Kaiser Cuts Its Losses; Other HMOs Post Gains
Kaiser Permanente, the giant Oakland-based health plan, continued to lose money during the third quarter of 1999, but at a much slower rate than a year ago.
The losses, reported Tuesday, were stemmed in part by double-digit premium increases that took effect last January. Similar increases led to improved results for several for-profit health plans, including Cigna Corp. and Maxicare Health Plans Inc.
The improved results propelled sagging health-care stocks upward in trading Tuesday.
Kaiser, with about 6 million members in California, reported a net loss of $29 million for the three months ended Sept. 30. It had lost $89 million in the third quarter in 1998.
The nonprofit health maintenance organization actually lost $45 million on operations during the quarter, but part of that was offset by income from investments.
Kaiser blamed the losses on its failing divisions in New England and North Carolina, which are in the process of being sold.
Excluding those divisions, Kaiser officials said, the managed-care giant would have posted an operating income of $107 million.
“Our financial performance has improved significantly since last year, an indication that our efforts to turn the organization around are taking hold,” said Dale Crandall, executive vice president and chief financial officer.
David O’Grady, a Kaiser spokesman, credited a turnaround plan announced last February for the improved results, as well as the divestiture of several money-losing divisions.
Key to the plan were premium increases as well as a decision to postpone several capital improvement projects. The HMO also was able to save money by reducing the number of patients sent to non-Kaiser hospitals.
So far this year, Kaiser has lost about $9 million on operations, but in total posted a slim return of $81 million, due in large part to the investment income. By contrast, Kaiser had a net loss of $141 million by this time last year, and closed out 1998 with a net loss of $288 million.
Pat Macht, spokeswoman for the powerful California Public Employees’ Retirement System, or CalPERS, which carefully monitors Kaiser and other health plans, welcomed the news. But she said it was too soon to tell whether Kaiser would be able to sustain the improved returns.
If the HMO does not continue to improve its bottom line, Macht warned, consumers might be faced with premium increases beyond those already implemented for 1999 and 2000.
“I would call this a glimmer of hope, but far from enough to give the benefits-purchaser community something to bank on in the way of stable or declining premiums,” Macht said.
Kaiser still faces serious challenges, she said, including escalating costs of prescription drugs and other health-care-related inflation.
In the for-profit arena, several health-care stocks rose as Cigna, the third-largest U.S. health insurer, and Oxford Health Plans Inc., one of the biggest New York-area health insurers, reported higher third-quarter profits.
Cigna rose $5.25 to close at $78.63 and traded as high as $81.19, while Oxford Health rose $3 to close at $15.50. Both trade on the New York Stock Exchange.
Santa Ana-based PacifiCare Health Systems Inc., the No. 1 operator of Medicare HMOs, rose $3.13 to close at $43.75 on Nasdaq. Aetna Inc., the biggest U.S. health insurer, rose $3.06 to close at $55 on the NYSE.
WellPoint Health Networks Inc. of Thousand Oaks, one of California’s largest health insurers, rose $4.25 to close at $62.31 on the NYSE.
Maxicare, which has been struggling for several years, reported net income of $1.3 million, or 7 cents per share, for the three months ended Sept. 30, compared with net income of $600,000, or 4 cents, a year ago. Revenue fell to $178.1 million from $188.6 million.
The Los Angeles-based company’s stock rose 9 cents to close at $4 on Nasdaq.
Meanwhile, PacifiCare became the latest managed-care company to be sued under the state Consumer Legal Remedies Act for allegedly failing to disclose policies that seek to keep treatment costs down and encourage physicians to avoid referrals to specialists.
The suit, filed in San Francisco County Superior Court, seeks class-action status on behalf of California-based enrollees over the last four years. Aetna Inc. is facing a similar suit.
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HMOs Rebound
Health maintenance organization stocks have resurged on news of stronger earnings at key HMOs. The Morgan Stanley index of 12 HMO shares (weekly closes and latest):
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Tuesday: 217.61
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Source: Bloomberg News
