PacifiCare to Cut Loose 26,600 Medicare Patients
PacifiCare Health Systems, which owns the nation’s largest managed-care plan for Medicare recipients, said Wednesday it will drop 26,600 members who live in what it says are unprofitable regions and will raise prices and lower benefits for the nearly 1 million Medicare members who remain.
With its announcement, which brings the total to 69,000 seniors PacifiCare has jettisoned from its Medicare plan since 1998, the company is joining most of the nation’s other HMOs who collectively are planning to drop 700,000 members in 2001, while raising premiums and co-payments for members who are retained.
Santa Ana-based PacifiCare said it will exit markets in which federal reimbursement for Medicare members does not provide substantial income, 15 mostly rural counties in Arizona, Colorado, Kentucky, Ohio, Texas and Washington state. None of its cuts will be in California, PacifiCare’s biggest market.
Not surprisingly, the planned withdrawal raised concern from advocates for consumers and the elderly.
“When a big organization like PacifiCare pulls out of a market, it’s quite likely that no one else is there” to pick up the patients who are dropped, said Pat Luby, legislative representative with the American Assn. of Retired Persons. Withdrawing from Medicare might be just a business decision to a company, he said, but it has a serious impact on the life and health of members, many of whom were drawn to health maintenance organizations because they promised higher benefits and lower costs than traditional Medicare.
PacifiCare gets about 60% of its revenue from the federal entitlement program, which it markets under the name Secure Horizons, and has repeatedly stressed its commitment to remaining in those Medicare markets where it can make a profit. The company posted 1999 sales of about $10 billion.
But the company’s stock, which has been ravaged over the last two years as investors questioned that strategy, had dropped 26% since early June over concerns about Medicare, and shares fell $3.44, or 6%, to close at $51.88 Wednesday on Nasdaq.
“The market is afraid that Medicare is a bad business, and that PacifiCare is too deeply into it to either see it or do anything about it,” said health-care analyst Todd Richter, a managing director of Banc of America Securities in New York. By contrast, he said, Cigna Corp. will shut down nearly all of its Medicare managed-care business Jan. 1, the date it will be legal to leave the market for 2001, and Aetna Inc. will close about half.
PacifiCare is exiting mostly rural and suburban areas, where federal reimbursements for Medicare managed-care are significantly lower than they are in large cities.
“I’m afraid that the politics associated with Medicare will result in it becoming an urban program,” said Alan Hoops, who will retire next month as PacifiCare’s president and chief executive.
In urban areas, Hoops said, not only does Medicare pay more, but politicians have the clout to make sure that their constituents are not dumped from the popular program.
“We should be able to maintain this program for the long run,” Hoops said. “What I can’t tell you is whether we will be able to grow the program for the long run.”
That, too, is of concern to Wall Street, according to Richter.
“If something that represents that much of their business is not going to be a growth vehicle for them, then how do they grow?” Richter questioned.
Hoops said that PacifiCare would raise premiums and co-payments and reduce benefits for those seniors who remain in the program. He said the company would release specifics on the rate hikes and benefit cuts in September.
Last week, several other HMOs said they would also hike premiums and co-payments and reduce the pharmaceutical coverage enjoyed by seniors in their plans.
