PACIFICARE: Medicare HMO Won’t Take New Patients
In the wake of its announcement that it may report losses in the third quarter, PacifiCare Health Systems Inc. announced yesterday that its Secure Horizon Medicare HMO will not accept new patients in parts of Texas, Washington and possibly most of California (Bernstein, Los Angeles Times, 10/11). Pacificare, the "nation's largest operator of Medicare HMOs," for the first time "acknowledged" the difficulty it faces in dealing with Medicare and "changing the way it pays hospitals." The company said medical costs -- both in the Medicare and commercial businesses -- in the quarter ending Sept. 30 were between $120 million and $130 million higher than expected (Rundle, Wall Street Journal, 10/11). According to the Los Angeles Times, much of PacifiCare's current troubles are a result of its recent departure from the capitation payment model, by which its HMO paid providers a specific amount of money each month, regardless of whether "the amount was enough to cover the actual costs of caring for a patient" (Los Angeles Times, 10/11). Larry Marsh, an analyst at Lehman Brothers, said capitation gave PacifiCare a "competitive advantage in the past [but] has become an albatross and this announcement [of losses] is an acknowledgement of all the things they have been trying to deal with for the past year." PacifiCare president and CEO Robert O'Leary said that the expected quarterly losses confirmed the challenge of converting hospital contracts -- particularly in the Medicare business where "revenue is fixed by the federal government [and] medical expenses are rising sharply" (Wall Street Journal, 10/11). In the areas where an enrollment freeze is being considered, PacifiCare is worried that "they do not have enough doctors and hospitals under contract to absorb all of the potential new members," according to O'Leary. "The company has reached a turning point. It's a moment of important concern," he said (Los Angeles Times, 10/11).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.