Pacificare Earnings Drop As Medicare Expenses Rise

Systems Inc. announced an 82% drop in fourth quarter income, the Wall Street Journal reports. The company cited increased costs for both its commercial and Medicare health plans for the earnings drop. In addition, changes in payments to doctors and hospitals resulted in a "higher utilization" of services by the health plan's members (Rundle, Wall Street Journal, 2/7). Doctors are also "demanding" new contracts with the company that would pay the actual cost of care instead of fixed fees per patient (Bloomberg News/Los Angeles Times, 2/7). With the industry facing "continuing uncertainty" over federal payments for Medicare, the company plans to diversify by increasing the number of PPO products it offers. In addition, PacifiCare intends to offer supplemental Medicare insurance and develop new products such as a "health care credit card" and a network for women's health care needs (Wall Street Journal, 2/7). However, PacifiCare CEO Howard Phanstiel said the managed care company would leave the Medicare+Choice program "altogether" if federal reimbursements do not match costs (Wolfson, Orange County Register, 2/7). If Congress raises Medicare payments, however, the new products could be the "gravy" that boosts growth for the company, Phanstiel said. For the full year 2000, income for PacifiCare fell 42% to $161 million, or $4.58 per share. Revenue, however, jumped 15% from $9.99 billion to $11.47 billion. Traded on the Nasdaq, shares fell 75 cents to $24.75 yesterday, but the earnings report was released after the end of regular trading (Wall Street Journal, 2/7).