HealthCare Reveals Quarterly Loss : Santa Ana-Based Firm Will Cancel Expansion Plans
HealthCare USA, which sold its hospital operations last spring to concentrate on its health maintenance organization business, said Thursday that expansion costs and unexpected increases in medical costs will result in an operating loss for the three months ended Sept. 30.
The Santa Ana-based company, which changed its name last April from Greatwest Hospitals Inc., declined to discuss the size of the loss and said it will announce results for the quarter by mid-November.
Harlan W. Loomas, HealthCare’s chairman and chief executive officer, said the company’s expansion plans have been canceled because of the “disappointing” quarter.
The loss comes during a year in which the company sold its money-losing hospital operation to American Healthcare Management Inc. of Dallas; acquired Independence Health Plan, a southeast Michigan HMO; embarked on an aggressive national program to open new HMOs, and saw an inexplicable jump in the price of its shares on the New York Stock Exchange.
“It has taken longer and has been more costly to digest all these changes than we had expected,” Loomas said. “Because of our disappointing results, we have curtailed national development while we reassess our strategic position, and we will be implementing a number of cost-containment programs designed to improve results of operations.”
HealthCare said it hopes to cut costs by halting plans to form four new HMOs each year. It has already opened new programs in Phoenix and in the Toledo, Ohio, area but said it will not expand further this year. Plans to offer coverage for dental, vision and pharmacy needs also were put on hold, though existing coverage will remain in place. HealthCare also operates, but does not own, a 10,000-member HMO plan in Hawaii and a joint-venture HMO in Lexington, Ky.
Loomas said the situation has been aggravated by unanticipated increases in medical costs in the company’s two major plans, the 90,000-member General Medical Centers in Southern California and the 120,000-member Independence program in Michigan.
However, membership in Independence and General Medical is increasing at an average of 30% a year, he said, and the company expects to focus its energies on those two growing businesses to return the company to profitability in 1986.
The company also is changing its fiscal year-end from Sept. 30 to Dec. 31 and will report year-end results in early 1986.
Last April, HealthCare sold its hospital operation for $88 million, realizing net cash proceeds of about $45 million. The sale, however, resulted in a $3.4-million loss, reflecting write-offs of certain mortgage debts and provisions for future costs related to the sale.
In May, HealthCare, which had purchased 51% of Independence the previous fall, acquired the remaining shares of the Michigan HMO for nearly $60 million. The total acquisition cost was about $120 million.
During the third quarter, the company acknowledged receiving a number of inquiries about possible mergers or acquisitions, but Loomas said no deal is in the works.
A one-week jump in HealthCare’s stock price in September prompted a stock exchange official to call Loomas for an explanation, but Loomas said he did not know why the stock rose from $16.13 on Sept. 15 to $19.63 on Sept. 19. At the close of business Thursday, the price was down to $10.87, a Loomas aide said.
