PacifiCare Posts 4th-Quarter Loss
Two of California’s largest health insurers reported divergent fourth-quarter financial results Wednesday, illustrating how some HMO operators are coping better than others with cost pressures and restructuring that are roiling the industry.
PacifiCare Health Systems Inc. took a $59.4-million charge in the fourth quarter due to a restructuring, resulting in a loss of $26.4 million, or 77 cents a share, compared with net income of $12 million, or 35 cents, a year earlier.
Santa Ana-based PacifiCare said profit would have been $11.8 million, or 34 cents a share, without the restructuring expense.
Health Net Inc. reported fourth-quarter profit rose 21% as it added customers and cut costs and debt. Net income was $55.9 million, or 45 cents a share, versus $46.2 million, or 37 cents a year ago. Woodland Hills-based Health Net’s revenue also rose 5.3% to $2.48 billion from $2.36 billion.
PacifiCare last month said it was cutting 1,300 jobs to reduce costs as it struggled to meet rising medical costs. It said it expects the restructuring to save it $80 million to $90million a year.
Revenue for the nation’s biggest operator of Medicare plans fell 3.3% to $2.88 billion. The company also experienced a membership decline as it dropped unprofitable businesses and ended relations with some medical care providers.
The company said it expects to earn $3.55 to $3.65 a share in 2002.
PacifiCare continues to face “some serious strategic issues,” said Fox Pitt Kelton analyst Greg Crawford.
“The shift ... to a shared-risk model [in which doctors and hospitals are paid more and the insurer assumes more risk of losses] is necessary in many of its markets,” Crawford said. “But it’s also fraught with danger....You can never plan for every contingency. It’s almost impossible to predict.”
This week, the Texas attorney general’s office sued PacifiCare of Texas Inc. for not paying “tens of millions of dollars” in back claims for three physician groups in its network that filed for bankruptcy protection. PacifiCare denied any wrongdoing and said it will fight the lawsuit.
PacifiCare announced its results after the market closed. The shares fell 58 cents to $18.09 on Nasdaq.
In a sense, Health Net also is reinventing itself. Both companies are seeking more diversified and profitable business. But Health Net, which has a much smaller reliance on HMO business, is operating with less of a sense of urgency and from a much better position of strength, health care and financial analysts said.
Health Net also cut jobs and shed unprofitable businesses last year, but its own turnaround is much further along than PacifiCare’s, analysts said.
Health Net executives forecast a 2002 profit of $2.05 to $2.10 a share and said that first-quarter profit is now expected to be slightly higher than previously believed, offering a prediction or guidance of 46 cents instead of 44 cents a share.
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Health Net stock closed at $24.03, up 28 cents on the New York Stock Exchange.
