Molina Posts Loss of $4.7 Million in Quarter

Blaming unforeseen rises in medical costs, Long Beach-based Molina Healthcare Inc. on Monday reported a loss of $4.7 million for the second quarter, sharply lower from a profit of $12 million during the same period last year.

The loss was no surprise. In late July, the fast-growing HMO had warned investors it would report weaker-than-expected results during the quarter and cut its earning forecasts for 2005 by 70%, causing its shares, which had been trading around $45, to plummet 43% in one day.

On Monday the company’s stock closed down 58 cents at $24.12 before the earnings report. Molina stock had risen more than 160% since it went public in 2003.

For the quarter, the company -- one of the nation’s largest HMOs specializing in contracts with Medicaid, known as Medi-Cal in California -- reported a loss of 17 cents a share, contrasted with a profit of $12 million, or 43 cents, for the quarter ended June 30.

The 25-year-old firm blamed the weak results on higher hospital costs because of increased membership in areas with less than desirable hospital contracts and increased incidents of catastrophic cases costing more than $100,000.

Molina executives also blamed increased maternity care costs in Michigan, and increased incidence of a flu-like illness in Washington state.

“While I am disappointed by our recent financial results, I am not discouraged. We have identified factors that increased our medical costs and have already undertaken additional measures intended to better manage those costs,” said Dr. J. Mario Molina, the company’s president and chief executive and son of its founder. “We can’t recall ever having a quarter like this. This is unusual.”

But in a conference call with company management, analysts on Monday told Molina they were concerned that many medical costs that hurt the company in the second quarter also would be a problem in the third quarter. Molina executives agreed that costs for catastrophic care and maternity cases could continue to be a problem, but said they hoped costs because of the flu would not continue in the next three months.

The company is trying to renegotiate its contracts with hospitals, work with physicians to lower costs and pursue higher premiums from state authorities.

Molina said the company was working to speed up the payment process and may open new healthcare facilities outside California. Molina operates in 21 clinics in the state as a way to lower its costs in providing care.

But Molina executives said the benefit from these efforts might take time.

On Monday, Molina reaffirmed the full-year earnings projection the company issued in late July, when it slashed its per-share net income forecast for 2005 to 73 cents to 80 cents, down from a previous forecast of $2.40 to $2.45.

Although Molina and other Medicaid HMOs charge prices set by government contracts, limiting their ability to increase revenue when claims increase, Wall Street has traditionally liked these stocks because the people eligible for Medicaid is only expected to grow.

Indeed, despite the loss, revenue for the quarter at Molina rose 62% to $400 million because of rising enrollment, compared with $247.5 million a year earlier.