PacifiCare Cuts 1,300 Jobs, Expects to Offer New Plans
PacifiCare Health Systems yesterday announced it would cut 15% of its workforce -- or 1,300 jobs -- as part of a "profit improvement program," the Los Angeles Times reports. Under the restructuring, computer services will be outsourced to IBM Corp. and Keane Inc., a move that is expected to save PacifiCare $80 million to $90 million annually. Also yesterday, PacifiCare announced it would launch an "aggressive" marketing campaign to separate its health plans from those of its competitors. In addition, the firm plans to offer new health care products, which may allow it to make new hires, according to a company spokesperson. The Times reports that many analysts say the moves reflect difficulties across the managed care industry, which is facing a "revolt" against low payments and "tightly controlled care standards." For example, PacifiCare has "struggled" to control increasing medical costs in contract negotiations with doctors, who are fighting for fee-for-service reimbursement rather than capitation payments that may not "reflect the true cost of care."
Kirby Bosley, a principal at the William M. Mercer health care consulting firm, said PacifiCare's restructuring "is another example of how the [managed care] industry is under tremendous pressure from Wall Street to perform. Every health plan is looking for every opportunity to achieve administrative efficiencies" (White, Los Angeles Times, 1/3). For the recently ended fourth quarter, PacifiCare will take a pretax charge of $60 million that will result in an unspecified loss for the quarter. By comparison, for the fourth quarter of 2000, PacifiCare had a net income of $12 million on an operating revenue of $2.94 billion (Wall Street Journal, 1/3). However, the company does expect a profit in 2002 of $3.55 to $3.65 a share (Bloomberg News/Dallas Morning News, 1/3). The firm's stock yesterday closed up eight cents at $16.08 (Wall Street Journal, 1/3).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.