PacifiCare Announces Elimination of About 550 Jobs

PacifiCare Health Systems Inc., the nation’s largest provider of Medicare health plans, said Wednesday that it will cut about 550 jobs and take a charge of $15 million to $17 million as it struggles to cut costs.

PacifiCare said the cuts, about 6% of its work force, will be made beginning Jan. 2 in its corporate headquarters in Santa Ana and in regional health-plan offices.

The charge, about 24 to 28 cents a share, will be recorded in the fourth quarter.

Before the announcement, analysts surveyed by First Call/Thomson Financial expected PacifiCare to earn 20 cents a share on an operating basis in the quarter, down from $1.59 a share a year earlier.

PacifiCare shares, which have fallen 64% this quarter as the company struggles with rising medical reimbursement costs, closed at $12.38, up 38 cents on Nasdaq.

PacifiCare said more than half of the staff cuts are in marketing and sales of its Medicare managed-care plan. The move followed the company’s decision last month to limit new enrollment in about 40% of its Medicare markets next year because of rising health-care costs and low federal funding.

PacifiCare has attributed the bulk of its financial woes to rising medical costs related to the company’s transition in its business model from capitated, or fixed-payment, contracts to shared-risk arrangements with hospitals.

Under a capitation system, costs are more predictable for managed-care companies because they pay a predetermined fee to hospitals or doctors regardless of the final cost of a patient’s care. Under a shared-risk contract, the insurance companies pay fees after medical costs are incurred.

PacifiCare cited higher medical costs as well as inadequate federal reimbursement for last month’s move freezing enrollment in its Medicare program in 41 counties in California and elsewhere.

Reuters and Bloomberg News were used in compiling this report.