PacifiCare’s Debt Rating Is Lowered by Moody’s

Moody’s Investors Service has lowered the debt ratings on PacifiCare Health Systems Inc. of Santa Ana to Ba1 from Baa3 based on concerns that borrowings will raise debt levels substantially at a time when the company’s business risks are increasing.

In taking the action Friday, Moody’s cited the company’s recent decision to authorize a new program to repurchase 12 million shares and its plans to acquire a struggling health plan in Texas as reasons for concern.

PacifiCare, a managed-care company, said last week that federal authorities are investigating whether one of its health plans overbilled the health insurance program for federal government employees.

The investigation by the Department of Justice focuses on TakeCare Inc.’s billings for 1990 through 1994, according to the company’s recent quarterly filing with the Securities and Exchange Commission.

PacifiCare bought TakeCare, a Northern California health maintenance organization, in 1997.

PacifiCare’s subsidiaries contract with the federal government to provide managed health care services to federal employees. The federal Office of Personnel Management conducts an audit every three to five years to check that the health plans’ premiums are following the program’s rules.

PacifiCare denied any intentional wrongdoing, adding that it disagrees with the government’s interpretation of the applicable rules and guidelines and its method of calculating amounts owed.

But the company said it is negotiating to “settle this matter amicably.”