PacifiCare to Cut 1,300 Jobs in ‘Profit Improvement’ Plan
Continuing its turnaround efforts, PacifiCare Health Systems Inc. announced a “profit improvement program” Wednesday, including a 15% reduction in its current work force that will eliminate 1,300 jobs, mostly in the first quarter of this year.
How many of those layoffs would occur at its Santa Ana headquarters was not known Wednesday, but a spokesman said the company should have more information by the time it holds its earnings forecast meeting next month.
Some of the job cuts and cost savings will result from outsourcing its computer services to IBM Corp. and Keane Inc. PacifiCare said the restructuring would result in savings of $80 million to $90 million a year.
PacifiCare also raised its earnings forecast for 2002 to $3.55 to $3.65 a share, including $1.60 from an accounting change related to goodwill. Analysts surveyed by Thomson Financial/First Call expect PacifiCare to earn $1.83, not including the accounting change.
The company also announced an aggressive marketing campaign designed to distinguish its products from those of competitors.
A company spokesman also said that new health-care plans the company expects to roll out this year may allow it to make new hires.
Initial reaction on Wall Street appeared to be positive as PacifiCare’s stock price rose as high as $17.90 in after-hours trading, up 12%, from its close of $16.08 on Nasdaq.
“This is another example of how the [managed-care] industry is under tremendous pressure from Wall Street to perform,” said Kirby G. Bosley, a principal at the William M. Mercer health-care consulting firm. “Every health plan is looking for every opportunity to achieve administrative efficiencies. They are undergoing a period of self-examination and trying to define for themselves and for the marketplace just who they are.”
PacifiCare is one of the nation’s largest managed-care companies and the biggest operator of Medicare health plans.
Many observers said Wednesday that its moves are symptomatic of the struggling managed-care industry and represent a general revolt against tightly controlled care standards and low payments for the care they do provide.
“These companies are under tremendous pressure from [consumers], from state legislators and Congress to help consumers get the care they want,” said William Pierskalla, a professor and former dean at UCLA’s Anderson business school. “And on the other side, health-care providers are saying that they can’t continue to contract for low payments.”
PacifiCare has struggled to control increasing medical costs in renegotiating contracts with doctors and hospitals in California to reflect the true cost of care rather than the standard fixed monthly payments for those services.
They “face tough choices about which providers and which markets they serve, particularly with regard to Medicare HMOs,” Bosley said.
Several Medicare HMOs faced considerable legislative heat last month for some of those market choices. State Sen. Jackie Speier (D-Hillsborough), chairwoman of the Senate Committee on Insurance, accused them of “redlining” to avoid certain areas where patient expenses are too high.
At the time, Nancy Monk, vice president of public affairs for PacifiCare, denied the charges and blamed the federal government for under-funding the Medicare HMO program.
“We just can’t afford it anymore,” Monk told legislators. “We have to cover what we can cover with the funding we’ve got.”
