PacifiCare CEO Predicts Profits Will Bounce Back
PacifiCare Health Systems Inc.’s declining profits should rebound within a year to levels achieved before the company’s $2.1-billion acquisition of rival FHP International Inc., Chief Executive Alan Hoops said Wednesday.
“We won’t be able to recover to where we thought we were going to be in one year. But I think we’re going back where we were before the merger, roughly speaking, in about a year,” Hoops told the Bloomberg Forum.
The Santa Ana-based health insurer, which provides coverage to about 4 million people in 15 states, saw its earnings plummet in the second quarter because of higher-than-expected medical costs resulting from the acquisition of FHP.
Profit from operations for the quarter ended June 30 dropped to $25 million, or 54 cents a share, from $36 million, or $1.15 a share, a year earlier. Revenue during the quarter climbed to $2.38 billion from $1.19 billion during the same quarter in 1996.
Industry analysts are expecting the company to post earnings of 67 cents a share for the third quarter and $2.85 for the year.
Shares of PacifiCare on Thursday fell 81 cents to $70.44 on trading of 627,000 shares, compared with recent average daily volume of 458,000 shares.
The company plans to increase its market share in the United States and expand its Medicare business, Hoops said, referring to the federal government health program for the elderly.
PacifiCare already has enrolled 20% of the 5 million senior citizens who have chosen to sign up with an HMO as an alternative to traditional fee-for-service Medicare.
Medicare, which covers 38 million elderly and disabled Americans, is expected to make even greater use of private health insurance alternatives as a result of legislation enacted in August.
The new law cuts the growth in future Medicare payments to HMOs, while boosting Medicare HMO payments in low-cost rural areas to attract health plans to those parts of the country. It also expands the types of health insurance plans that will be available to Medicare beneficiaries while placing greater emphasis on giving senior citizens information about choices of private health plans.
Even with more competition in Medicare from insurers, Hoops says PacifiCare will probably experience 5% to 10% growth in its Medicare enrollment in 1998. “The result of legislation just passed is basically going to be growth in HMOs in Medicare.”
Separately, he predicted the company would raise its premiums by an average of 4% to 6% next year.
