PACIFICARE: New Chief, New Direction?

      PacifiCare Health Systems Inc. yesterday named Robert O'Leary as its new president and CEO, the Orange County Register reports. O'Leary has no experience running a managed care company, but some say that "could be his biggest asset." O'Leary, 56, replaces Alan Hoops, who announced his resignation in February after PacifiCare's stock tumbled. The new chief comes from Premier, Inc., a San Diego-based not-for-profit network of hospitals and medical centers. He has also served as CEO of both the Voluntary Hospitals Association Inc. and the St. Joseph's Health System. According to John Rex, a Bear Stearns analyst, the "growing financial instability of the medical providers that contract with PacifiCare" could be one of O'Leary's major challenges. The capitation system has resulted in several high profile bankruptcies of doctors' groups in recent years, including last year's demise of Anaheim-based MedPartners, which owned several hospitals and 82 clinics. In such a precarious market, PacifiCare could be held liable for millions of dollars in unpaid bills.

Outlook for Medicare Uncertain
      The other big problem for O'Leary, according to Rex, is the company's reliance on Medicare revenue, which accounts for 60% of the hospital's receipts. Medicare's vulnerability to possible federal government cutbacks may prompt O'Leary to consider a "more broadly diversified" revenue stream by extending commercial policies to large and small businesses (Wolfson, 6/23). While O'Leary states that PacifiCare "will not do anything precipitous," his ascension comes at a time when HMOs are exiting the Medicare managed care market "in droves," the Los Angeles Time reports. Earlier this month, Cigna Corp. announced that it would drop 105,000 Medicare patients as it pulls out of the market nationwide. Without articulating a precise Medicare strategy, O'Leary told the Times that he has "spent most of [his] career managing processes of change," and will make "adjustments" to PacifiCare, an "organization that has been very adaptable" (Bernstein, 6/23).