PacifiCare Curbs Costs to Counter Medicare

PacifiCare Health Systems Inc. on Monday said it expects to hold its medical costs steady as a share of Medicare premium income as it cuts costs to counter limits on payment growth for Medicare health maintenance organizations.

The Santa Ana-based managed health-care company said it expects to have a medical cost ratio of 86.4% for its Medicare HMOs in 1999, about the same as the 86.3% that it expects for this year.

PacifiCare is the biggest operator of Medicare HMO plans. The 1997 balanced-budget law reduced the growth of Medicare payments by about $20 billion from what was expected over five years. PacifiCare, like many other managed-care companies, is trying to hold down its costs enough to continue making money from Medicare.

“This is a business that allows for health care to be managed,” said Alan Hoops, PacifiCare chief executive, at a meeting of investors in New York. “If you are in the health-care business, and in the managed health-care business, it’s pretty hard to say no completely to Medicare.”

PacifiCare shares fell $4.25 to close at $75.31 in a broad sell-off on Nasdaq.

The company said it’s expecting earnings per share to increase by an amount in the mid-20% range next year over this year. About 11% of the boost in earnings will come from Medicare, with about 81% expected to come from commercial managed-care plans and the rest from items such as interest payment reduction.

PacifiCare is expected to earn $4.49 a share this year and $5.30 next year, based on the average estimate of analysts polled by First Call Corp. Hoops said the company expects fourth-quarter earnings for this year to be in line with analyst expectations of about $1.17 a share.

PacifiCare expects to see its Medicare premiums rise by about 2% next year.