PACIFICARE: Posts 3Q Gains

      PacifiCare Health Systems Inc. announced yesterday "that cost-cutting helped lift its net income 73% in the third quarter." The Los Angeles Times reports that the Santa Ana-based company's revenue was "flat" at $2.4 billion as it "concentrated on trimming membership and reducing costs" (11/5). The Wall Street Journal reports that the "better- than-expected earnings were fueled by premium increases, administrative cost reductions and the positive impact from shedding unprofitable operations" (Rundle, 11/5). PacifiCare's total operating revenue for the third quarter was $2.4 billion; earnings reached $53 million. The company took $19 million in pretax charges, most of which was related to the losses on a Utah HMO that it recently sold. The company's year-to-date earnings were $7.2 billion, an 8% increase over last year's at the same time. President and CEO Alan Hoops said, "I believe the solid performance of PacifiCare is a direct result of our adherence to a strategy of pricing discipline and cost control. This strategy has resulted in a planned reduction in membership during the last twelve months, including the recently completed sale of our Utah HMO." Excluding the charges, earnings were $63 million, compared to year-earlier earnings of $31 million.

Leader Of The Pack
      "We have accomplished substantially all of the major goals we set for ourselves in 1998," Hoops said (release, 11/4). The Times reports that PacifiCare "has done better than its peers at keeping medical costs down, in part by requiring physicians to assume some risk for the cost of patient care in exchange for fixed monthly payments." While PacifiCare's shares have risen 55% this year, other HMOs such as Foundation Health Systems Inc. and United HealthCare Corp. "tumbled" because of Medicare cuts. Greg Crawford, an analyst with Fox- Pitt Kelton said, "The structure of PacifiCare's contracting makes it less vulnerable than other HMOs to volatility in Medicare earnings" (11/5). Charles Boorady of Prudential Securities Inc. said the company's favorable 3Q results were more than analysts were expecting. He said investors have been reluctant "to 'buy into' PacifiCare's turnaround story because they were badly burned last year." But yesterday in its 3Q report, PacifiCare said those problems were "solidly behind us."

More Medicare HMO Maneuvering
      In addition to getting out of Utah, PacifiCare said it has plans to pull its Medicare HMO, Secure Horizons, out of 25 counties Jan. 1 (Journal, 11/5). Saying Pacificare "remains firmly committed to the Medicare business," Hoops said the exit would affect only 2% of the approximately 975,000 seniors in Secure Horizons (release, 11/4). Click PacifiCare for previous coverage of the HMO.