PACIFICARE: Personnel Changes Now, Sale in the Future?

      PacifiCare Health Systems Inc., the nation's largest Medicare HMO operator announced Thursday that to "boost its sagging stock price" the company will undergo "a management reshuffling, a major stock buyback and a possible sale of the company." PacifiCare insures 1.6 million members across California (Berry, Orange County Register, 11/5). Company chair Alan Hoops gave up his chairmanship to replace Jeffrey Folick as president of the company, Folick will become vice president, and director David Reed will replace Hoops as chair. PacifiCare stock soared 19% on Nasdaq on the news to close at $54.19. Bloomberg News quoted Jack Anderson, one of PacifiCare's most influential shareholders and board members, as saying the company had "hired financial advisor Warburg Dillon Read and would consider selling." But new president Hoops said that "such a move was not imminent." The events have "left analysts baffled." Banc of America health care analyst Todd Richter said, "It looks unbelievably disjointed to me as an outsider. You've got one of the board members saying that an investment banking firm has been hired to explore selling the company, and the new chair of the board saying it's not the case." Others predict that potential buyers will be "leery" of PacifiCare due to many factors, including an impending class action lawsuit, an announcement that it is repurchasing 12 million shares -- 18% of the 43.5 outstanding -- and plans to buy "troubled" Harris Methodist Health Plan in Arlington, Texas. Also, PacifiCare is built on capitation -- establishing a set fee for doctors to pay for patient care -- a model that many believe is "falling out of favor." Finally, investors also note that the company's deep investment in the Medicare HMO (Secure Horizons) industry is "extremely risky" (Bernstein, Los Angeles Times, 11/5).