PACIFICARE: CEO Retirement Signifies Growing Problems

      PacifiCare Health Systems announced yesterday net-income growth for the fiscal year of 38% -- after raising premiums and eliminating some unprofitable operations, but concerns about growth prospects persist, yesterday's Wall Street Journal reports. Despite the growth, the firm's stock has "languished" because of worries about rising health care costs and "stingier" Medicare reimbursements, frustrating shareholders and motivating top executives to look for greener pastures (Rundle, Wall Street Journal, 2/11). Notably, the announcement coincided with the retirement announcement of CEO Alan Hoops, who "helped build PacifiCare over the past 23 years." Last year Hoops was "celebrating a financial turnaround" and seeking to expand PacifiCare's involvement in the Medicare market, which already accounted for about 60% of its business. Reimbursement adjustments implemented after Congress passed the Balance Budget Act in 1997, however, "cut short" the company's growth as a Medicare provider. In addition, PacifiCare's new business model of pushing management burdens and financial risks on providers is "looking shaky" as many hospitals and doctors shun the system. The company, which operates Secure Horizons, the nation's largest HMO for seniors, "is taking steps to bolster its business," starting with last month's decision to cut prescription drug benefits for some regions. PacifiCare also began charging some members a $20 premium for health coverage, a move which resulted in defections to competitors in California and Texas. In hopes of capitalizing on its brand name, the health plan is also focusing on direct consumer marketing to sell products and services to seniors, who easily recognize the Secure Horizons name. Also, new Internet ventures are in the works, and the company already has launched one of the first HMO plans to be sold online. PacifiCare's Vice President and Corporate Medical Director Sam Ho called the adjustments an "evolved model" (Rundle, Wall Street Journal, 2/10). Hoops concluded, "PacifiCare is a successful business with a deep-business franchise," adding that changes in the health care industry call for long term solutions (Rundle, 2/11).