Business Week Chronicles PacifiCare’s Struggles
This week's Business Week details the problems facing financially ailing Santa Ana-based PacifiCare Health Systems Inc., which runs the nation's largest Medicare HMO. With four million members in nine states, PacifiCare has been struggling with rising medical costs, several lawsuits and a change in leadership during the last year. Business Week reports that PacifiCare's problems stem largely from a 1990s push into the Medicare market. The move "quadrupled" the number of senior members, leaving PacifiCare with one million members on Medicare. In 1997, the federal government cut reimbursement rates for Medicare, causing a drop in the company's earnings. In addition, PacifiCare has been hit by two shareholder lawsuits, and its Medicare HMO, Secure Horizons, is also being sued by eight Texas seniors who claim the HMO promised they could continue seeing their existing doctors when they signed on, only to reassign them to a different doctor. Further, the Texas Insurance Department placed PacifiCare under administrative oversight in November, citing "slow payments" and "accessibility and continuity of care."
Following the October departure of CEO Robert O'Leary, who ran the company for just three months, PacifiCare is now headed by Howard Phanstiel, former CFO at Wellpoint Health Networks Inc. Under Phanstiel's guidance, PacifiCare froze new enrollment of senior citizens in 41 of the 101 counties it serves on Nov. 10. One month later, the company cut about 6% of its workforce. Phanstiel admits that he faces "a couple of very tough years before we can get the company straightened out." He also noted the company made "certain mistakes" in Texas, saying the company was "a bit naive" in not changing from its capitation payment model earlier. However, Phanstiel sees some new opportunities for PacifiCare, including testing new products for pharmaceutical companies. In addition, some Texas officials "have warm things to say" about Phanstiel, who hopes those feelings will help the company lobby Congress and President-elect Bush, the former Texas governor, for reimbursement rate increases (Grover, Business Week, 1/8).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.