PacifiCare Posts Increases in Quarterly Profit, Revenue

PacifiCare Health Systems Inc., the nation’s largest Medicare health maintenance organization operator, said Tuesday that its profit rose slightly and its revenue grew 12% in the first quarter as the company battled rising medical costs.

The Santa Ana managed-care company, which runs the Secure Horizons HMO for seniors, said it earned $74.6 million, or $2.04 a share, compared with $74 million, or $1.61 a share, earned in last year’s first quarter. Revenue rose to $2.8 billion from $2.5 billion.

The company’s per-share earnings were well ahead of the $1.70 average estimate of analysts polled by First Call/Thomson Financial.

PacifiCare and other health insurers are trying to hold down costs as new medical technology and drugs are being introduced. It also is cutting participation in plans serving Medicare because the federal government is trying to hold down insurer payments.

“They did an exceptional job in adjusting their Medicare benefits structure to properly reflect the premium increases that the Medicare program granted them,” said Todd Richter, an analyst with Banc of America Securities.

The company’s stock gained $1.81 a share to close Tuesday at $56.38 in Nasdaq trading.

PacifiCare executives are confident about the company’s prospects and its ability to deliver a growth in earnings.

In a conference call Tuesday, the company’s chief executive, Alan Hoops, said PacifiCare continues to boost its revenue and earnings, aided by higher premiums, increased membership, improved efficiency, a buyback program and new business opportunities such as its e-commerce venture.

PacifiCare forecasts a 25% increase in earnings per share for the year from the $6.23 a share it posted a year ago, said Mary Langsdorf, the interim chief financial officer.

PacifiCare won’t alter its health care model based on which administration is elected into office in the coming presidential election, Hoops said.

“The focus of most attention is on the patients’ bill of rights,” and PacifiCare’s HMOs cover most of the requirements under that plan, Hoops told CNBC on Tuesday.

Hoops said that PacifiCare’s health care model is designed to “empower physicians,” and not influence the kind of care they give.

“As long as we can maintain that kind of autonomy between patient and doctor, I think we are going to do just fine as far as legislation,” said Hoops, who believes the trend toward health care privatization will continue.

Wall Street, however, hasn’t lavished a lot of praise on the company. The stock, which had traded at more than $100 a share last year, hit a low of $31.13 a share in October and has gained 6.4% so far this year.

Analysts say the company has stuck to an old HMO model that pays physician groups a set amount monthly for patient treatment, regardless of how much treatment patients need. The so-called capitation method has come under increasing fire as a cost-saving measure that can impair medical service.

PacifiCare has the strictest controls on payments in the industry, but it has pulled back somewhat from its reliance on capitation and is offering to pay for more hospitalization and drug costs.

But such a change was too little and too late for UCI Medical Center in Orange. It said last week that it will drop PacifiCare’s medical plans because the fees are so low they don’t cover medical expenses, and the hospital is losing more than $1 million a year.