HMO A-Go-Go

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How healthy are health maintenance organization (HMO) stocks? Mid Atlantic Medical Services (NYSE: MME) checked in with a clean bill of health last night. The health-plan provider earned $1.10 a share in its fiscal third quarter, and it's looking to earn at least $4 per share for the year.

Readers of Motley Fool Stock Advisor know the company. It was singled out by Tom Gardner earlier this year. The stock has fared well, doubling so far in 2003. But if you want to buy in, UnitedHealthcare (NYSE: UNH) beat you to it. Last week, the company announced that it would be acquiring Mid Atlantic in a cash and stock transaction.

The sector has been diagnosed with a severe case of consolidation as Anthem (NYSE: ATH) revealed on the same day that it would be acquiring fellow health insurer WellPoint Health Networks (NYSE: WLP).

Investors stand to gain in two ways from all this. For starters, fewer companies means more bargaining power for the remaining HMOs. You also have the whiff of buyout speculation that might propel companies like CIGNA (NYSE: CI), PacifiCare Health System (NYSE: PHS), or recent offering Molina Healthcare (NYSE: MOH) higher.

(Of course, if more bargaining power leads to even higher prices for consumers, then perhaps you should read our nine ways to cut health-care costs.)

Yes, these are healthy times for the managed-care specialists. Whatever it is that the sector has caught, let's hope that it's contagious.