PacifiCare Quarterly Earnings Rise 80%
PacifiCare Health Systems reported Wednesday that it posted quarterly earnings of $7 million, a hefty 80% increase over the corresponding period last year.
Revenue for the fiscal second quarter ended March 31 grew 22% to $302.1 million, up from $245.2 million a year earlier. David Erickson, a company spokesman, attributed the earnings improvement primarily to increased premiums and unusually low hospital utilization rates.
The company, which owns and operates health maintenance organizations in five states, California among them, has raised the rates it charges companies and other large contractors by an average of 9% since last year, Erickson said.
Subscribers’ use of PacifiCare hospitals was down about 8% for the last quarter, he said.
Total membership, meanwhile, increased about 10% over a year ago, to 703,205 members.
Those factors, Erickson said, more than offset the drag on profits caused by an only minimal increase in Medicare reimbursements and increased Medicare prescription drug costs.
“The second quarter was a pleasant surprise for us,” Erickson said. “This was the first quarter with the impact of the new Medicare rates, and there was some concern in the investment community about our profitability in this quarter and in the next 12 months.”
PacifiCare was able to absorb the virtually flat Medicare reimbursement rates because the company’s contract doctors and hospitals receive a fixed percentage of Medicare patients’ premiums--thus tying increases in their own fees to government payment increases, Erickson said.
Kenneth S. Abramowitz, a health-care analyst with Sanford C. Bernstein investment firm in New York, said all HMOs experienced lower hospital-use rates recently because of a mild winter flu season.
PacifiCare stock closed Wednesday at $32, down $1 a share in over-the-counter trading.
The company had announced last week that it expected to post unusually high profits for the quarter, which set off a buying spree that pushed the stock up from $27 a share to a record $33 in three days of trading.
For the first six months of the current fiscal year, the company has earned $9.5 million on revenue of $581.3 million, contrasted with earnings of $6.8 million on revenue of $451.2 million for the first half of fiscal 1990.
