PacifiCare CEO Plans to Retire by Spring 2001
Capping a six-month period of turmoil in the top ranks of the nation’s largest Medicare health maintenance organization, PacifiCare Health Systems Inc. President and Chief Executive Alan R. Hoops announced Thursday plans to retire by spring 2001.
The retirement, which Hoops described as “not a tough decision” for either himself or the board to reach, comes after a two-year pummeling of PacifiCare’s stock and the disenchantment of Wall Street with key elements of the 4-million member health plan’s business model.
Changing that perspective, he said, is a long-term job best left for a wholly new management team.
“I’ve been with PacifiCare for about 20 years, and I’ve been CEO for about eight and have essentially completed what I want to do . . . which was to create a $10-billion company and create what I thought would be a lasting franchise,” Hoops said. During his tenure, Santa Ana-based PacifiCare also became the nation’s largest HMO for seniors through its Secure Horizons plan, which has 1.1 million members.
Hoops’ departure will leave three of the company’s top positions open, giving the board the opportunity to name new leadership.
Over the last six months, PacifiCare has lost its chief financial officer, demoted its chief operating officer and now will lose Hoops, who was himself stripped of the chairman title last fall. At the same time, company management embarked on a plan to expand its non-Medicare businesses and laid off hundreds of workers in California and other states.
All the while, the company has managed to improve its bottom line, posting earnings of $66.4 million, or $1.59 per share, for the quarter ended Dec. 31, up 35% over the previous year. The per-share results beat analysts’ estimates of $1.52. Revenue rose 9.4% to $2.56 billion from $2.34 billion.
The company, which recovered from losses in 1997 to a slim profit last year, reported $278 million in net income for the 12 months ended Dec. 31, up significantly from $197 million in 1998.
That the financial turnaround has not translated into a higher stock price has been a source of frustration for Hoops and a point of contention between the management team and some members of the company’s board.
The reasons lie in two key areas of the company’s business. Investors are wary of PacifiCare’s continued involvement in the Medicare business after the federal government reduced funding for the program, which serves the elderly.
In addition, PacifiCare continues to cling to a method of paying doctors called capitation, in which providers receive a set monthly fee to pay for all aspects of patient care. Capitation is believed to be at the root of many of the financial problems facing medical groups and hospitals.
A struggle has been going on for months between those who wish to see PacifiCare continue as an HMO heavily reliant on Medicare business and those who want to maximize shareholder value by selling the company or expanding into other lines of business, according to sources close to the company.
Under those circumstances, Hoops’ planned retirement does not come as a surprise, said industry analyst Todd Richter of Banc of America Securities.
“At some point, you throw up your hands and say it’s not fun anymore,” Richter said.
PacifiCare stock fell 6 cents to close at $43.75 on Nasdaq.
