Struggling PacifiCare Fires 250 Employees, 80 in O.C.

PacifiCare Health Systems Inc., still struggling with last year’s acquisition of FHP International Inc., said Monday it is dismissing 250 employees in California, 10 other states and Guam.

The staff cuts, the second round since the FHP takeover, amount to 2.6% of PacifiCare’s work force of 9,800. In California, 80 employees, all at the company’s Santa Ana headquarters and Cypress office, will be dismissed.

For most, the layoffs are effective immediately. Some employees will stay on the job for up to six months.

The reductions at the health maintenance organization are the final step in the company’s effort to shed unprofitable business operations and control costs, said Susan Whyte Simon, a company spokeswoman.

“Certainly, we have plans in place to try to improve performance,” Simon said. “If we reach those goals, we’ll be in good shape.”

But Wall Street wasn’t impressed with the company’s efforts.

“This is a step in the right direction, but a small step,” said analyst Peter H. Costa at the Boston office of ABN AMRO Chicago Corp. “They need to do much more.”

PacifiCare’s stock, which was trading at $85 a share in March, has steadily dropped, especially since the company took over FHP operations and found profits elusive in various states. The stock lost 94 cents a share Monday to close at $49.50--its lowest point in two years.

Analysts say the company was surprised that FHP operations in some states performed so poorly. Those problems made PacifiCare’s normally reliable earnings estimates fall woefully short last year.

“This has been a very difficult consolidation for them,” said Thomas E. Hodapp, an analyst at BancAmerica Robertson Stephens brokerage in San Francisco.

And analysts don’t expect things to pick up soon. With premiums unlikely to rise more than 2% a year, HMOs like PacifiCare are going to have to squeeze money out of their expenses to make decent profits, Costa said.

“Most HMOs have become much more open structurally, like the typical health insurers,” he said. “As they become more open, they’re less able to control costs.”

Shareholders filed a lawsuit in Los Angeles late Monday alleging that the company misled investors about its financial health and lied about its ability to integrate FHP, knowingly or recklessly disregarding the poor performance of several FHP divisions. The suit seeks unspecified damages.

Commenting on the suit, Simon said: “We have every confidence that we can return to profitability and maintain a good relationship with our shareholders.”

PacifiCare took steps after the FHP acquisition in February to strengthen its position. It sold its health plans in Illinois and New Mexico and put its Utah operation on the market, though analysts wonder if it can be sold when the company expects 1997 losses to hit $40 million to $50 million.

The company also cut 700 employees from the merged total of 10,800. An additional 100 jobs were lost through attrition.

Simon acknowledged that “some plans are not performing as expected,” mainly because of a “mismatch” between premiums charged and services rendered.

But, she said, PacifiCare has been successful at retaining FHP members during contract renegotiations, revamping contract terms and converting the various business and computer systems to its own.

In its effort to streamline operations, Simon said, the company cut back on unprofitable products and services and took other cost-cutting measures before deciding on further staff reductions.

Among those to be dismissed in California are 35 sales and operating employees at Great States Insurance Co., which offers workers’ compensation insurance in four states from the company’s Santa Ana headquarters.

“We didn’t see a great deal of demand or growth for that business in California,” Simon said. The unit will continue to operate in Arizona, Colorado and Texas.