PacifiCare Posts $26.4M Loss in Fourth Quarter After Restructuring
PacifiCare Health Systems Inc. announced yesterday that it lost $26.4 million in the fourth quarter of 2001, its first quarterly loss in five years, the Orange County Register reports. The Santa Ana-based company attributed the loss to a pretax charge of $59.5 million to cover costs associated with a reorganization announced last month that included laying off 15% of its workforce. Excluding the charge, PacifiCare said it would have earned a net income of $11.8 million, slightly down from the $12 million it earned one year ago (Wolfson, Orange County Register, 2/14). The company's fourth-quarter revenue declined 3.3% to $2.88 billion as it experienced a decline in membership after dropping unprofitable businesses and ending its contracts with some providers (White, Los Angeles Times, 2/14). The Register reports that PacifiCare "continues to struggle" with low profit margins in its Medicare+Choice plan -- which accounts for more than half of its revenue -- and "skyrocketing medical spending." The company spent 91.3 cents of every Medicare premium dollar on claims in the fourth quarter, up from 89 cents in the third quarter. However, PacifiCare did see an improvement in its commercial HMO medical-loss ratio. It spent 86.9 cents for every premium dollar in the fourth quarter, down from 89.5 cents (Orange County Register, 2/14). PacifiCare expects to save between $80 million and $90 million per year as a result of cutting 1,300 jobs. However, some analysts expect more difficulties ahead for the insurer. According to Greg Crawford, an analyst for Fox Pitt Kelton, PacifiCare faces "some serious strategic issues," as its plan to shift from a capitated payment model to one of shared risk, in which doctors are paid more and the insurer assumes more risk of losses (Los Angeles Times, 2/14). In addition, PacifiCare faces a suit brought by the Texas attorney general accusing the insurer of failing to pay "tens of million of dollars" in back claims (Orange County Register, 2/14).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.