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WellPoint Posts 20% Profit Gain

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Times Staff Writer

WellPoint Inc., the nation’s largest health insurer with more than 7 million members in California, saw first-quarter profit rise 20% on the heels of acquisitions and growing membership, the company said Wednesday.

The report, however, gave more fodder to consumer and doctor groups who say the industry’s rising profitability is due to a consolidation trend that is pushing up premiums and lowering compensation for physicians.

Indianapolis-based WellPoint, which operates Blue Cross of California and Blue Cross Life and Health in the state, said profit for the first quarter ended March 31 rose to $731.8 million, or $1.09 a share, from $611.7 million, or 98 cents, a year earlier.

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WellPoint credited its higher earnings to lower medical costs and higher revenue from growing membership. Revenue rose 26% to $13.8 billion, as membership in its plans grew to 34.2 million from 28.5 million a year earlier.

Despite beating analysts’ earnings estimates by 2 cents a share, the company’s stock continued its monthlong decline, closing down 30 cents at $70.44.

After Wednesday’s earnings report, some analysts echoed earlier fears that WellPoint’s growing profit can’t be sustained because of rising costs and an inevitable slowdown of its acquisitions as the industry becomes more concentrated.

Others were more optimistic.

“We believe that this dynamic is just getting started,” David H. Shove, a Prudential Equity Group analyst, told investors in a report. “We expect medical loss ratios to drop sharply throughout this year, lifting earnings well above expectations.”

Most of WellPoint’s recent membership growth came from the acquisition late last year of New York-based WellChoice, which had 4.8 million members.

WellPoint itself was formed in 2004, when Indianapolis-based Anthem Inc. bought Thousand Oaks-based WellPoint Health Networks Inc.

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On Wednesday, the company announced that it was planning to buy yet another business, Cleveland-based QualChoice Health Plan Inc.’s Medicaid unit. The unit has 68,000 members in the government-funded health insurance program for the poor.

After the acquisition, QualChoice will phase out its individual and commercial health plans and endorse WellPoint’s products, according to the pending agreement.

WellPoint’s acquisition spree, part of a larger consolidation trend in the industry, has worried doctors and consumer groups who say it is driving out competition and boosting profits at the expense of physician compensation and lower premiums.

California regulators are investigating allegations that WellPoint’s Blue Cross plans illegally canceled policies of members after they became ill and represented a drain on the company’s bottom line. WellPoint has denied the charges.

WellPoint officials Wednesday credited the company’s higher profit to its ability to keep costs down.

“WellPoint today is delivering more value to our members than ever before while helping to hold down the rising costs of health care,” Chairman and Chief Executive Larry C. Glasscock said in a statement. He later told analysts during a conference call that his company had met or exceeded its earnings forecast for 18 consecutive quarters.

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The company continued its upbeat outlook with an earnings forecast for 2006 of $4.63 a share, up from the earlier estimate of $4.54. In 2005, the company reported net income of $2.46 billion, or $3.94 a share.

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