and $7 million in 2000. "Right now, there aren't many investors willing to buy HMOs," says Jeff Angello, area president at Gallagher Benefit Services Inc. in Boca Raton.

Smaller firms such as those Scott has acquired have had it particularly tough: Consider the most recent financial results of Scott's four HMOs in the third quarter last year...