High Use of Services May Lower PacifiCare’s Profit

Times Staff Writer

Blaming an unexpected high use of its services, PacifiCare Health Systems in Cypress said Friday that it will probably post a profit of less than $300,000 for its second quarter ended March 31, significantly lower than the $1.2 million that the company had expected earlier.

Increases in several areas--hospitalizations for catastrophic injuries or procedures, prescription drugs and care for senior citizens--were “extraordinary” based on the company’s actuarial and historical data, according to John B. Siefker, senior vice president and chief financial officer.

The health maintenance organization, with 150,000 members in Southern California, earned $1.4 million, or 29 cents a share, in last year’s second quarter.

Wall Street analysts anticipated that the 8-year-old HMO, which went public last May, would earn 20 cents a share in the second quarter, Siefker said. But he added that the earnings will be “less than a nickel.”


Complete financial information is slated to be released around May 1.

“My sense of the company is that it’s well run and that this (higher-than-expected use of services) is a short-term phenomena,” said Larry Selwitz, a securities analyst with Bateman Eichler, Hill Richards Inc. in Los Angeles.

“For PacifiCare, this (higher usage) is unique, but it has happened to nearly every HMO in the last few years,” Selwitz said. “One ought not be surprised if it happens one time. It becomes a very sobering experience.”

In the last quarter, PacifiCare members had a high incidence of premature births, severe burns, and heart and brain surgeries, the analyst said. “Its sub-catastrophic hospitalizations--those involving costs of $20,000 to $50,000 each--also were higher than expected last quarter,” he said.


More members also used the HMO’s prescription drug program, a situation that Siefker said may take the company a few quarters to correct by reviewing its contracts with health care providers and working with doctors. As a last resort, the company could raise members’ prescription fees, he said.

PacifiCare’s senior citizen program, which relies on federal Medicare reimbursements, also fell below the company’s expectations. The HMO was trying to enlist a majority of elderly members from Los Angeles and Orange counties, where the government pays an average of $300 a month per patient in medical reimbursements. Instead, about half the elderly members so far have come from San Diego, where the government pays an average of only $200 a month per patient in reimbursements.